Geopolitical Uncertainty — The Flip Side | Deloitte US has been added to your bookmarks.
Disruption déjà vu
Create the capacity to take nothing for granted
The US election 2016: A powerful reminder of how assumptions can be overturned and expectations challenged from one day to the next, and a call to action to make sure that uncertainty and surprise don’t undermine your strategic bets.
We knew the election was coming, but the outcome caught many by surprise
For weeks before the election, almost all mainstream forecasts predicted a different result in the Presidential race, causing many to ask how and why data models by and large didn’t capture a higher probability of what actually happened.
Whether you believe the potential confirmation bias to pre-election poll weighting or that some other phenomena occurred, what is clear is that in the late hours of November 8, business leaders, investors, and political experts got another lesson in how even the best data-driven forecasts and expert predictions can fail dramatically on a high-stakes event.
What’s the broader lesson for business leaders?
As with other recent surprises in the geopolitical landscape, such as the Brexit referendum last June, companies once again face an unexpected period of uncertainty and even potential disruption that they will have to navigate.
The broader lesson: Geopolitical, geo-economic, and international issues beyond our control can suddenly disrupt conditions that had only yesterday seemed like safe bets, and the baseline conditions in which we make decisions on how to compete and win in the marketplace can shift in abrupt and unexpected ways.
What are the immediate and long-term challenges?
Every change in Administration brings with it some uncertainty, but business leaders face at least three overlapping challenges that may affect how they set and pursue their strategic priorities.
First, the days and weeks immediately after the election, the mainstream media and business press are reporting business and political uncertainty as unusually high.1 Where we may have looked to past political agendas and results to see how the incoming president might approach certain issues, president-elect Donald Trump has not previously held a public office, and he campaigned successfully by challenging both parties’ traditional stances.2 Moreover, while election agendas might provide some insight, what actually is enacted could be very different. Against that backdrop, it’s more difficult to make strategic decisions confidently.
Second, while the US election is a single event on a single day, the effect on business will play out over time. Geopolitical disruption has the potential to trigger a wave of follow-on disruptions, creating a cascade of potential uncertainties that may play out over years. Case in point: If trade relations between the US and China cool, as some expect, European leaders fear a negative impact on European markets, which could trigger new barriers there. German business leaders are already expressing concern about the potential knock-on effect on the German economy down the line as a result,3 which could have a much broader impact across the European market.
Third, as we get further from the election, it can feel like business as usual until there is a surprise legislative initiative or an unexpected court ruling. Businesses that don’t understand where an important change can come from and aren’t prepared for multiple potential futures will find themselves at a disadvantage.
The longer-term challenge for business leaders is how to better anticipate and manage the next strategic surprise. It is one thing to acknowledge that the world changes quickly and that geopolitical policy may have unexpected consequences on strategic commitments. It’s another to create capabilities that can help companies be better prepared and more resilient when those surprises occur.
So, where’s the upside?
At the moment, it’s difficult to know where sustained opportunities may lie. But sudden change means that advantage can be seized by those who are ready to act. For example, the markets and investors have internalized some of the news, with potential higher fiscal spending and lower regulations4 expected from the incoming administration. Financial sector, industrials, and energy stocks are more promising as are several other sector stocks impacted by the prospects of deregulation and a pro-business agenda.5
There will also be opportunities for companies that can identify and take advantage of circumstances more quickly than others. Because when sudden and change occurs, there are two dominant responses: Denial and paralysis. Both are natural tendencies, but they do nothing to help a company gain or maintain competitive advantage.
The upside, therefore, may be found for those organizations that can quickly mobilize. Companies that can move beyond denial and paralysis, recognize the many variables in play, and develop a plan of attack should be better positioned. Companies that sit on the sidelines may see opportunity pass them by.
A call to action: What can we do now?
Any administration change is a call to action for business leaders who are concerned about where they see growth and opportunity and where they might win in a global marketplace. This call can be answered with a commitment to:
- Look out into the world beyond your control
- Scan for changing circumstances
- Rigorously explore, aggressively question, and methodically review how those circumstances could threaten the fundamental assumptions of how to go to market
Every strategy and strategic commitment is built on assumptions about how the world works. What Brexit and now the elections of 2016 have shown us is that leaders must create the capacity to take nothing for granted because circumstances can, literally overnight, change the game, and upend the strategies they have in place.
Business leaders should consider building their capabilities to anticipate, adapt, maneuver, make risk-informed decisions, and adjust course as needed to help their organizations become more resilient. They should look to develop scenario planning, simulations, and other tools readily at their disposal to support and accelerate this process.
This isn’t the first surprise that organizations have had to manage, and it won’t be the last. How are you preparing for disruption, wherever it may come from?
1 “Trump win imperils stability, BoE warns,” Financial Times, December 1, 2016, p. 17.
2 Harry Enten, “We’ve Never Known Less About An Incoming President’s Ideology,” FiveThirtyEight, November 28, 2016.
3 See, for example, Guy Chazen, “German industry fears Trump trade backlash,” Financial Times, November 27, 2016.
4 “S&P, Nasdaq higher as tech stocks recover; Dow pauses,” Reuters, November 15, 2016.
5 Patti Dom, “Market set to close out month, upended by Trump trade,” CNBC, November 30, 2016, reporting “a month of surprise that forced many investors to rapidly shift their views of both stocks and bonds.”
More from The flip side series
- A textbook lesson in disruption. The game-changing BREXIT referendum
- Deloitte on disruption
- Four truths threaten business as usual
- Risk Sensing: The evolving state of the art
- Bridging the Gap: How to turn your biggest risks into strategic risk opportunities
- 10 questions to prepare for high stakes uncertainty
- Brexit: Implications for US financial institutions
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