How can organisations plan for the long-term?

Economic opinions for the real world

How can organisations plan for the long-term?

Exoshock shows the far-reaching ramifications of external shocks enabling organisations to identify risks, plan for possible scenarios and understand how global resource constraints will affect their industry.

CEOs are increasingly concerned about the social benefits of their business activities because companies that have long-term positive social impact have better stock market valuations and a better chance of survival.

Oil and automobile companies are investing in renewable energy sources. Technology is being used for sustainable farming and even internet giants are considering their social impact. Change is being driven by both regulation and consumer values. Longer investment horizons require different ways of planning and there is huge interest in solutions to ensure companies have a positive impact.

Exoshock is the first risk management model that enables organisations to understand the global economic scenarios that will impact them, providing a more effective approach to managing risks and planning for the long-term.

For many shareholders the real measure of the value of a business is in its long-term social impact rather than short-term profitability. Investors want to see a positive impact on society and the environment as well as solid financial returns.

Investment firm BlackRock is taking a more active role in the strategies of companies it invests in. Its CEO Larry Fink said recently: “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”

UBS is directing $5 billion of client money over the next five years into impact investments related to the United Nations 17 Sustainable Development Goals (SDGs). According to its white paper for the 2018 World Economic Forum, it has partnered with visionaries who’ve developed innovative ways to help achieve the goals of ending poverty, protecting the planet and bringing prosperity to all by 2030 – while also generating financial returns for investors.

Facebook’s value took a nosedive when it was revealed that users’ personal data had been used in ways they had not anticipated. Facebook’s chief executive Mark Zuckerberg has apologised. He said: “We didn’t take a broad enough view of our responsibility, and that was a big mistake.” As a consequence, Facebook is taking a series of actions which could amount to a change in its business model.

Dramatic change ahead

But how can organisations plan for the long-term? Envisaging how different the world will be in 10 to 20 years time is a major challenge. How quickly should they shift their business strategy to respond to changes and which investments should they make? The problem is that risks are uncertain. Although it is possible that change will be evolutionary, there are also many scenarios where change is likely to be dramatic and unexpected.

A change in one region could have a ripple effect that quickly escalates into a global crisis. For example, fuel shortages can lead to protectionist policies that impact stock markets creating an economic downturn, increasing the likelihood of public disorder, territorial disputes and even war.

For many, the claim that climate change caused conflict in Syria is laughable. But data proves that severe drought in Syria led to water shortages and crop failure. Scarce resources and rising prices in turn led to mass migration from rural areas into the urban centres, all of which contributed to the conflict.

Increasingly the consequences of change will be radical and businesses will need to adapt rapidly. Traditional planning methods don’t enable businesses to assess the ways in which the world could change. Often companies take a wait and see approach to long-term planning – they hope that positive things will happen in the economy and blame the market when things go wrong. They must stop planning incrementally and start modelling for specific scenarios relevant to their industry.

A radical new approach to future modelling

Designed by some of Cambridge’s brightest, Exoshock has exclusive rights to the intellectual property created by Anglia Ruskin University for future modelling. Exoshock is named after an ‘exogenous shock’ which occurs when a market is affected by an outside factor, which tips the system into a new state. Exoshock works out the far-reaching ramifications of an exogenous shock enabling organisations to identify risks, plan for possible scenarios and mitigate against their consequences.

Traditionally, organisations have focused on individual country perspectives and experts in forecasting haven’t been able to account for resource constraints at a global or multi-industry level. Exoshock works on the principle that everything in the global economy is interlinked – events in one market always have repercussions in another. Exoshock provides an objective means to model the long-term socio-economic effects of short-term shocks with the:

  • Identification of a range of possible global scenarios
  • Quantification of the likely consequences of a given shock
  • Global scenario planning relevant to a specific industry or company

Its System Dynamics (SD) model is totally different from the predictive analytics models currently used in financial markets. Eventually it will be formed from a vast network model of different regions of the world, which will interact through trade and financial flows, with variants based on different commodities.

Exoshock presents data in a way that is easy to assimilate using measures such as GDP, interest rates and global population movements. It gives quantitative and qualitative viewpoints on the impact of different scenarios, taking into account resources such as food, land, energy, minerals and movements in the population. By applying “what if” scenarios that include information on the availability of resources it provides much richer data on what is likely to happen, enabling organisations to predict the knock-on effects of significant events more accurately.

Take control to avoid crises

Data shows the increasing convergence of climate, food, economic and political crises. By better understanding the interconnectivity of environmental, economic, geopolitical, societal and technological systems, organisations can better manage potential crises and avoid their worst impacts.

Exoshock can help to explain interactions between things like climate change, crop failure, food shortages, immigration, the availability of credit, energy prices and government policy. A major benefit of Exoshock is the ability to compare one scenario with another allowing you to see the likely outcomes of many different scenarios and make direct comparisons not possible before now.

Exoshock forecast major changes in the phosphate market which is crucial to the production of fertilisers in agriculture. It is currently working on a scenario where the rapid escalation of tariff barriers between the US and China may result in, not just a dip, but a prolonged reduction in global trade. If China continues to expand its geographic footprint, by annexing islands in the South China Sea, it could face international economic sanctions from its US and EU trading partners. This could lead to a significant reduction in world trade.

With a much better understanding of possible future directions, heads of risk can improve decision making and adapt to the shifts in production patterns, for both positive social impact and long-term economic success.

Exoshock is currently reaching out to a number of world leading companies and institutions to assist with refining the model and transitioning to a regional and more granular output. We welcome approaches from parties interested in working within our beta program who will then gain early access to the model.

The Exoshock Global Socio-Economic Model is available via subscription, can be white labelled and delivered via an API.

We are actively looking for Beta customers who are interested in being involved in the development of our services. Please contact us to find out more about the programme.

By Anthony Johnson, CEO Exoshock