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Leaders need to engage much more deeply in “just-in-case” scenario planning and engineer flexibility into their business and operating models, recognizing that short-term efficiency and profitability may take a hit.
Our 2022 Monitor revealed that 42% of business leaders consider geopolitical uncertainty a key threat to organizational health, making it the third most significant threat. This issue is the largest mover in our ranking; cited by 19% as a threat in 2021, it moved up seven spots in our ranking of the 20 threats we track.
66% of leadership teams who cited geopolitical uncertainty as a top threat are not prepared to face threat
Top External Factors Impacting Business Health in next 12-18 Months
% of leaders ranking in top 5 (from list of 20 threats)
The cause of this dramatic rise is almost certainly due to Russia’s invasion of Ukraine and the very immediate impact that has had on supply chains, commodity prices, and the energy market. Supply chain disruption, increasing energy costs, volatility in financial markets, raw material/commodity price rises were noted as a concern by over 80% of the executives we surveyed on the impact of the war in Ukraine. (For our full analysis of the effects of the war in Ukraine and how organizations are responding, click here.)
We ask executives to tell us which stakeholder groups they believe will have the greatest impact on their organization’s strategy over the next five years. In a one-year timeframe, we would not expect to see any major shifts; rather, we expect to observe how groups shift in importance over a period of a few years or more. This year, we recorded a significant increase in the importance of suppliers. In 2021, only 11% of leaders noted them as a top three stakeholder. In 2022, that number has risen to 21%. The criticality of suppliers varies across industries—when we look specifically at the industrial and consumer sectors, their importance is ranked even higher, with 30% and 33% of leaders, respectively.
Relative importance of suppliers has doubled since 2021
Top Stakeholders Most Impacting Organizational Strategy Over Next Five Years
% of leaders ranking each group in top 3 (from list of 15 stakeholder groups)
While the effects of the war in Ukraine (and the pandemic) are stark and will give many companies cause to reconfigure their supply chains to reduce global exposure, a broader trend towards regional and local sourcing and manufacturing strategies was already underway. The existing effects of the China-US trade war and rising nationalism, as exemplified by the UK’s exit from the European Union, has caused executives to look at reshoring some operations. In 2020, a survey of analysts from Bank of America Securities who cover more than 3,000 companies (across a range of sectors and regions, with a combined market cap of $22 trillion) found that 80% of companies had implemented or announced plans to shift at least a portion of their supply chains from current locations.1
1 "Tectonic shift" in supply chains already happening (axios.com)
What this means for leadership
Geopolitical uncertainty and its resulting effects are driving two important implications for leadership. First the capability of supply chain and operational leaders must evolve fast to keep pace with these disruptions. Second the broader leadership team needs to take a different approach to risk management and decision making.
What Our Experts Are Saying
Your supply chain is only as agile as your supply chain leader. Efficiency, cost to serve, and speed remain important but are no longer the only prized assets of a supply chain. Flexibility, cultural awareness, an enterprise mindset, and technology savvy are fast rising as differentiating competencies of operating executives. Ben Shrewsbury
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The traditional focus on efficiency and value extraction needs to be replaced by more intentional scenario planning and allocation of resources towards handling downside risks. The focus on ‘just-in-time’ is being replaced with a deference towards ‘just-in-case’. Leaders that have been successful in navigating the complexities of supply chain disruption, zero-covid policies in China, and labor shortages due to restrictions on movements, are those that surround themselves with colleagues who challenge their biases and cover their blind-spots. Alvin Chiang |
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MethodologyEvery year, Russell Reynolds Associates administers The Global Leadership Monitor, an annual survey of executives and non-executive directors, which tracks key threats to organizational health and leadership preparedness to face them, as well as indicators of confidence in leadership, and leaders' engagement and career aspirations.
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Authors
Jemi Crookes and Tom Handcock of RRA’s Center for Leadership Insight conducted the research and authored this report.
Learn more about the authors and The Center for Leadership Insight
The authors wish to thank the 1,500+ leaders from RRA’s global network who completed the 2022 Global Leadership Monitor. Their responses to the survey have contributed greatly to our understanding of leadership in 2022 and beyond.
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2022 Global Leadership Monitor
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