An uncertain world 14/02/2020 by Sarah Pursey
Popularised by Lebanese-American scholar, statistician, and former options trader Nassim Taleb, the term ‘black swan’ is today commonplace business parlance for describing instances of extreme outlier events that dramatically upend predictive models. Japan’s Fukushima nuclear plant meltdown in 2011 – triggered when the largest tsunami in history hit the densest-populated industrialised country in history – provides a good example of such a phenomenon. Destruction of factories, mass evacuations, rolling electrical blackouts and transportation disruptions severely dented the world’s third-largest economy, and
also sent shockwaves through the global supply chain, slashing the manufacturing activity of businesses reliant on Japanese-made components.
At the dawn of a new decade, another black swan event is today generating fresh shockwaves around the globe. At the time of going to press, the sense of crisis continues to deepen, with over 92,000 people having tested positive for the novel coronavirus Covid-19, and more than 3,100 deaths recorded worldwide. Beyond the alarming human toll, the fall-out is already being felt in everything from reduced manufacturing in Western countries as failing arrivals of Chinese-made components cause production delays, through to a slump in the price of oil (prompting OPEC to unveil plans to slash production in a bid to prop up the commodity’s value). With officials in many countries now recommending an avoidance of mass gatherings, numerous industry tradeshows and sporting events have already been cancelled, while airlines could see up to US$113 billion wiped from their collective annual earnings, estimates the IATA.
With no shortage of ‘unknowns’, and multiple moving parts, the status of the disease outbreak clearly remains so fluid as to make any in-depth analysis – in this format, at least – largely obsolete. Nonetheless, as we enter the 2020s, Covid-19 represents a grim fresh daub on a global picture already awash with uncertainty. Shaky economic growth, in particular, as well as trade conflicts, climate change and cyber threats have already generated a record level of pessimism amongst business chiefs globally, with unknowns on all such fronts clouding CEOs’ outlooks (p12).
‘Business Beyond Borders’ (p24) reports that tariffs are seen as the biggest disruptor to cross-border trade in the Asia-Pacific region. It goes on to state that firms who can find new pathways around such barriers – be they related to flow of data, talent or capital – will win out in 2020.
Elsewhere, facing more climate-induced uncertainty than ever before, CEOs must increasingly navigate disruptive weather impacts, fractured climate policy and rising expectations from the public – all while remaining competitive. National policy may be muddled at best (see China’s insatiable hunger for coal, p21), yet PwC’s new study suggests that more corporate bosses than ever before now see ‘going green’ as an opportunity – be that in the form of reputational advantage, new product/service opportunities, or emerging financial incentives.
Beyond that, as we enter the Fourth Industrial Revolution, digitalisation and the convergence of key technologies throw up a multitude of challenges – from cyber-threats, to lack of coherent privacy regulations, ‘algorithmic bias’ and the need to upskill workforces for an automation-led future (p18). Yet far greater are the opportunities that lie ahead for firms that can successfully embrace such advancements: “Innovation stops where fear begins,” says Kevin Monserrat, CEO of Consilience Ventures (p28) – and fear of the unknown is, quite understandably, one of the biggest stumbling blocks that modern businesses face today.
While black swan events such as that which currently grips the world necessarily evade prediction, companies that can build organisational agility into their setup will clearly fair better when faced with risk of any stripe. “In confronting uncertainty, leaders must act – and act quickly. Instead of narrowing their focus and looking inward, they should expand their field of vision and strive to create a wider range of options to pursue,” asserts Bob Moritz of PwC Network. “Making decisions in a way that is more dynamic and resilient will enable organisations to thrive in the full spectrum of uncertain outcomes.”