Why Businesses Must Start Talking About Tomorrow Today

Board Europe — September / October 2008

Rising energy costs, climate change, digital convergence, and a precarious global financial system show the future is as uncertain today as it has ever been. But one thing is certain: there is no time to waste.

Corporate leaders must begin to engage all levels and departments of their organization in strategic conversations about the future. "With the speed of change only getting faster every day, companies need to get the dialogue going as soon as possible," says Marc Stegeman, senior communications advisor for The Conference Board.

Over 60 senior executives began that dialogue at The Conference Board Europe's first Corporate Affairs Forum on Future Trends held 10-11 June 2008 in Brussels. Five European Councils gathered to identify the most significant "high-impact" and "high-uncertainty" drivers of future change for their field and share their insights in a plenary session. Several topics were highlighted, including climate change, the weak U.S. dollar, and how to maintain a high quality of decision-making with accelerated speeds of communication. Philip Lowe, Director General for Competition of the European Commission and a guest speaker at the Forum, focused on an additional topic of key concern to major multinationals — "The Future Trends of EC Competition Policy." The main message of the Forum was clear: To achieve success, now and in the future, executives must effectively manage uncertainty in these changing times.

One big question is the future role of emerging markets. "There is now an increase in Chinese and Indian shareholders, and they are increasingly becoming active shareholders of Western companies," says Thomas Tindemans, a Member of The Conference Board's European Legal Council and an attorney for White & Case. He adds: "The expectation from legal counsel is that this would modify the way in which the company is governed. They come with different legal notions, such as financial transparency or strategic thinking. The notion of hierarchy is different. It is not clear whether this is for better or for worse, just that it is a factor of change and increases uncertainty."

Energy

Uncertainty also plagues the energy industry. "The world has to realize that there is less and less easy oil we can get. The exploration of oil and gas resources has to move to geographically difficult and politically sensitive places — Russia, some Middle Eastern countries, deep waters, and the Arctic regions, for example," says Albert Wong, a Member of The Conference Board's Corporate Responsibility and Sustainability Council and Head of Policy & External Relations for Shell International.

Rapid restructuring of the energy industry is widely expected. "Obviously there is a great impact on the demand for energy from the emerging markets, as countries like China and India have large and very dynamic economies and therefore they affect the price of energy for the rest of the world. Even more so, because some of them have subsidies which artificially affect the demand. They also try to secure energy resources for themselves (especially China in Africa), thus competing with European oil companies," explains Vlad Manole, Senior Economist for The Conference Board.

Facing increased competition from China and India, Europe must become resourceful in new ways. Dr. Manole adds, "Europe is one of the most efficient users of energy in the world — exporting this know-how makes sense, as the emerging economies are relatively inefficient."

Oil, however, is not the only resource that is a "high-impact" and "high-uncertainty" driver of change; new, rapidly emerging markets could exploit other natural resources in unusual ways. Although Eastern European resources are growing, many are heavily underutilized and have enormous unleashed potential. "In the Ukraine, they have not managed to exploit their potential yet," says Ondrej Landa, a Corporate Strategy Council Member and Chairman of the Czech Society for Strategic Management, referring to the rising yields and exportation of grain. "This could utterly change the global food production — if the stateof-the-art agricultural technologies and seed material are applied."

Another future trend involving energy is reverse globalization. "The premises of a globalized economy are the speed of information and cheap transport," Mr. Tindemans from White & Case says. "With the technology gap disappearing rapidly and cheap transportation over, this could well lead to the reversal of globalization, going back to the localization of production. The drivers of globalization are exhausted. The competitive advantage of high technology is no longer there, and moving goods around the globe is too expensive."

Corporate values

Also highlighted at the Forum on Future Trends was the increasing expectation that companies should address issues beyond their traditional sphere of influence — for example, addressing issues of social justice rather than just being a source of employment. With corporate social responsibility (CSR) policies moving to the forefront, companies are increasingly being held accountable for the societal impact of their business transactions. But the broader implications of promoting corporate values and CSR policies arise when working in difficult regions, such as when extracting oil abroad. Shell's Mr. Wong points out: "We have to work through others more. We must work with locals and joint venture partners, who may have different values and standards. So for the company long term, we ask how can we maintain our business principles and corporate standards while doing business in some difficult working environments."

Key to forecasting what the future holds, be it the restructuring of the energy industry or the promotion of corporate values, is the ability to manage uncertainty, particularly in innovative ways. Mr. Landa shares his technique: "I call it backcasting. Rather than unrolling your business plans three or four years ahead from now, you set your stake 10 years in the future and develop appropriate strategies."

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