Editor’s Note: Ilaria Maselli is a senior economist for The Conference Board in Europe. The opinions expressed in this commentary are her own.
Less than a week from now, the world’s elite will convene in Davos. As they sit high atop the Alps, they will muse about a new architecture for globalization — this year’s theme. Meanwhile, elsewhere, economic reality will prevail: a trade conflict between the world’s two largest economies, the possibility of an ugly Brexit resolution, mounds of national debt piling up around the world, disruptive innovation from competitors threatening business models, and turbulent stock markets that are rattling nerves.
The uncertainties are vast. In a new survey of over 800 global CEOs by The Conference Board, corporate leaders ranked the risk of a recession as their number one external concern for 2019. Global political instability and trade disruptions came in as runner-ups. They also have little faith in the traditional levers of power — policy and political institutions — containing the external turbulence.
What’s more, the CEOs feel quite confident about having the right cultures in place in their own companies for thriving in the future, and the right leaders and organizational structure for succeeding down the road.
But the economic peril they see on the horizon will be an uphill battle, and corporate upheaval inevitably will result from it.
Take, for example, the ongoing evolution of the global economy through digital transformation. Economic history tells us technological revolutions occur in cycles. Carlota Perez, visiting professor at the London School of Economics, argues that, first, there is the installation phase: a time to experiment, learn and explore new markets while the old technology still dominates. At some point, society becomes more accepting of the new technology, which generates economic gains. This is the deployment phase.
But here’s the thing: The transition that often brings rough waters inevitably creates disruptive change. In every major technological revolution of the past two centuries, an economic crisis has marked the transition between these two phases. For instance, an economic downturn occurred in the mid-19th century during the age of steam and railways. And another hit back in the 1930s — the Great Depression — and interrupted the age of oil, cars and mass production.
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Recessions and crises bring creative destruction. New companies emerge while existing ones can evolve, survive and sometimes thrive. But those that fail to adapt to the new realities wither and perish. Amid the challenges posed by digital transformation, and with global growth projected to stay just under 3% in the next decade, organizations will have little margin for error if they want to avoid the fate of the dinosaurs: extinction.
Executives will need disruptive mindsets, relevant business models and an agile corporate culture to remain among those that make it and grow stronger in this transition. These are big changes to make, and overconfidence risks undercutting the kind of corporate nimbleness needed to adapt.
Indeed, as business leaders descend on Davos, they need to allow reality to set in regarding how to adjust and survive these turbulent times. Those who fail to grasp that lesson will miss out on the risk to their companies in spite of having correctly foreseen the global risks. That will provide comfort as cold as a Swiss winter.
