Risk in the geopolitical arena is rising. But the players and potential consequences are quite different from just a decade ago. Find out what’s in store – and at stake – from PwC UK’s Gavin Barwell and Alex Sagovsky in conversation with our Global Centre for Crisis and Resilience co-leader Bobbie Ramsden-Knowles.
Risk in the geopolitical arena is rising. But the players and potential consequences are quite different from just a decade ago. Find out what’s in store – and at stake – from PwC UK’s Gavin Barwell and Alex Sagovsky in conversation with our Global Centre for Crisis and Resilience co-leader Bobbie Ramsden-Knowles.
Bobbie Ramsden-Knowles: Hello everyone, and thanks so much for joining us today for this episode of Emerge Stronger Through Disruption. I'm Bobbie Ramsden-Knowles. I’m co-leader of PwC's Global Centre for Crisis and Resilience, and I'm coming to you today from London.
In our podcast series, my co-leader, Dave Stainback, and I aim to tackle the challenges facing business in this environment of constant crisis and change.
And today, we'll be discussing the topic of geopolitics, which is one of the top risks among a wide range of plausible high-impact disruptions in today's world.
Organisations across the globe are directly or indirectly affected by increasing geopolitical tensions, whether that's economic sanctions or supply chain disruptions. China and US relations, Brexit and the war in Ukraine have significantly raised awareness of the increasing fracturing of the world and the challenges it bears for all organisations today.
Now, in PwC's latest annual Global CEO Survey, geopolitical conflict was ranked among the top three concerns for the future, both in the short terms of 12 months and indeed long term, five years, as well.
So today, I'm absolutely thrilled to be joined by my colleagues from PwC UK, Gavin Barwell and Alex Sagovsky, to discuss the elevated importance of geopolitics and what it means for organisations today.
Gavin, Alex, it's great to have you here today. Let's just start perhaps by introducing yourselves and give us a really quick overview of your day-to-day roles.
Gavin?
Gavin Barwell: Thanks, Bobbie, it's great to be here. I suppose I could best be described as a recovering politician. I'm a former member of Parliament and Government Minister in the UK, and most recently I was Chief of Staff to Prime Minister Theresa May from 2017 until she left office in 2019. And I now work as an advisor to PwC UK on geopolitical risk.
Bobbie: Brilliant. Thank you. And as I said, thanks so much, Gavin, for joining us. And Alex?
Alex Sagovsky: Hi, Bobbie. Nice to be here as well. So I'm a director on PwC UK's Crisis, Risk and Resilience team. I spent a number of years working for the UK government in a variety of different roles before joining PwC, and I now specialise in geopolitical risk and operational resilience.
Bobbie: Brilliant. Thank you both for joining us. I think we can all agree this is a really important topic for our clients right now and for the teams at PwC, as well. So, let's get straight into it.
So, Gavin, as you mentioned, you know, you're a true expert in this space. You've been covering it for a number of years.
Can you perhaps start by just giving us a quick overview? What do you see as the key macro trends today in relation to geopolitical risk?
Gavin: So, I guess overall, there's two key things to stress, which is, first of all, that risk in the geopolitical arena is rising. It's much higher today than it was 10, 20 years ago.
And secondly, the risks are manifesting in different bits of the world than we might have seen 10, 20 years ago. So, back then, a conversation on geopolitical risk would have focused on Afghanistan, Iraq, Yemen – parts of the world that are not key parts of the kind of global economy. Whereas today we have a war in Europe with the Russian invasion of Ukraine, there's rising geopolitical tension between China and certain major Western economies, and US politics has become increasingly polarised. We've got a closely divided government, intra-party disagreements that have resulted in real difficulty in terms of producing legislative output. So, these are some of the major markets in the world where we're seeing increasing political risk.
Bobbie: Yeah, so clearly a real mix of events and disruption there.
It's just going to continue to become more potent, particularly when it concerns market disruption. Now, you mentioned rising geopolitical tension – clearly the Russian invasion of Ukraine. Are there underlying drivers at work creating an environment we now refer to as permacrisis, for example? Could you talk a little bit about what's driving these events? What are the causes, if you will?
Gavin: Yeah, I think there are definitely a number of global trends at play that are leading to this destabilisation and constant disruption.
So, just to give five examples: We're moving from the kind of unipolar world of the post-Cold War era into a multipolar world with the emergence not just of China, but behind China of India and Indonesia and Saudi Arabia and Brazil.
We're also, as a result of the sort of great power competition that we're seeing, we're seeing a partial decoupling of the global economy, a kind of at least partial reversal of the globalisation that we've seen over the last 20 or 30 years ago. We've got some significant demographic changes that are underway.
There are parts of the world, primarily in Sub-Saharan Africa, where you've got very rapidly rising populations and governments are struggling to create the jobs for their growing working-age population. And you've got other bits of the world where the population actually is in outright decline – and confronting government with very different sets of challenges there, in terms of how do you pay for pensions and public services if you've got a shrinking working-age population.
Climate change is obviously absolutely critical. It's not just an environmental risk, but it acts as a catalyst for nearly all of the other global risks that we see. And we're seeing increasing tension around control of freshwater sources, and it's also likely to drive migration.
And then finally, we're seeing a sort of decline in liberal democracy. People are less satisfied with liberal democracies, and we're seeing the emergence of these kind of countries that are neither pure liberal democracies nor are they autocracies; they're kind of illiberal democracies, if you wanted to classify them in that way.
Bobbie: Yeah, your thoughts absolutely line up with what we found in our Global CEO Survey this year for PwC. Our CEOs are telling us that they're taking action, actually, where it concerns preparing for risk around geopolitical tensions and destabilisation. In fact, we found that nearly half of our respondents said they're increasing their investment in both cybersecurity or data privacy now.
But smaller companies, interestingly, were more focused on diversifying their product and service offerings, but perhaps partly that's in response to the significant supply chain disruption we've all seen over the past few years.
So look, pausing for a minute from what might be described as a bit of a dire outlook … are there any areas in which geopolitical risk has shifted towards a more positive direction?
Is there any good news to report?
Gavin: That's a really important question and the answer is yes. Destabilisation doesn't mean everything is getting worse – and there are definitely some areas where we're headed in the right direction. Let's maybe pick a couple of examples.
So, climate change, we're not headed in the right direction quickly enough. The global stocktake that came out recently showed that we need to accelerate our efforts, but we are clearly making progress. And I think if you look, for example, at the speed of the rollout of wind and particularly solar around the world, there is a very encouraging picture there.
Another potentially positive development is the relationship between the UK and the EU, which has definitely stabilised in the last 12 months, and I think is likely to further improve potentially over the next 12 to 24 months. So, there are definitely examples out there, Bobbie, of things that are moving in the right way.
Bobbie: Yeah, and that improved relationship is most definitely a positive for many of our clients. Thank you, Gavin. That, I think, is a great summary on what we're seeing as the key macro trends. And I really do, yeah, appreciate the positives that you've included in reference there, as well. Now, Alex, you help organisations navigate through a constantly changing business environment. Can you explain for us what all of these trends and drivers mean in the market?
So, how are you helping organisations respond to the shifts that we're seeing in geopolitics?
Alex: Yeah, definitely. So, I think it's definitely worth thinking about how you can respond to both the short-term events that we're seeing at present, but also acknowledging that those underlying trends mean that this pace of disruption is going to continue. It's not going to slow down. We won't be seeing the same disruptions in the news in two years time, but there will be other disruptions.
Other disruptions will take their place.
So, it's therefore really important that we have strategies in place to manage both the sort of the short-term, immediate events that we can see on the news today, but also to manage those as-yet-unforeseen disruptions which are going to manifest over the coming years.
So, in terms of managing those kinds of short-term events and the things that we're seeing unfolding right now, you know, effective scenario planning is really crucial in handling those events. So, we recommend that organisations should be scanning the current geopolitical scene and looking to see where they're potentially most exposed.
And then scenario planning can be used to identify realistic best case, worst case, most likely case scenarios to help inform decisions around how to prepare for those short-term events.
Bobbie: Brilliant. So, I think that reference to scenario planning is really important here. Can you just talk a little bit about how organisations should think about how they actually do that? How do they develop the strategy off the back of scenario planning?
Alex: Yeah. So, there's a few things to consider. So first of all, it's worth thinking about the potential impacts of that scenario on the organisation. You know, particularly whether there's anything that can be done right now to mitigate those impacts – or whether actually in some cases those impacts need to be accepted as risks. But that should be a formal process to recognise and accept those.
Secondly, you should think of it sort of in the response capability. So, how would the organisation respond if one of those scenarios materialised? What would they do about that? How would they manage it?
And then thirdly, just thinking about some of the triggers for those scenarios – you know, how can they identify that we're on a particular trajectory and that scenario is manifesting, and then that helps them to get ahead of the curve and respond appropriately to the scenario unfolding.
But in all of this, it's really important to factor in government response, as well. So, for example, as COVID-19 advanced towards the UK, lots of organisations engaged in scenario planning and thinking through how they might manage if a majority of their workforce was unavailable through sickness or through caring responsibilities, for example.
But actually, you know, in my experience, very few factored in the potential of government lockdowns or even furlough schemes and so on. So in parallel to scenario planning, it's really important to both make sure that government intervention is factored in, but also to ensure that your crisis management capability is robust, well rehearsed, and is ready to manage any unforeseen situations that might crop up.
And by doing that sort of preparatory work, it means that you can spot things that are happening, you can react quickly to circumstances, whether they're foreseen or unforeseen, and really make sure that you mitigate the impacts of those scenarios on your organisation.
Bobbie: I guess that in that scenario planning, there is a degree of it being focused on the reactive.
Is there more, do you think, that organisations can be doing to proactively identify when those disruptions might occur? You know, I mean, I think particularly given the world we're living in – is there anything that they could do more proactively?
Alex: Yeah, absolutely. One of the key things is having effective enterprise risk management.
So, that will enable you to proactively identify and then manage risks that pose a threat to your organisation. However, some of those risks will materialise, regardless of how much you work to mitigate them. And when those materialise or when unforeseen disruptions occur, we want to help organisations structure themselves in such a way that they can bend, not break – you know, that's one of the catchphrases that we use, if you like.
And, really, that's where the operational resilience approach comes into play. So in the UK, that operational resilience approach has been driven by the financial services regulators, but it can be absolutely effective for organisations across all sectors. And actually, it helps not only in protecting value, but can also help deliver value if it's done well.
Now, I suppose the principle, if you like, the underlying foundations of operational resilience, is that actually not everything needs to be resilient. You really need to focus on what matters most to the organisation and then invest in effective resilience strategies for those things.
And that could be investing in IT disaster recovery capability for a critical application. It might be investing in manual workarounds for a production line, or it could be looking at alternative suppliers for a key third party.
There's a whole range of things that might fall into that, but focusing on what matters most and really concentrating on ensuring that those things are resilient, is one of the key tenets, if you like, of operational resilience.
Bobbie: Yeah, I couldn't agree more, Alex. I think it's the most common conversation I'm having with clients right now. It’s the fact that, actually, not everything in an organisation needs to be resilient. It is absolutely about, as you say, focusing on what matters most.
So, I guess within that context, how do you identify what those things are? And how does that then work in relation to geopolitics?
Alex: OK, so the first step we would take is to agree with an organisation on how they define criticality. What is it that makes something critical for an organisation that could be driven by customer impacts?
It could be by profitability. It could be regulatory requirements, could be reputation, could be health and safety. There's a whole range of different things that drive criticality for different organisations.
And so it varies significantly between sectors and between organisations, even within sectors.
But once that's defined, once you've got that strong sense of what constitutes criticality for an organisation, you can then start to identify the services or the outputs – the things that our organisation does that are most important to the ongoing success of that organisation. And then by identifying those services, you can then start to look at the processes that come together behind the scenes to deliver that service, that output, and they will need to be mapped, and understanding both those processes and then the dependencies that underpin them. And that includes facilities, technology, people, third parties, and all the things that come together that enable that process to happen.
And in the context of geopolitical risk, each of those outputs and services may also have critical markets, critical data or IP to think about, as well. So, you really need to understand how the organisation works, how it delivers those critical services and the dependencies that underpin it.
And once you've got that understood and you've got that all mapped out, you're then really well placed to build resilient strategies around each of those critical dependencies.
And that enables you to proactively prepare – not just for geopolitical disruption, but actually any kind of disruption. And really, key to this is making sure that those resilient strategies bring together an integrated view across business continuity, tech resilience, supply chain resilience, emergency planning, and so on.
And really crucially, you're going to be focusing all of those efforts on the things that are most important to the organisation, the things that do need to be resilient. And that means you can actually reduce some of the effort that you spend on things that aren't so important, aren't so critical, and it gives you a much stronger basis to build the resilience of your organisation, both for geopolitical risk, but also actually for other disruptions as well.
Bobbie: OK, so when your organisation has a better understanding of how it works, how it operates, how it functions, what's critical – what are sort of the follow-on, long-lasting advantages we like with that?
Alex: So, for starters, you'll be in a much better place to respond to anything that disrupts those processes in the future, regardless of the nature of that disruption.
But also, actually, you'll be able to spot efficiencies in the processes that you've mapped out. And that can help you both deliver value and also protect value. So, overall, that kind of operational resilience approach – it gives you confidence in your organisation's ability to manage any disruption. So anything that happens, any of those events that happen on the news today, any of those events that might happen in a year's time, two years time, three years time, that we can't predict at the moment, your organisation will be much better placed to bend, not break in the face of that kind of disruption.
Bobbie: Yeah, that makes total sense. I wonder, is there a way to bring that to life for our listeners, perhaps? Could you maybe talk through a real-life example – something maybe you're seeing in some organisations you're currently working with, for example?
Alex: Yeah, so there's one client that I'm thinking of at the minute, and the leadership of that organisation – as with so many businesses right now – really mostly monitoring geopolitical tensions, and they're particularly concerned with their supply chain. Yeah, as we've already mentioned, this is a really critical consideration for a lot of organisations where it concerns their facilities, their factories, and some of the people who are working in and around China. And they're concerned with some of the potential ramifications and what might happen with that action and reaction in the region, and whether or not actually their current business model can withstand those sorts of tensions.
So, we've been working with them and working with their team to help think through some of those kind of scenario planning considerations, considering the best case, worst case, most likely possible disruptions, and then using those scenarios as a vehicle to consider how they might mitigate the impact of those, how they can manage any changes in the geopolitical context and things that may be disrupted.
And then more broadly, the context is going to continue to change and evolve in the coming years. So we're also working on helping them think about how they can build their business so that it bends, not breaks, and identifying their dependencies, identifying how they're exposed to the broader geopolitical context.
And this is thinking not just about primary suppliers, but second- and third-level suppliers, and those core dependencies that really underpin the success of that, of that organisation. And that really means that we can then help them become resilient as an organisation in the long term, both considering the current context, but also what may materialise in this and in other areas longer-term.
Because that's key, right? Building resilience long-term is where we want to be, because conditions, stressors, the drivers for all of this are going to continue to change. So, we need to be in that position where actually we can ride that out and thrive in that environment where there is constant disruption.
Bobbie: Alex, I couldn't agree more. It's a great point. I think from a resilience perspective, it's absolutely prudent right now. Organisations are not just looking at what's in front of them, which I think many companies are – we see that in a lot of our client discussions. But it is critical that they consider their planning for the long term and actually not just for geopolitical, but a variety of the potential scenarios they might face.
So look, we really like to give our podcast listeners some actionable insights to take away. So, I'm just wondering, can you each talk about maybe three things business leaders can do right now? And perhaps we start with you, Alex – what would be some key takeaways?
Alex: So, I think it's probably worth thinking about this in the context of kind of three key buckets of activity.
So, first of all, we talk about analyse – and you may say sort of identify or assess, but really just looking at how well do you understand your exposure to geopolitical risk? You know, what services or outputs are critical to the success of your organisation? Not only what are those services, but what underpins those, what are the dependencies that really enable you to continue delivering that success?
And what are the events that might disrupt that? How do you monitor them? What are the short-term and long-term implications of that? So, really thinking about how your organisation works and where it's exposed to this kind of risk. And then thinking about how you protect those things that matter most.
So number two, I suppose, would be plan. So, think about modelling realistic scenarios, developing strategies to ensure that your organisation can bend, not break, in the face of those realistic scenarios.
And then thirdly, act. So implement those resilience strategies. Be bold, take those steps and really prepare to identify and respond to changes in the political landscape that may materialise over coming weeks, months and years.
Bobbie: Brilliant. Thank you, Alex. Yeah, absolutely. I mean, looking at the conditions, as we said, both short term and long term, they're all going to have to be considered right now. So, Gavin, over to you. What would be your three key takeaways for our business leaders listening?
Gavin: Maybe just to expand on a couple of points that Alex has made, I would say the business leaders need to think about the longer-term trends that we've discussed and what events they might lead to, and not just necessarily focus on current events.
Things can move quite quickly in the world today, so I think trying to anticipate future events rather than just thinking about the current ones, I think is key.
And then, I think one of the key things to do is to consider how governments might respond to specific events. What are political leaders likely to do in the case of A, B or C? And then, what do you need to do as a business to be in a position to respond if politicians do make those kinds of decisions?
And I think my last point, Bobbie, would be to recognise that however thorough you are, whatever expertise you bring into your organisation, you're never going to be able to predict everything – no matter how robust your crisis preparedness plan may be.
So, it's equally important to be resilient as an organisation, to be confident in your ability to cope with the unexpected, to know that you've got that foundation of resilience in place to withstand whatever shocks may come – whether they're ones that you've predicted and planned for, or whether, as it will inevitably happen from time to time, you get caught by surprise.
Bobbie: Yeah, I fully agree, Gavin. I think there's so much in that from – not just how do you ensure your people, your leaders are resilient, but actually how do you create the capacity to be able to absorb those shocks in your organisation by really focusing on building resilience.
For me, it's not just about, you know, surviving the shocks that may come, but actually how do you thrive, as well.
So, I think that's a great place to wrap up. Huge thank you, Alex and Gavin, for joining me today. Really, really appreciate it. I think it's such an important topic for our listeners, and I'm sure will be one that we'll come back to in the coming months.
But in the upcoming episodes of Emerge Stronger Through Disruption, we are going to continue to tackle the topics that keep business leaders up at night. And as always, we would love to hear ideas from listeners about topics that you'd like us to address.
So, as always, please get in touch with both Dave and me via LinkedIn, and in the meantime, remember to subscribe to Emerge Stronger wherever you get your podcasts.
Thank you for listening. We'll see you next time.