Adapting to disruption
Global executives expect economic and financial volatility will be higher in the next 12 months than it was in the past year, according to the 2017 Views from the C-Suite published by A.T. Kearney’s Global Business Policy Council. More than 90% of the C-suite executives and board members surveyed are making or are considering making changes in their supply chains and international footprints due to the current political and economic environment. However, volatility brings both opportunities and challenges from a business perspective.
On the ‘challenges’ side, a number of issues are of special concern to business leaders. Rising political risk is at the top of their list. A close second is worsening tax and regulatory policies — the second year in row that global executives have identified this as a top challenge. Relatedly, roughly three-quarters of executives believe that populist and protectionist policies will gain strength in democracies around the world over the next year. Executives believe that trade is the most likely feature of globalization under threat from rising populism and protectionism.
For the second consecutive year, the C-suite survey maintained a focus on the role of technology on both the ‘opportunities’ and ‘challenges’ sides. Executives emphasize the importance of technology in their biggest operational focus over the next 12 months. The principal operating risk they identify is cybersecurity, with 43% of executives pointing to this as their biggest concern; and 85% of global executives believe cyberattacks will become more frequent and costly over the next 12 months. And while 33% of those surveyed view technology adoption as a top challenge, 38% see it as a top opportunity. In addition, 78% of executives believe technological advancements will lead to increased global productivity growth in the coming year.
“The degree to which technology and political risk dominate this year’s results is striking. Technology continues to represent both opportunity and challenge,” says Erik Peterson, managing director of the Global Business Policy Council and co-author of the study. “At the same time, global executives are paying much more attention to government actions and identifying risks stemming from geopolitical tensions and domestic regulatory and tax policy changes.”
Fully 69% of global C-suite executives reported that government policies have a greater influence on their companies’ overall decision making. And almost all executives say they are placing greater importance on employing strategic foresight techniques to manage risk. Business leaders are thus ‘adapting to disruption’ in the current global environment.
“These results suggest that the all-too-visible hand of political risk is increasingly driving economic outcomes and business decisions,” says co-author Paul Laudicina, Chairman of A.T. Kearney’s Global Business Policy Council and Partner and Chairman Emeritus, A.T. Kearney. “I would advise business leaders worried about the future to take action to manage risk. The high level of uncertainty in the global operating environment means that increased agility and a heightened awareness of both risks and opportunities are keys to success.”
The Global Business Policy Council offers concrete recommendations for businesses wondering how best to thrive in the current global operating environment:
• Improve cybersecurity defences and protocols. While many aspects of technology adoption and disruption provide business opportunities and challenges, executives’ most crucial priority over the next year should be improving cybersecurity. Recent cyber-attacks have demonstrated shifting and growing (both in scope and scale) threats. And as the C-suite is only too aware, such attacks are likely to increase in the next 12 months. Delaying investments to bolster cyber defences could therefore prove to be very costly. Just as important — if not more so — is the imperative for executives to invest in cybersecurity training for all employees, and then to model good cyber behaviour across the business, including in the C-suite.
• Actively monitor political risks. The global C-suite is clearly attuned to the heightened risk that geopolitics and domestic policy and regulatory developments pose to their businesses. But effectively managing these political risks requires more than just awareness. Executives should invest in active political risk monitoring and government relations capabilities in key markets, with the goal of avoiding potentially surprising policy developments and helping to shape business-friendly government policies.
• Use strategic foresight to stay ahead of the curve. Many of the global trends and developments identified in this year’s survey had their antecedents a year or more ago. Those executives who were able to correctly spot these emerging trends before their peers are now far better positioned to succeed in the current global operating environment. Incorporating strategic foresight methodologies into a company’s strategic planning process will enable executives to stake out differentiated, market-winning strategic positions.
• Assess globalization strategy. Global executives agree on the need to shift their globalization strategies in the current environment, but not on the way in which they should shift. The appropriate strategy will depend on how geopolitical tensions and anti-globalization trends affect each company’s unique international footprint, supply chain, and business model. Executives will need to carefully consider their options in order to mitigate current and future risks in this new era of globalization.