The playbook for seeing around geopolitical corners

Roberta Fusaro (0:01)

Foresight planning is critical when you're talking and thinking about geopolitics. And AI certainly has a role in that planning, but AI can only get you so far.

Ziad Haider (0:12)

There is the tremendous power of what we would call human to human intelligence. There is no substitute when you're thinking about developing scenarios, which in itself is an art of kind of creativity and imagination, that you need to be talking to a wide range of individuals, be that policy makers potentially, be that think tank experts, be it your peers and other businesses.

Roberta Fusaro (0:31)

That's McKinsey partner Ziad Haider. He joins us to talk about five instruments or tools that leaders can use to hedge against geopolitical uncertainty and position their companies for success. This is The McKinsey Podcast, where we help you make sense out of the world's toughest business challenges. I'm Roberta Fusaro, your host for today.

Ziad, thanks so much for joining the podcast today.

Ziad Haider (1:02)

It's great to be here with you, Roberta. Thank you.

Roberta Fusaro (1:05)

You and your co-authors wrote this really great article for mckinsey.com. It's called The Art, Science, and Technology of Geopolitical Scenario Planning. There's a really great CEO question at the beginning of that article. Is scenario planning broken?

Such a great provocation, Ziad. And so I'm wondering, what's your honest answer to that question?

Ziad Haider (1:29)

It was an excellent provocation because where the CEO was coming from is the fact that we just seem to keep getting buffeted by these different strategic surprises. Whether it's Russia's invasion of Ukraine or even in the non-geopolitical realm, something like COVID, right? I think one of my reflections in spending time with clients on this topic is that actually sometimes there is a methodological aspect to this and how you approach it, which probably needs to be strengthened. But equally, it's also about what is your objective in doing this scenario planning exercise? Because if your objective is crystal ball predictive clarity, then that is an unrealistic objective. So what we try to talk about is the idea that scenario planning itself needs to be demystified and understood as the art of foresight, and there are different tools of foresight you want to use for different objectives.

Lastly, I would just say that even as there's many references to this concept of scenario planning, in one of our latest surveys of CEOs, 53 percent of them said that scenario planning is really important, but less than 30 percent said that their organizations are actually engaging this tool.

Roberta Fusaro (2:32)

That gap is really interesting, Ziad, that 50 plus to 30 plus, it's a little bit surprising to see and hear that gap. But the article cites five tools to help leaders develop foresight, and I'm going to list them here. We'll get into each of them. They are horizon planning, scenario planning, contingency planning, simulations and tabletop exercises.

Ziad Haider (2:56)

So the first one, horizon scanning, again, starting with what's the objective. The objective of horizon scanning is to look ahead in a more near-term way over the next year and think about what could be the big risks or opportunities. Oftentimes, the way to engage leaders is to give them a colorful term to put their mind around that. So the way I like to think about it is, what could be in the year ahead some of the Black Swan events, the unknown events of high impact? What could be the Gray Rhino events? They're kind of charging on the global landscape, but you don't know when they'll hit you and how hard, but they're out there. Then, silver linings as opportunities.

The typical way you often see companies think about this is in their annual risk snapshot at the end of the year for the board. There is this perspective on geopolitical risk outlook for the year ahead.

Roberta Fusaro (3:41)

What about scenario planning? What does that look like?

Ziad Haider (3:44)

Scenario planning is probably the one that's really best understood. The idea behind scenario planning is to really think about multiple futures.

Which way could the world go on, say, trade relations on US-China, the conflict in the Middle East? So there are different scenarios that one needs to think about, and then how does one think about one is strategy, one's positioning, one's global footprint in these different scenarios. So you're lifting your gaze compared to say the horizon scanning, which is more near-term risks, to thinking about multiple futures strategy and positioning.

Roberta Fusaro (4:14)

And moving ahead to contingency planning, what can you tell us about that?

Ziad Haider (4:19)

So in some ways, contingency planning is the cousin of scenario planning, but it's the sharp end of the stick. It's not so much thinking about multiple futures that could play out, but in some ways it's thinking about the sharpest future that could play out, which might force you to, for example, have to leave a market on short notice and pull out your people and shut down your factories. And so how do you prepare for that? That's a very different end product than what you then need coming out of contingency planning exercises. What is the exit plan? What is the phase down plan? How would we get our people out? And so the mindset over there is much more about resilience and crisis response than say with scenario planning where it's more around strategy and positioning more long-term.