Thriving in a turbulent world – the importance of using alternative futures to plan for the unknown

We are living in unprecedented times. Whilst we should always be cautious before making such a claim for fear of exaggeration, it is justified when looking at the business environment today; certainly, in relation to the working lifetime of board members of our leading companies.

As well as enduring the first pandemic in a century, peace in Europe is under greater challenge than at any time in the last 75 years. Energy prices have rocketed, inflation is at its highest in many countries for decades, the future approach to international trade is probably less clear than at any time in the post war period and natural disasters - almost certainly due to climate change - are occurring at a frequency never previously experienced. In the UK, we also have new trading rules having left the European Union, overheated job markets, changes in Government policy as Prime Ministers move on, and now face further substantial interest rate increases. All at a time when technological innovation, including with respect to artificial intelligence, continues apace, accompanied by a fast and growing need for vigilance around cyber security.

This context has tremendous implications for boards and audit committees as they consider risk management. The risk register needs to be thoroughly reviewed to ensure it is up to date as regards the nature, extent and possibility of mitigating key risks. And this needs to flow from a business-wide review of the board’s overall approach to managing risk, and the business as a whole, at a time of much heightened uncertainty.

Time should be spent considering alternative futures that the business may face and how it would respond. Will the rise in inflation be temporary or become embedded? What will happen to the availability and cost of energy? How will interest rates move in the short and longer term? How will supply chains be affected in particular industries or markets, or change in different countries? What will be the availability of labour in different sectors? The greater use of scenarios, not just to consider extreme situations that might threaten the existence of the business, but to explore credible, alternative, cohesive visions of the future, can help a business determine what it needs to do to strengthen its resilience in the environment it faces both today and tomorrow. Even if none of the modelled scenarios come to pass exactly as envisaged, the act of thinking of a world quite different to the current one can reduce the risk of a ‘head in the sand’ reluctance to make necessary changes to cope with significant and fast moving challenges. This may require a willingness to rely on past experience, judgement and instinct more, and data less, than we might typically in less volatile and uncertain times.

In a period of unavoidable high risk and uncertainty, it is critical for business to recognise that the ‘new normal’ has changed and also to seize new opportunities that emerge. Whether, for example, involving better use of technology, adapting existing goods and services to be more sustainable, or inventing new ones. Care is equally needed, however, not to ‘bet the business’ carelessly which is a greater risk than in more stable times.

If Covid-19 taught us anything, and it is of course not over yet, it is the value of an agile, highly skilled and motivated workforce, able to adapt positively and quickly to a radically changed environment. The importance of leadership by example is also vital, along with a genuine concern for employee wellbeing. Over hierarchical structures are unlikely to be successful in a fast-changing world. To attract and retain highly talented teams calls for businesses to have an inspiring purpose, with the board placing significant emphasis on the culture and with the strategy aligned to it. Team development is also more important in times of change as is the need to recognise new skillsets in choosing current and future leaders. For many organisations, working out the optimal form of hybrid working is still work in progress and needs more development. More generally, the businesses that thrive will be those that learn fast whether by experimentation, good quality thinking and analysis, carefully observing changes in their own sector, or transferring ideas from other sectors.

Technology was a great gift in facilitating remote working during Covid-19, but we must be willing to envisage a world, frightening though it is, in which a major cyber-attack takes down the key systems on which the business relies. How thorough are preparations to minimise this happening, or to cope in the event it does? The need for businesses to be ready to manage such a crisis and to consider different ways in which one might arise is essential in today’s technology-centric world.

The oft-quoted expression ‘May you live in interesting times’ has probably never been so apt. But be sure to adapt to them.

Published October 2022