Leading Off: A leader’s guide to creating value through geopolitical change

The power of proactivity ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

ESSENTIALS FOR LEADERS AND THOSE THEY LEAD

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Brought to you by Alex Panas, global leader of industries, & Axel Karlsson, global leader of functional practices and growth platforms

Welcome to the latest edition of Leading Off. We hope you find our insights useful. Let us know what you think at Alex_Panas@McKinsey.com and Axel_Karlsson@McKinsey.com.

—Alex and Axel

In a world of seemingly constant geopolitical tensions, it’s natural for leaders to view these issues as a challenge for their business. Armed conflicts, competition among economic superpowers, and other geopolitical uncertainties are causing leaders to question how global their organizations can remain. But as a new global order emerges, business leaders have ample ways to manage these issues to create competitive advantages and build their organizations’ resilience. This week, we examine how companies can seize the growth opportunities that geopolitical shifts present.

AN IDEA

An image linking to the web page “A proactive approach to navigating geopolitics is essential to thrive” on McKinsey.com.

Thrive, don’t just survive

When navigating the geopolitical volatility that’s become a fact of doing business, organizations can benefit from taking a proactive approach to creating value while also managing risk. McKinsey’s Cindy Levy, Shubham Singhal, and Matt Watters suggest that leaders look at geopolitical issues “with an eye toward thriving and not just surviving.” Companies can consider tailoring their growth, operations, technology, and talent strategies to reflect changing global realities by asking questions such as: How can we align our business with shifting international trade flows? Will new economic and security alliances create growth opportunities? “When organizations view geopolitics through a value-creation lens,” the authors say, “they can realize outsize benefits.”

A BIG NUMBER

65%

That’s the percentage of executives who cite global instability or conflicts as one of the top threats to global growth over the next year, according to a recent McKinsey Global Survey on economic conditions. McKinsey senior partner Sven Smit and his coauthors note that, in a rare convergence, executives view geopolitical issues and transitions of political leadership as the chief risks to both global growth and growth in their own countries in the year ahead. Over the longer term, respondents also cite geopolitical instability most often as a global risk in the next decade.

A QUOTE

“What’s important is that this geopolitical risk team not be a satellite floating in space in sort of a ‘ground control to Major Tom’ scenario.”

That’s McKinsey’s Ziad Haider on how corporate boards are reorganizing themselves to oversee geopolitics and its effects on the organizations they serve. In an episode of McKinsey’s Inside the Strategy Room podcast, Haider stresses that boards need geopolitically savvy members who can help executives deal with regulators, policy makers, and broader operational issues. Board members also can be a vital resource to newly created teams that are responsible for managing the company’s geopolitical risk. “That pairing gives the unit a champion on the board, both for the team’s insights and to amplify its work, because it can be a lonely uphill fight to try to establish the importance of these themes,” Haider says.

A SPOTLIGHT INTERVIEW

An image linking to the web page “Is the world facing a state of permacrisis?” on McKinsey.com.

The ‘disorienting’ state of global crises will not last forever, two leading economists say in an episode of the McKinsey Global Institute’s Forward Thinking podcast. A. Michael Spence and Mohamed El-Erian, coauthors of Permacrisis: A Plan to Fix a Fractured World, tell McKinsey’s Michael Chui they are optimistic that artificial intelligence, green technologies, and other breakthroughs can help solve global problems. “I tell my daughters, we’re leaving you with a world with a climate crisis, a debt crisis, a growth crisis, political crises. That’s the bad news,” El-Erian says. “The good news is you have tools that we never had, and they’re really powerful.” The authors also stress that the World Trade Organization and other multilateral organizations can help strengthen global cooperation, even as security and regulatory issues grow more complicated in the years to come. “The challenge here is to get a version of global cooperation and interdependence that’s both practical and realistic on the one hand, but that works, and certainly works better than nationalism and unilateralism run amok,” Spence says.

FLEX YOUR GLOBAL MUSCLES

An image linking to the web page “Strengthening fraying ties: The Global Cooperation Barometer 2024” on McKinsey.com.

It’s time for leaders to develop the “muscles and bones” needed to navigate geopolitical issues and help foster global cooperation, say McKinsey global managing partner Bob Sternfels and coauthors Daniel Pacthod, Oliver Bevan, and Olivia White. Building an organization’s muscles means enhancing the capabilities of executives and board members to respond more effectively to geopolitical shocks. Strengthening the bones involves developing processes and systems that can help executives make better decisions on sensitive global matters—for example, early-warning systems and risk dashboards that provide alerts of potential disruptions to trade and supply chains. “An understanding of both global connections and geopolitical realities—and their implications for the business—should be a core competency for every multinational-corporation C-suite executive,” the authors say.

Lead by seizing geopolitical opportunities.

— Edited by Eric Quiñones, senior editor, New York

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