Long-term risks, defined by a 5-10 year timeframe, are unlike short and medium-term risks in various ways. For example, this timeframe doesn’t have a top 3 “risks” to watch out for, as we outlined in our previous articles, but rather a top 3 drivers of change that our clients include in their scenario analysis.
While specific predictions are hard in the long term, setting yourself up for a range of key scenarios can create massive opportunities to capitalize on new business areas, make early moves, and gain a competitive advantage.
PRISM takes a four-step approach to its scenario planning work:
Drivers: Assessing the key driving forces shaping the future (like the three we outlined in this series).
Key trends: Getting into the data of key trends within each driver that will determine possible future paths.
Scenarios: Combining trends to develop a set of plausible and impactful scenarios that can be foreseen.
Implications: Laying out what this means for the company’s strategy and decisions.
When you combine multiple types of trends (such as the three outlined in the article below) occurring simultaneously, you often arrive at a very unexpected place. That’s why it's so important to conduct scenario planning exercises at regular intervals, tied to the strategy cycle in which these forces will shape the landscape.
The top three long-term trends our clients are scenario planning around are rapid technological change, a new world order in terms of the geopolitical power balance, and demographic changes.
Long-term global risk driver for business: Rapid technological change
Every company now has to be a tech company. And yet, technology continues to change faster than most businesses can adapt. Here’s what you need to think about.
1) Which technological trends are the most impactful to your business?
There is a vast range of rapid technological advances occurring all around us. AI is the most high-profile. However, when gauging technological trends, this includes everything from robotics, 3D printing, BioTech, SpaceTech, CleanTech, virtual and augmented reality, autonomous vehicles, blockchain, materials science breakthroughs, and more.
Sometimes, these can impact your business in direct ways (offering radical opportunities to automate) but also in ways you might not expect (disrupting a key customer segment).
2) What is driving the future of these technologies?
Some technologies are at the peak of their hype cycle today and will likely see a trough before they generate real progress and adoption (the metaverse and crypto/Web3 being the latest to begin this trough, with AI arguably at an initial peak today). Others are on a straighter or more modelable path, with the future more easily forecastable within certain bounds (for example, cleantech and spacetech are in this category). Still, others are subject to the power of exponential growth, creating a future that will be wildly different from what most are prepared for with generative AI, which has been capturing the attention of most imaginations.
Separating out the likely evolution of these technologies is key to assessing which will truly change the operating landscape and how.
3) What are the second-order effects?
Technology is so embedded in the daily lives of most people that even small changes can have large impacts on behavior and incentives. Social media offers an extreme example. The mere ability to connect online with friends ultimately drives a fundamental change in how people communicate. These outlets, along with people's interactions with them, garner huge implications for society, democracy, mental health, and more.
The specifics of these impacts would have been hard to predict upfront, but the broad thrust of change enabled by instant and constant online communication was foreseeable (and foreseen).
Most technologies that are truly disruptive will have these types of side effects, and it is often these effects that end up the most important to prepare for.
Long-term global risk driver for business: A new world order
The US is experiencing the first real challenge to its leadership of the global order, threatening the institutions that underpin global economics, trade, financial flows, and more. For businesses, this drives likely changes to cost structures, trade and supply footprints, and the shape of disruptive risks like sanctions or government interference in overseas operations.
The rise of China is one of the most important trends in our lifetimes. It has already reshaped the global balance of power, with the resulting new world order yet to fully materialize. While many look at this from the mysterious “great power competition” perspective, we want to understand how this matters for businesses. We see three main categories of impact to understand and plan for:
The most significant and direct impact of the new global order. Trade flows and trade rules will be completely transformed over the next decade. US-China tensions and global volatility is driving a reshoring and friend-shoring boom.
New alliance structures are leading to a new make-up of trade relationships, from Asia (CPTPP) to Africa (AfCTA) and beyond. The location of where you can buy, the tariff and compliance burdens of conducting trade, and the cost structure of the producing countries will all look different in the long term.
The new world looks likely to be less globalized and more fragmented. Global companies will need to secure local partnerships, infrastructure, and talent to win with a lower ability to cross-share data and other resources. A fragmented world means decentralized structures and ultimately fewer synergies from being a global company. At the extreme end, this may mean market exits from certain countries.
The new world order is one of greater volatility. Financial volatility as investment flows change. Political volatility as global cooperation declines. Regulatory uncertainty as rules fragment into country-level approaches in many areas. All of this requires a sophisticated approach to gathering, processing, and responding to a range of global events and a flexible structure that allows you to adapt to a range of outcomes at all times.
Long-term global risk driver for business: Demographics
Demography is destiny. Demographics across countries and within countries are set to change the business landscape in the next ten years, and there are three key elements to understand coming demographic changes:
Where are the people?
Globally, the big change coming is the advent of India as the dominant population bloc, with China a waning force for this type of growth. Domestically in the West, change is also coming to geographies, with work-from-home trends leading to a migration wave that has already changed the decades-long trend of ever-increasing urbanization. Different physical locations will change the population centers that businesses need to reach for consumers and talent.
Who has the money and power?
While China’s population may begin to wane, its middle class will continue to become a key customer bloc for most global businesses. India’s buying power is rapidly rising as well.
In the US, few are ready for Gen-Z, which will make up 30% of the global workforce by 2030, rendering it the largest cohort in employment. Millennials and Gen-Z together will dominate the key decision-making seats of almost every business in just a few years. The holders of money and power in the next 5-10 years will change, and with it, to whom every business needs to reach and cater.
How does behavior change?
With the Global Youth set to lead the world, businesses must adapt their behavior, messaging, products, and strategy. What kind of differences are expected? To name a few:
More tech-savvy: Gen Z is the first generation to grow up with the internet and smartphones as a constant presence in their lives from a very young age. They're more comfortable with and reliant on technology. They are also often more skeptical and distrustful of the large tech companies and more circumspect about their privacy.
More diverse: Gen Z is one of the most racially and ethnically diverse generations in history. This diversity extends to their views on social issues, with Gen Z often being more progressive on social issues than previous generations and often more willing to act on this with their buying decisions.
Different work habits: Gen-Z is more skeptical of many of the traditional education and career paths, questioning the four-year college degree and taking an entrepreneurial approach to work.
Bigger savers: Having grown up during the Great Recession, many Gen Z individuals are more pragmatic and financially conscious than Millennials. They are often more thrifty, with a higher savings rate at their age than prior generations.
Partner with PRISM to explore scenario planning for your team
At PRISM, we take a comprehensive, structured, and customized approach to tackling complexity and uncertainty. Our NextRisk Tracker platform tracks the full range of global risks, monitoring both specific and custom risks for our clients. Alongside the full range of global risks, we track specific, custom risks for clients to help them save money by making earlier, smarter decisions.
Sometimes, that means conducting scenario planning to find ways your business can adequately prepare for future risks. This highly collaborative, involved scenario planning process is a large part of its value. The result is a structured and data-driven understanding of the future strategic environment, an analytical core to anchor company planning, compelling narratives to drive internal and external alignment, and a highly informed set of executives prepared for the future.
Contact PRISM to learn more about key global risks and how to track them for your business.