Business leaders should prepare for disruptions in a changing world

Given the uncertain times we live in, it is imperative to construct roadmaps that cater for disruptions in all shapes and hues and provide for strategic adaptability.

The world is in a flux, evinced by conflicts in Eastern Europe, the US-China technology rivalry, looming global stagflation, rocketing energy prices, biological threats, unpredictable climate events and a devastating food crisis.

In a connected and globalised economy, businesses can no longer exist in isolation. Business leaders would do well to manage both the ‘known unknowns’ and the ‘unknown unknowns’ to potentially create arbitrages through strategic adaptability.

Today, the world is burdened with several face-offs, especially in Eurasia and the Asia-Pacific region. There is also the ominous presence of the Chinese Belt and Road Initiative (BRI), which is viewed by some strategists as a geo-economic weapon. The confrontation between North Korea and South Korea is an added concern, with the possibility of a nuclear conflagration. Given that many critical supply chains have strong footprints in Asia, businesses should be mindful of such asymmetric threats.

Why is the Asia-Pacific region so important? There are three primary reasons: the concentration of critical raw material, the aggregation of manufacturing, which constitutes more than 65% of the global market share, and the extent of sea routes which act as transit points for almost 40% of global trade.

Any disruption in this region will reverberate across multiple industries and geographies of the world. However, many fail to anticipate and prepare for the same. For example, consider the case of the Russia-Ukraine conflict. Trouble has been brewing in this region since 2014. Despite this, everyone took solace in the fact that such issues will not affect them only to be proven wrong almost eight years later. Thus, the phrase ‘predictable surprises’ becomes extremely relevant – most people seem confident about the knowledge but few focus on the consequences.

Today, business fortunes change overnight. It is believed that the average shelf life of a Fortune 500 company today is less than 10 years; for unicorns, it is less than five. Most business leaders might overlook the reality that successful businesses are not entirely dependent on management and engineering skills. There are other related events happening around the world, which can end up being show-stoppers for business enterprises.

An astute business leader would do well to process such intelligence in real time and act decisively. However, the human mind is an imperfect instrument. Research has demonstrated that the way we handle information is subject to a multiplicity of glitches. Scholars call them cognitive biases i.e., biases that can cause leaders to ignore or underestimate impending disasters. It is important for businesses to rid themselves of such cognitive biases and prepare for challenges that may appear extraordinary. They need to proactively look out for ‘predictable surprises’. Unfortunately, few managers spend time understanding this today.

Leading in uncertain times

Apart from geopolitics, there are other pitfalls for businesses. Localisation or onshoring, a force inimical to globalisation, is a case in point. Primarily caused by xenophobia, it triggers fragmentation of both the market as well as platform economies. The cyberspace is also witnessing a wide range of threats. This will only worsen with advances in AI and quantum computing. In fact, it will upend the conventional ways in which businesses are organised from a social perspective and create rising income inequalities.

The pertinent question, therefore, is: how can business leaders prepare for these disruptions, which may strike like a bolt from the blue?

Firstly, they need to build a certain degree of resilience around their business. This would largely depend on the nature of businesses, the technology, and the extent of their critical supply lines. It is becoming increasingly important for businesses to make themselves relevant by creating interdependencies, while operating in a larger global marketplace. For example, a company attempting to become a supplier to the global aerospace industry must continuously focus on cost-effective design and technologies. Once a business gets webbed to the national security strategy of a buyer country, a lasting dependency is created. This is why countries like Taiwan and Japan have become so important for the US. Some of their companies have been able to successfully create a level of dependency.

Finally, the gathering of intelligence, or, in other words, information is exceedingly vital. Today, almost 90% of information is available from open sources, provided one has the skill to distil meaning from the vast troves of data. The biggest problem while gathering such information, however, is again our cognitive bias. The error in ‘coding’ is real, as it can contort the interpretation of data.

In his book, The Legacy of the Ashes, Tim Weiner — a former reporter for The New York Times — has attributed several major intelligence failures of the CIA including botched coups, and missed targets to such coding errors. In any case, one must always look out for patterns that repeat themselves, maybe with some changes here and there.

Only the prepared mind has a better probability of winning. Think tanks can play a useful role, as they have their noses to the ground, and can pick up signals and tremors from around the globe. You cannot tee your golf ball in the fairway once it is in play. It is better to take help earlier as experts know the lie of the course.

(The writer is president, Synergia Foundation, Bengaluru)