Harness your imagination to manage political risk

As a working parent with two young children, to say that the Great Lockdown has been a challenge is an understatement. But one benefit is that my five-year-old has had a lot more independent free-play time. As a result, I’ve noticed a significant improvement in her imagination. A cardboard box has become a fort, a car, and a rocket—all without modifying it in any way. And stories about make-believe worlds now dominate our dinner conversations. Let us hope the Great Lockdown is having the same effect on global business leaders: COVID-19 has demonstrated just how important it is for executives to have active imaginations.

The benefits of imagination

There are many benefits of having an imagination. Child development experts point to the importance of imaginative play in cognitive development. But there are benefits for adults as well. Imagination is a form of intelligence—in fact, studies have found that our brains are highly engaged while daydreaming. Imagination may also improve memory, empathy, and self-discovery.

All of these traits are important for business leaders to have today, as they grapple with disruptions from COVID-19, embracing an antiracism agenda, transitioning to stakeholder capitalism, and managing a more complex geopolitical environment.

Imaginations stretched

In the past couple of decades, our imaginations have been repeatedly stretched by an array of black swan and gray rhino events. The 9/11 attacks, global financial crisis, Brexit referendum, and COVID-19 pandemic are just a few of the unforeseen events in the external environment that have shaped global business models and performance in recent years.

The seeming frequency with which these events are occurring is posing challenges for C-suites around the world. One potential upside, though, is that executives have had their imaginations stretched in a variety of ways. If that expansion of imagination is effectively harnessed, it should improve executives’ ability to adapt to future black swan and gray rhino events.

Enter scenario planning

One risk management tool that is particularly well-suited to preparing companies to deal with such unforeseen events is scenario planning. It identifies the most impactful uncertainties that an organization faces in its external environment and then develops engaging narratives of alternative futures that those uncertainties could create. Identifying these uncertainties and weaving them together in novel ways takes imagination. The more scenario planners stretch their imaginations, the better prepared their organization will be for future disruptions.

Scenario planning not only enables leaders to identify actions that can be taken now to prepare for the different ways in which the future could evolve. It also helps organizations respond quickly to new situations outside of their scenario set as a result of more imaginative strategic planning and operational agility.

With all of the imagination-stretching events in recent years, it is perhaps no surprise that scenario planning is seen the action that would most improve political risk management in a recent survey of global executives that my colleagues and I conducted (see figure below).

While more than two-thirds of executives say that their companies currently conduct scenario analysis, there is clearly room for more C-suites to be stretching their imaginations. Royal Dutch Shell’s early leadership in scenario planning translates into more than 80% of executives in the energy sector saying they utilize scenario planning. But only about 60% of executives in the financial services and health sciences and wellness sectors do so. And by region, companies in Asia-Pacific and the Middle East and Africa lag those in the Americas and Europe in conducting scenario planning.

Harnessing imagination to improve political risk management

Scenario planning is particularly well-suited to political risk management because politics is inherently difficult to predict. The range of actors across geopolitics, country politics, regulators, and society create a dizzying array of potential outcomes for companies—unless strategic planners use scenario planning to help structure that uncertainty in a useful way. Such strategic foresight is even more vital as companies grapple with how to maintain operations during the COVID-19 pandemic and simultaneously position themselves for future growth in whatever policy environment they may face. So now is the time to unleash your imagination!