06 04 20

Companies Will Fail Unless They Understand the New Reality Being Created

Written By

ExO Works

6 min read

Many companies are planning their strategies based on obsolete assumptions from an economy and world order that is radically changing before our eyes. Those companies will be easily disrupted.

Reworking Strategies and Business Models

Many companies are planning their strategies based on obsolete assumptions from an economy and world order that is radically changing before our eyes. Those companies will be easily disrupted.

Their 2019 modeling didn’t predict a pandemic lockdown and supply chain disruptions, so simply updating or tinkering with those forecasts will not do the trick. But what should they be doing instead?

Smart companies are challenging their assumptions, realizing that many perceived certainties have turned into real uncertainties. They are asking deep questions about how the world may fundamentally change over the next couple of years, and how to best navigate that uncertainty. They are considering all possible outcomes and using their leadership to push for a better world. In short, they are Scenario Planning.

All companies and governments need to scrutinize the forces of change and rework their business models and strategies to reflect the significant change and uncertainty that the new reality will introduce. ExO Works and SJS Strategy decided to do the initial stages of that Scenario Planning and share that work with the world.

The scenarios help raise fundamental questions for all organizations about their business model in the new reality. Each organization can then build upon those foundations, assess the individual impacts on their operations and make smart decisions on their business models and future processes and profit centers. They need not be blindsided again.


“It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.”

- Charles Darwin, 1809



25 corporate leaders, strategists, scenario planners, technologists and unicorn builders from around the world have been developing these scenarios, exploring a range of futures that are divergent, challenging, relevant and plausible. Scenarios are not predictions, but rather explorations of plausible futures that can emerge, based on today’s uncertainties. We will release this information over the coming weeks.

Here, we are sharing the first summary of four possible scenarios for the future of business models and organizational capabilities based on two key trends:

  1. The rise of near and reshoring (incl. protectionism) versus a return to globalization.

  2. The increasing importance of longer-term organizational resilience versus a return to focus on efficiency and cost optimization.

Scenario Planning 1-1

Prepare Now

While many companies are moving into their “new reality” it is important to look to history, which suggests that severe crises have momentous ripple effects.

Throughout history, global crises such as wars, revolutions and pandemics have accelerated (or reversed) trends and developments that normally take years or decades to play out to ‘suddenly’ unfold (or shift direction) in a matter of months or even weeks. The coronavirus pandemic has put us firmly in the midst of a period of accelerated change, likely heralding in significantly different ways in how we will live, work and do business.

Ray Dalio’s analysis of the fall of empires posits that times of high debt growth without resulting gains, rising inequality and natural disasters combine into periods of debt crisis and restructuring, breakdown of currencies, sudden wealth redistribution, local and international conflict, and the emergence of a new domestic and world order.

Over the past 20 years, global GDP grew by $33 trillion, while total global debt grew by $170 trillion, according to the World Bank; a minus 80% return. Although billions of people have escaped poverty, inequality has grown in many countries around the world. COVID-19 is a disaster of unimaginable scale.

The scene has been set. The crisis in the first half of 2020 may be the tip of the iceberg. Companies must start to prepare themselves for survival, plus to advocate for a better world order. They need to ask new questions, such as:

  • What kind of business model will the new reality demand? SJS Strategy and ExO Works help companies focus their response with the ’20-minute business model’.

  • How will demands and needs change?

  • What kinds of skills, expertise and capabilities are required?

  • If your company launched in 2020, how would it differ from the current version and what could you achieve?

  • What constraints have this crisis resolved that let you create a 10X better process or business line?

  • What are the underlying talents of your companies and how can they be used to solve other problems?

  • If you were tasked with improving the lives of millions of people, what business would you build to do so?

No one knows what the future will hold. Nevertheless, as a leader you must act. By starting your own conversation using scenarios to explore the range of plausible future operating environments for your organization, you can prepare and adapt to successfully navigate the future, no matter how it plays out.

The time for strategy is now.

Key Trends and Uncertainties

There are key trends and uncertainties that all companies need in order to build an effective response to in their strategic planning. These trends are the starting points for the Scenario Planning being prepared and shared over the coming weeks:

The Rise of Near and Reshoring

Over the last few years, a counter trend to the offshoring of operations has been taking hold. Shorter product cycles, smart manufacturing, public and political pressure, trade wars as well as supply chain risks all combined to see companies increasingly bring operations back (closer) to their main markets. Supply chain risks have been particularly exposed during the pandemic and pressure to bring companies’ operations back (closer) to shore is now even larger than before. Will we now see near and reshoring expand and accelerate? Or will supply chains still require international integration to be optimised and help companies navigate a competitive environment?

The Increasing Social Divide

In many countries today, income and wealth disparities as well as a lack of opportunities are creating a vicious cycle of inequality, frustration and discontent across generations. Gender, along with ethnicity, race, place of residence and socio-economic status, also continue to shape the chances people have in life. In addition, gaps in newer areas, such as access to online and mobile technologies, are emerging. In the past, emergencies and disasters often exacerbate inequalities as the poorest get hit the hardest. Will the current pandemic lead us down a similar path? Or will today’s events and developments see the grand economic challenges of our time attract a renewed focus from the public, private and community sectors?

Increasing International Fragility

For the past 75 years, the international rules-based order of multilateral institutions and alliances has underpinned an unprecedented period of relative peace and prosperity. However, shifts in (geo)politics, technology, climate, economic inequality, societal expectations, as well as the (perceived) rising risk of global disease outbreaks, are coalescing to put pressure on governments to ‘take back control’. This is introducing a new level of fragility to the international system and in many instances preventing effective cooperation and collaboration. Will this shift continue and accelerate? Or will the pandemic turn out to reignite international cooperation and see the rise of new partnerships and (reinvigorated) institutions?

The Rise of Virtual Life, Work and Play

Already a trend before the pandemic, now many of the key aspects of our lives have moved to the virtual world almost overnight; whether it’s online meetings, shopping, education, food ordering or entertainment. Experts are predicting that many of these shifts to the virtual world will become commonplace, particularly when sophisticated multi-tech tools, such as collaborative files, virtual reality, holograms, affective (emotion sensing) computing and personalised adaptive learning, will develop further into mature usage. Will this trend now reach a tipping point with online life, work and play becoming the new default? Or will this experience renew our appreciation for, and make us – once the restrictions are lifted – rush back to, physical experiences, such conferences, shopping, restaurants, sports, etcetera?

The 'Winner-Take-All' Economy

Ten years ago, the top 10 largest listed companies in the world represented a mix of energy, resources, banking technology and retail. Today, the first 7 companies on that list are technology players. As market share and profits continue to shift towards idea-intensive sectors that revolve around R&D, brands, software, big data, algorithms and ‘network effects’, many of these sectors have developed a winner-take-all dynamic; leaving a wide gap between the most profitable companies and the rest. The current pandemic is seeing an even stronger shift towards the services that these technology firms offer, allowing them to move into new markets and sectors, while further consolidating the hold they have. Will Big Tech continue its rise and dominance, or will public and political pressure see their dominance being curtailed?

The Increasing Importance of Organisational Resilience

Increasingly, organisations are realising the strategic imperative of organisational resilience. Research has demonstrated that resilient organisations can gain a competitive edge. The events surrounding, and the impact of, today’s pandemic exposes material vulnerabilities in less resilient organisational/business models, leading stakeholders (i.e. citizens, customers, investors and governments) to question the viability of those organisations. As the pandemic and its fall out evolves, will this trend accelerate and lead to evermore demand for resiliency-focussed organisations and economies? Or will competitive dynamics result in stakeholders that are (still) largely focussed on efficiency and cost optimisation?

 

About SJS Strategy

SJS Strategy is a Melbourne based scenario planning consultancy that helps organisations to explore, adapt and thrive in a changing world. Our clients work in the public, private, academic and not-for-profit sectors. 

For more information, visit sjsstrategy.com.au

About ExO Works

ExO Works has created billions of dollars of return on investment for large companies around the world by helping them move beyond incremental innovation on increasingly disrupted products and services. We help businesses emulate the fastest growing companies in the world that achieve 10X innovations, using the emerging technologies that will create trillions of dollars of new industries.

For more information, visit www.exo.works

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