If you are not now launching a major strategic review incorporating scenario planning you will be grossly ill prepared for what may unfold over the next 5-10 years. But let’s start at the beginning.
I am often asked: ‘when should you conduct a major strategic review’? There are various catalysts for a deeper strategic review: a new CEO; serial underperformance; business model disruption; major external shocks. Brexit should have been a catalyst for a process of deeper strategic reflection within most enterprises. Post the Brexit decision if you weren’t running scenarios which contemplate a Trump presidency as part of a broader geopolitical shift you were gambling on a status quo potentially under threat.
The next step in that narrative has now unfolded with President Elect Donald Trump. But three caveats. Firstly, I make no claim to political genius: I thought Clinton would win. Secondly, scenarios are not intended to be forecasts: they are representations of credible future worlds. Post Brexit it was no great stretch to imagine a Trump presidency. And finally, a Trump presidency is just a first order change: the much deeper and more complex challenge is to imagine the 2nd and 3rd order consequences.
So, what are we to make of this?
As strategists, it is not our lot to understand all the political nuances: we are not running for office. But we should understand the broad underlying patterns.
Post the Brexit decision the overarching narrative was that politics cannot ignore the unskilled losers from globalisation. Analysts identified fault lines in the UK around rich v. poor; educated v. less educated; skilled v. unskilled; young v. old; and urban v. rural. It was a backlash against the ‘forces of evil’: globalisation; free trade; offshoring; technological disruption; and immigration. These changes produce net economic gain, but they create distributional issues.
Politicians exploited public fears by offering them a binary choice – stay or go – on an incredibly complex question. Farage outrageously declared: I think the public has had enough of experts.
What about Trump? Where Brexit surprised, Trump’s victory shocked. For many, so much of what he said disqualified him for high office. The election was fought around a simple battle line: would the desire for change overwhelm the fear of the risk that was Trump. While there will be endless post-mortems, the major factors at play include the same macro issues we saw in Brexit. Those displaced by the changes – especially white working class males – are pushing back. Their incomes have been stagnant or declining for decades. For those with only high school education the falls have been dramatic.
We see this starkly in the swing states. Across 7 swing states that fell to Trump, his average margin was 3.5%. But across the 10 largest counties in each of those states Clinton carried an average majority of 33% (range: 17-45%). This highlights both the structural economic disadvantage of smaller regions[i] and its political expression.
But was the election a signal of a ‘cultural convulsion’? I’m drawn to the analysis of the Chief Executive of the US Studies Centre, Professor Simon Jackman, who argues that the results do not support that conclusion. Clinton won the popular vote[ii] by ca. 1.3%. Just 107,000 voters across three States (Wisconsin; Michigan; Pennsylvania) could have changed the result and given Clinton the Presidency.
Given this, the obvious question is ‘so what?’ The reality is no-one knows. The challenge in answering this is three-fold:
- What will Trump try to do?
- What will his party, the government and the courts allow him to do?
- What are the consequences of the enacted policies?
On one view the deep structural inertia of the ‘system’ will act as an automatic stabiliser that limits the extent of the shift. Perhaps.
One major hedge fund[iii] has warned that there’s a good chance we are at one of those major reversals that lasts a decade … that investors would have to adjust to the end of an era which had been characterised by increasing globalisation, free trade and global interconnectedness. In their view the new world order is likely to see the reversal of these trends. Bain’s head of global macro forces argued (ahead of the election) that we are at ‘peak globalisation’.
What about Trump’s impact on the tech sector? The tech sector is largely predicated on global markets. His anti-globalisation bias will work against this. Apple, Google, Facebook, Amazon and Netflix all fell sharply in the markets post the election. Trump has argued Amazon is monopolistic and needs to be broken up. Management guru Tom Peters[iv] recently tweeted: “heavy anti-immigration hitters on transition team. Silicon Valley F---ed if many of the planned policies go ahead”.
What about the geopolitical tensions? Dozens of the nation’s most senior Republican national security officials, many of them former top aides or cabinet members for President George W. Bush, signed a letter prior to Trump’s election arguing: “he would be a dangerous President and would put at risk our country’s national security … he persistently compliments our adversaries and threatens our allies.”
Will the President Elect follow through with his threat to declare China a currency manipulator[v]. This could create a damaging trade war between US-China: the world’s largest and second largest economies. BHP Chairman Jac Nasser has said this would bring ‘complete trauma’ to the world.
So, what now? Here’s three things you should be doing:
- Begin a major scenario exercise to flesh out possible future worlds. There is no better strategy process to prepare your organisationally strategically for a VUCA[vi] world.
- Reassess your organisation’s interaction with the community. Do your strategic choices compound the ‘push back’ against the ‘forces of evil’.
- Extend your networks. The Bain macro forces head noted ‘no-one I know would vote for Trump’. She wasn’t making a value judgement: she was making the point executives are disconnected from a large portion of the population.
We will be running an exploratory scenario workshop where we can co-create some potential future scenarios. This will appeal to strategists who want to begin to think how this might all unfold, or for others who simply want to some exposure to scenario thinking.
More details will be posted shortly. To stay in touch either subscribe to my blog or email me at david@2ndhorizon.com.au and I’ll put you on my mailing list. It is tentatively planned for Thursday 8 December at 4pm (2 hours) followed drinks.
[i] The translation of this effect to Australia is not straightforward. In a country of ca. 350M people the US has only 9 cities with more than 1M people. By contrast, in Australia, with a population of ca. 25M, we have 5 cities with more than 1M people.
[ii] In 2012 Obama won the popular vote 51.1% to Romney 47.2%. This followed a 52.9% win over McCain 45.7% in 2008. He was the first President to crack 51% of the popular vote in two elections since Eisenhower more than 50 years ago.
[iii] Bridgewater manages US$150B
[iv] Lead author of the original ‘excellence’ manifesto, former McKinsey alumnus and still widely regarded as a ‘management guru’.
[v] My reading suggests they were a decade ago, but this has long since stopped
[vi] VUCA: volatile; uncertain; complex; ambiguou
