“The old geopolitical model is breaking down, but the only thing emerging in its place is crisis,” Ian Bremmer writes in Strategy+Business.
Unstable geopolitics and environmental threat mean good stewardship, not growth, should be the guiding principle behind effective leadership. It is stability, resilience and the ability to foster good business relationships – not agility – that makes companies sustainable in a chaotic world.
The world has changed. Before the financial crash, investment in emerging markets was widely accepted as an engine for growth for mainstream multinationals. Now growth in many of those markets is closer to that experienced in the West. The gaps between emerging economies in terms of wealth, and political and legal frameworks are widening.
The threat of terror is omnipresent, cyber-conflict threatens and the world’s climate is changing.
In the West, political certainties are giving way to the kind of upheaval usually associated with developing nations. Consumers increasingly hold business to account, challenging the growth narrative and demanding corporate responsibility.
The US has neither the will nor the resources to continue to be the world’s policeman, and into the resulting power vacuum, China is poised to step.
Annual growth of around 10% per year, sustained over the last three decades, has fuelled Chinese state investment in roads, railways, ports, schools and hospitals. By 2020, the Chinese economy is forecast to overhaul that of the US.
If a broad-based consumer middle class emerges in China, the boost to world prosperity will be enormous.
But the risks to Western businesses through disregard for intellectual property rights, lack of transparency and the inconsistent application of the rule of law, cannot be underestimated.
Companies going “all out” for Chinese and other developing markets, are taking a big risk. China’s future is far from certain and for all her world-class infrastructure, she has yet to make the transition to fully-fledged advanced industrialised nation.
China might well continue to boom, but she could also go bust; it is just too early to say.
In the worst-case scenario, company survival and company success are the same thing. Businesses will always look to expand, but in turbulent times leaders should prioritise prosperity above growth for growth’s sake. Decision making should reflect three core leadership goals:
- Excel in what you do;
- Decentralise to maintain resilience in the face of multiple threats;
- Nurture the relationships that underpin your business.
Be a good steward and, in time, you will pass on an organisation in good shape to face the challenges of the future.
Investors are looking for somewhere safe to put their money. They value competence and long sightedness – they are looking for stability. But the average Fortune 500 CEO lasts just five years and, during that short time, he or she comes under enormous pressure to produce quick results to please shareholders.
All businesses need to take risks, but undisciplined growth can have unforeseen and damaging consequences. In an uncertain business environment, CEOs must balance the growth imperative with sound judgement: “Leaders must become much more purposeful about the type of growth they pursue and the reasons for such pursuits.”
Effective leaders managing talented staff give an organisation the strength it needs to attract the exceptional people and the new business it needs to thrive.
Organise your business so a shock to one sector will not destabilise the rest of the enterprise. Bremmer calls for companies to decentralise in order to build resilience into their corporate structure. Autonomy brings flexibility, giving different sectors of the company the ability to organise, manage and react to internal and external forces in the most effective way.
A decentralised structure: “Frees people who are truly excellent in what they do to respond more rapidly and adroitly to threats when they surface, so they can reach a profitable, relatively secure outcome.”
Too disparate a group of unconnected entities creates a “collection of vulnerabilities”.
Decentralisation has to be well coordinated and strong leadership is vital if the company is to present as a coherent whole.
Protect your firm from taking a hit whenever a major player leaves your team. Networks are more resilient than one-to-one relationships. Resilience calls for broad, deep associations with client companies.
You need to know which way the wind is shifting and it is your contacts who can tell you. The quality of your interactions with partner organisations is vital, especially in the case of capital investment projects in emerging economies.
Think long term. Access to resources and consumers is never guaranteed. Ask yourself what you can bring to a relationship now and in the future. When a new generation of leaders takes over and as political and economic climates change, how will you ensure your firm’s important connections prevail?
Relationships are not a transient phase in a business relationship. Just because an economy grows and matures does not necessarily mean it moves towards transparency and the rule of law. Growing and maintaining your business relationships will pay dividends if disaster strikes.
When the time comes to call in favours, personal connections matter.
The best strategy amid global crisis is to “be a steward of your organisation. Be stable, resilient, and networked enough to succeed.”