As various trends continue to reshape the global economy, companies that value efficiency above all else are inadvertently putting themselves at risk. Andrew Schwedel, a partner with Bain’s Macro Trends Group, describes why leading companies are now elevating resilience to a strategic priority.
Read the transcript below.
ANDREW SCHWEDEL: So what do we mean by resilience? First, we start with the premise that business leaders today are facing an increasingly volatile and uncertain operating environment. In fact, we see 10 trends that are reshaping the global environment in the decade ahead, which we call the great transformation.
And just to highlight a few, we're looking at the end of an era of supernormal labor-force growth due to the aging of the population. We also see an explosion in automation, leading to severe disruptions in employment. And this will further feed a rise in inequality and the potential return of more activist governments.
Finally, this all plays out in an environment of increasing geopolitical instability and a backlash against globalization. So in this environment, the importance of raising resilience as a priority becomes more critical than ever. And this is a real mindset shift versus the prevailing model of really the last 40 years, where companies have emphasized efficiency above all else.
Now, efficiency has created enormous shareholder value, and it will continue to be a critical priority. But an exclusive focus on efficiency really breeds fragility and risk. And we see this in a few different ways. We see it with globally concentrated supply chains, an overreliance on a small number of suppliers, or exposure to political risk or even natural disasters. We see it also with an underinvestment in growth-oriented bets and exposure different experiments in pursuit of short-term value maximization.
So what are leading companies doing differently? Well, first they're investing to understand their macro risk exposures and develop a series of options and hedges to deal with them. Second, they are identifying how different potential scenarios might come to pass and building flexibility to operate effectively under those different scenarios. Third, they are building early warning systems to monitor signposts of when a particular scenario is likely to develop.
And finally, they are challenging the implicit assumption that we see, especially in many large companies, that the status quo is the safer default path. So all of this is hard. Options and hedges come with a real cost. Being able to move quickly in pursuit of a particular scenario requires a more agile operating model and new ways of working.
And above all, it really requires a mindset that elevates resilience to a strategic priority. But the good news is that the leaders that adapt this mindset will be well positioned to survive and even to thrive in the turbulent times ahead.