Geopolitical disruptions call for corporate strategic thinking to be diversified
By Egbert Deekeling
Corporate Germany has been preparing itself for a turning point for months. Climate change is the challenge that is set to define our era – and we have to find solutions. Business models are being put to the test and strategies given a whole new focus. Old belief systems are being thrown to the wind. Everything has been turned upside down. There is constant talk of a great concerted effort. Corporate narratives brim with superlatives.
Regarded as a game changer, climate change has emerged as the overriding factor determining future corporate activities in recent months. And everything has revolved around it. This includes the strategic agenda, which is now being laid out over the long term beyond mid-term planning, and corporate communications, which have to re-justify the company’s licence to operate and social relevance given new stakeholder expectations.
Everything appeared to be in place and repositioned for the dawn of a new net-zero era and the rapid transformation of industry and society – no less than a global project for humanity this century.
But then came 24 February 2022. It was another turning point that no one saw coming. All major and in-depth strategic analyses of business conditions carried out in the preceding months failed to predict it. And little was made of the long and visible backstory to this war of aggression. But no one could fathom the idea of war in Europe. The belief that issues could somehow be resolved and put aside eclipsed everything else. So it comes as no surprise that, even shortly before the war broke out, the financial and business risks of a potential war in Ukraine were rarely mentioned in company announcements on strategy and focus for the next few years.
Suppression of geopolitics as a factor determining corporate activities
24 February was a date that unexpectedly revealed a blind spot in the strategic thinking of German companies. Gigabytes of market research and analyses of market developments, megatrends and competitors underpin strategy formulation and narrative with facts and reasoning. However, they do not explain and provide insights into global power shifts and their impact on trade and business. Scenario planning based on geopolitical developments? Financial and corporate interpretation of geopolitical power structures? These considerations are largely absent. Geopolitics is widely being ignored as a strategic factor determining corporate activities.
It also reflects a collective failure of strategic consulting firms and megatrend research over the course of years or even decades. Even now, four months after the invasion, the usual topics still dominate the websites of large strategy consulting firms. You might stumble across the odd article assessing the war in Ukraine, but nothing more. There are few in-depth analyses of how geopolitics has become relevant in strategic terms. The silence is deafening. Megatrend research, which is usually always quick to give a well-rounded and verbose response to new developments, is also silent this time. Here, too, there has been no great reflection or in-depth analysis.
In this respect, answers to new key geopolitical questions surrounding strategic policy are urgently needed. Until now, there has been little reason for stakeholders to ask the right questions. Strategy was largely considered to be a geopolitics-free zone in corporate Germany. But that is set to change in the next few months. Unbounded globalisation suddenly no longer appears to be an unchallenged paradigm guiding corporate strategy. Stakeholders will increasingly expect reflection on geopolitics so as to clarify the strategy and focus of the company in the coming years.
We cannot yet say what this specifically entails, but one thing is clear. The underlying patterns of corporate strategic thinking in Germany need to be revisited and diversified. Three hypotheses are discussed in the following. They concern the formulation of both strategy and the strategy narrative.
1. Resilience is becoming a central reference point for the strategy narrative and equity story
Resilience first! If growth targets previously shaped corporate projects and the focus of the strategy narrative, this is about to change. In the face of geopolitical risks and challenges, the importance of resilience is being radically reassessed. Growth targets are meaningless in the absence of resilience. Capital markets and investors will increasingly be looking at this when evaluating companies. Each growth story should be backed up with evidence that market strategies and the business model are resilient in the face of geopolitical risks. Otherwise, we will be left with nothing but ivory towers.
This calls for a broader understanding of risk management. What we need is geopolitical expertise that extends beyond the markets. Geopolitical risk assessments are becoming an integral component of the SWOT analysis. In the future, the market strategies of management consulting firms will no longer be sufficient to fully shape the strategic discourse. Management and strategy consulting firms will start losing control of the narrative unless they start hiring CIA or BND analysts.
2. The current geopolitical situation calls for political factors to be reassessed
The new approach to geopolitcal risk management also calls into question the old liberalisation deal between companies and policymakers. It was based on a clear distribution of tasks between stakeholders in policy and business: You open up markets for us and ensure stable conditions for trade and business, and we will generate growth and prosperity on the basis of the market. This is no longer valid, as the market does not regulate everything. This is the bitter lesson we have learned in recent months.
Growth and prosperity are once again more dependent on the interests of the state or communities of states, which predominantly concern access to raw materials and energy sources. The structure of this access in a market economy will lose relevance if it does not also safeguard the sovereign interests of the state. Discussions surrounding gas storage facilities and Nordstream 2 have made this abundantly clear. To protect its own interests, the business community must give greater consideration to the geopolitical premises of the state and incorporate them into its strategic thinking.
This necessitates a new intensive dialogue and appropriate discussion formats between policymakers and industry, which can be used to renegotiate priorities in strategic objectives. It is crucial that issues related to corporate strategy are examined and evaluated in cooperation with political bodies and experts. Interests are being coordinated in the context of geopolitical risk management, where on the one hand, there is the resilience of the state and the national economy to consider and, on the other, the resilience of the company.
3. Fundamental conflicts of objectives and practical dilemmas must be addressed
In recent months, Minister for Economic Affairs and Climate Action Robert Habeck has emerged as the new role model for policy-related statements. This has much to do with his mediation of fundamental conflicts of objectives. The palpable fight for the right words, reflecting on one’s own learning process and using plain language that is pragmatic and explanatory all help to build persuasiveness and credibility in spite of practical dilemmas that are difficult to overcome.
In his struggle to find the right words, Habeck epitomises the clarification challenges that business leaders will have to face in the future. Previously, policymakers were expected to stay out of the business world. Now it is up to companies to adopt a position and to show their face in the struggle between freedom and dictatorship. This is what stakeholders expect of them. And it is essential in terms of corporate purpose.
The commitment to freedom, democracy and the rule of law in the context of ESG and sustainability strategies is not just lip service, but rather a practical matter relating to day-to-day corporate activities. What’s more, it is important to make and defend unpleasant trade-offs like Robert Habeck does. Where do we start when it comes to saving the world? On the freedom front? On the climate front? Can we work with the dictatorship in Qatar because it will help us to achieve independence from another dictatorship? Companies and their management boards will have to answer these kinds of questions in the future. Societal acceptance, political goodwill and internal identification will very much be determined by this.
There is a mountain to climb in corporate communications
These poignant and tentative hypotheses can only provide initial, and incomplete, stimulus for discussion on what 24 February means for corporate strategic thinking. One thing is certain. Corporate communications will be faced with exciting and challenging responsibilities in the development and communication of strategy and the strategy narrative. These include a new strategic framing, new patterns of narration, new and complex explanatory challenges, new responses to changing stakeholder expectations, and stimulation of diversified strategic thinking in the company. All this indicates that the relevance and influence of corporate communications will grow substantially in the years ahead.
This article was published in June 2022 in the magazine kommunikationsmanager. The original article can be downloaded here.