Public health, economic and geopolitical shocks have come at us almost nonstop this decade and anyone feeling wearied from all of them would quickly be forgiven. Companies have on the whole adapted well to the demand, cost and supply-chain pressures from the COVID pandemic, the inflation wave, Russia’s invasion of Ukraine and tariffs. Now, the Iran war has brought back into focus the prospect of an energy price shock (and the demand effects it could produce) as well as possible shortages for a range of products derived from oil and gas.
So how can your company—and your leadership team—best absorb this latest uncertainty shock?
A team of experts from KPMG—including Americas Regional Chief Economist Diane Swonk and Stefano Moritsch, the global geopolitics lead at KPMG International—tackled that question during a recent webinar. Here are a few of their key takeaways:
• Assess your exposure and build some scenarios: Moritsch suggested focusing on your organization’s exposure to energy prices, supply-chain fragility and sharp movements in market sentiment. Based on those, he recommends sketching out some scenarios—not 10, he emphasized—that, speaking to the Iran War specifically, envision either a clean resolution, a prolonged-but-managed struggle and a “scorched-earth” option that would be very problematic for the world economy.
• Don’t panic—but don’t sit still, either: Brendan Rynne, KPMG’s Asia-Pacific chief economist, told attendees that panicking can lock you into bad decisions that could have pernicious medium- and long-term consequences. It’s important not to rush through scenario options. Swonk added a corollary to that idea by saying that she has seen some firms freeze up in the face of this latest round of uncertainty. That, she noted, won’t deliver a solution.
“The hardest thing to do is act,” Swonk said. “But inaction means no returns.”
• Build in flexibility and optionality: When thinking about how to respond, write playbooks—or refresh the ones you pulled together for the Russia-Ukraine war or last year’s tariff shock—that define your decision processes. Moritsch pointed specifically to delineating as soon as possible how your team will respond in terms of pricing its products and sourcing your inputs.
The key, he added, is to be ready to lean on alternate logistics routes, to build inventory buffers if possible and to create some “financial headroom” that can help teams maneuver through this round of choppy waters. Again, there’s a good chance you’ve run this exercise before in recent years. Now it’s time to do so more smartly.
Amid all that, Moritsch said, it’s important to keep moving.
“Agility could be a competitive edge,” he said. “Don’t wait for a perfect information environment.”
Volatility isn’t temporary
That idea of agility also surfaced on a March 31 webinar hosted by EndeavorB2B that dove into how companies can engage with geopolitical and trade and tariff risks. Asked how leadership teams can become better at reacting to such external upheavals, Per Kristian Hong, a partner and global lead at Kearney Foresight, said a big part of it comes down to having the right mindset.
“There isn’t a senior leader that I know that has come back post facto and said, ‘We moved too soon,’” Hong said. “Volatility isn’t temporary; this not something we’re going to ride out and come out on the other side. It is structural, it is constant.”
Another key point brought up during the EndeavorB2B event—which you can watch by registering here—is that it’s vital to remember your organization’s humanity in the face of these kinds of stresses and lean into your team’s accumulated experience and wisdom.
Said Mark Zeffiro, a managing partner of Brooks International: “The system doesn’t answer the question. The people answer the question in terms of how you’re going to run the business.”
