In a famous line from Hemingway’s The Sun Also Rises, a character in the story is asked how he went bankrupt. His reply: “Two ways… gradually, then suddenly.”
This line always resonated with me as an example of the way compounding interest works in finance. It is also a good description for the S-Curve that is so frequently seen in adoption of technological innovations, where growth of a technology is usually slow and boring at first, then suddenly shoots up in exponential growth. Gradually then suddenly is also an apt description of many geopolitical trends. We have all been tracking a weakening economy of China, then suddenly their GDP is in decline. We gradually saw Russia posturing for invasion of Ukraine, then suddenly the invasion few anticipated occurs.
The result of all of this is a very turbulent business environment and a need for executives to seek out situational awareness to inform operational decisions.
OODA’s leadership maintains an up to date C-Suite Report which tracks the big issues and provides recommendations for strategic action to mitigate risk and seize opportunities. The most recent edition of this report provides an overall assessment of the global environment then dives into:
- What great power competition means for your business
- The Russian invasion of Ukraine and impact in Europe and Globally
- Bleak economic prospects for China and impact on business environment
- Networked Extremism and the Convergence of Crime, Insurgency, Corruption
- Food Security as an increasing driver of geopolitics
- The Demographic Time Bomb
- New risks and opportunities in the age of converged technologies
- Automation, new sensors and new communications
- Uncertainties in computer chip supply chains
- The need to optimize small data, reduce cost of training ML, and improve NLP
- The coming metaverse and its potential to disrupt the Internet
- Unstoppable Bitcoin: Opportunity and risk of the cryptocurrency revolution
- Cyber and Geopolitical Risks
- The Rise of Ransomware
- What businesses should do about continuous cyber risks
- Using scenario planning to reduce risk, seek opportunities and inform business strategies
- Updating your strategy for the US drought and food security
- Reshoring Accelerating
We categorize and summarize these big trends into Geopolitical Issues, Technology Trends, Cyber Risk Issues, and Recommendations for Action.
The Global Economy Is Slowing Faster Than Anticipated
The global economy is slowing. We believe business and government decision makers should expect a full recession that will impact the market of most products and services. The recession is occurring at the same time as many other shocks which means most markets will be in long term transition.
Shocks positive and negative are reviewed below.
The Great Nations Are Competing, What Does This Mean For Your Business?
The rise of great power competition and related changes in the international scene are causing changes to corporate risk and opportunities. Businesses have already had to adopt to new sanction regimes, new supply chain disruptions and new hostilities in cyberspace. Expect far more of this type of disruption. Also expect new opportunities, including the opportunity to serve the national security needs of open societies like the US, EU, Japan, ROK, India and many parts of South East Asia.
Modern great power competition is not only on topics like land and geopolitical disputes. Food, water, raw materials like rare-earth elements and technology are front and center in this competition. One critical risk that needs to be understood and mitigated because of this return to great power competition is what it may mean for the global computer chip shortage (we examine scenarios for global computer chip supply chain disruption in this Stratigame). Should tensions rise more between the PRC and Taiwan this could cause the shortage to become a real crisis.
To inform your strategy with the latest see: Global Risk and Geopolitical Sensemaking
The Russian Invasion of Ukraine and Impact in Europe and globally.
The Russian aggression against Ukraine will have enduring impacts far beyond the region. All companies and all government organizations (including those at local and state levels) should evaluate the potential impact of these hostilities on operations. We are a nation interconnected with the world by complex supply chains and a global high speed internet and must be ready to deal with impacts.
There are many aspects of this to consider. For examine, the fact that many sanctions on Russia were initiated by corporations means Russia may consider these corporations as legitimate targets for attack, including cyber attack and attack against ownership of property inside Russia. Physical attack is thought less likely but should also be assessed as a potential now.
Meanwhile this war has opened the eyes of many in the free world to other threats including the threat from China. This is will very likely lead to more support for collective security alliances like NATO and also to higher levels of investment in defense for many free nations. The traditional (since the end of WWII) stance of Japan to have only a self defense force may soon end, and its shunning of nuclear weapons may also be up for question, something that was unthinkable just weeks ago.
Short term this war has spooked investors, caused massive sanctions against Russia that also impacted western businesses, interrupted supply of food from Ukraine to Europe and Africa, is slowing all Russian oil production (which may totally cease due to lack of western tech support) and caused increases in government spending at a time when deficits are already out of control.
For additional resources see:
We continue to advise business leaders to think of the unthinkable. We have published what this can mean for cybersecurity here: C-Suite Guide: Improving Cybersecurity Posture Before Russia Invades Ukraine. But consider what it means for employees and suppliers who may operate in future war zones, and consider the impact on markets that may temporarily (we hope) shut down due to hostilities.
Signs of Economic Weakness in China Indicates Coming Crisis
The increasingly bleak economic prospects in China are not a surprise to China watchers. And shifting demographics will make things even worse with fewer workers and consumers to support an aging populace. On 16 August 2022, Premier Li Keqiang chaired a State Council executive meeting where the bleak economy is top of the agenda. Li considers new risks the catastrophic flooding in Henan, resurgent Covid-19, inflation of raw material prices and new geopolitical risks.
In early May 2022 the weakening Yuan reached an 18 month low. There is little transparency into the true financial numbers on the economy in China, but official forecasts are that the GDP growth will slow from 5.2 percent to 4.3 percent. Actual numbers must be much worse.
Many self imposed economic problems are being caused by China taking trade action against companies and countries that criticize the persecution of Uighurs. One salient example is China’s punitive measures against Australian coal imports which is contributing to rolling power outages. Solutions directed to be put in place seem like band-aids. For example, guidance has been given for increasing domestic production and supervising commodities to curb inflation. If only it was that easy! Employment assistance is being ramped up as well, with calls for promotion of labor-intensive industries.
Other issues are being caused by China’s strategy of locking down entire cities and regions to try to fight covid. This lockdown strategy is also fueling internal unrest which is being captured on social media and shared internally even in a nation where surveillance and social scores are in place to mitigate criticism. We are tracking this closely and will continue reporting on this via our daily pulse and research reports.
China’s economic weakness may in part explain their distancing from support to Russia’s invasion of Ukraine. China is still parroting some Russian propaganda on the war, but has been backing away from that a bit and has also been publicly stating they will not supply Russia with weapons or other material for the conflict. This is definitely one to watch.
The reporting in OODA’s News Briefs frequently captures indications of economic weakness. Symptoms of weakness in our reporting include rolling power outages and default of large financial firms like Evergrande.
The extensive dependencies of the entire world on China means economic weakness could pose significant concern. Some of the worse case scenarios could involve an almost total shutdown of industrial production, which would force a devastating restructuring of the global economy and lead to unpredictable outcomes. Since worst case scenarios can certainly come true, we recommend business and government leaders begin asking focused questions on what a PRC economic crisis might mean for supply chains. Some questions to consider:
- What dependencies to pharmaceutical companies have on China? How might drug supplies be interrupted? What plans can be put in place to mitigate those risks?
- What supply chain dependencies relying on the PRC can be shifted to other more open nations?
- How will US goods and services (approx $150B per year) exported to China be impacted by PRC economic slowdown? Can any new markets can be found for US goods and services?
- What would the impact of a PRC economic slowdown be on US GDP? US unemployment?
- What would impact of PRC slowdown be on the US high tech industry? Other industries? Stock markets overall?
- What long term effects might PRC economic slowdown have on US manufacturing and re-shoring?
- What would further economic crisis in PRC mean for the cyber threat environment in the free world? (Consider the scenario where millions of desperate computer savvy individuals will do anything online to survive).
There are obvious questions we are watching regarding how the war in Ukraine will impact China and their potential operations against Taiwan. We are watching this closely.
Networked Extremism and the Convergence of Crime, Insurgency, Corruption.
The evolution of the Internet has provided extremists from multiple geographies with new ways to privately interact to share tactics, plans and coordinate intentions. This networked extremism is a growing threat. It is closely related to the rise in self radicalization seen across western democracies.
These same technologies are enabling new business models of crime. And agile criminals are quicker than ever to exploit current geopolitical events to further their objectives, which is helping to drive a convergence of crime and corruption. The trend towards distributed computing and distributed finance that is providing so many features and benefits to good people is also providing new benefits to bad people and this is also complicating the situation.
In the age of Covid, corruption in the developing world has grown. Corruption in kleptocracies remains a baseline part of governance. And as long as corruption is such a driver in both kleptocracies and so many other countries it will be a major force impeding human progress and disrupting business potential.
Food Security An Increasing Driver of Geopolitical Action
Food security is becoming a critical factor in geopolitics. The US seems better positioned than most as a net exporter of food, but with enduring drought in the midwest there are concerns and risks that need to be mitigated.
Demographic Time Bomb Having An Impact
The demographic time-bomb impacting industrialized nations has been tracked for decades and now is suddenly impacting global economies. The demographics of most industrialized nations have shifted so there are fewer working age people and more retirement age people. Japan is one of the first major industrialized nations to start to see the impact of graying, but this is a problem for all nations. It is a significant concert for China.
A Convergence Of Technologies Is Creating New Risks and New Opportunities and a Refactoring of Work
The rapidly advancing pace of technology is reflected in the dramatically changing capabilities available in the marketplace today. This is changing the competitive landscape, changing the potential capabilities of your internal architecture, and changing the expectations of your potential clients/customers. In this age of dramatic advancements all should ensure appropriate measures are being put in place to understanding these potential market disruptions and changes to the competitive landscape. The best way to model out potential future disruptions is to examine drivers of tech, which should include assessments of future user/customer demands. For more see: Advanced Technology Sensemaking
When planning the impact of technology on your business or office workflows, it is important to take a look at the convergence of multiple technologies towards mission impact. Do this by maintaining at least a conversational knowledge of every major tech domain and an ability to contemplate how these domains will interact in the near future.
Automation, New Sensors and New Communications Providing Positive Benefits Already
Although still early in the S-Curve, the growing capabilities of automation, including those provided by Artificial Intelligence, Robotics and Robotic Process Automation, are providing positive business benefits and shifting how organizations operate. These efficiencies are needed now more than ever and this will likely accelerate their growth.
New sensors, including new sensors leveraging quantum effects, are changing healthcare and the national security sector and will soon become more widespread and impact wider swaths of the economy.
The benefits of advanced WiFi and Cellular communications and space based communications will improve the ability of organizations to disperse and further support distributed workforces. WiFI and Cellular advancements in particular are also enabling direct device to device communications in ways that will help optimize deployed robotics and advanced manufacturing.
The applications and compute foundation which has enabled knowledge workers to work from anywhere is now an important component of the nation’s infrastructure with impacts discussed further below.
Uncertain Computer Chip Supply Chains Could Impact Multiple Industries
This topic is directly linked to geopolitics and is reviewed above in the context of great power competition. But is should also be viewed from the lens of the technology and changes we should put in place to minimize disruption. The computer chip shortages of 2021 have caused disruptions to parts of the tech sector and several automotive brands, but overall the impact has not been hard on consumers or militaries. This could change if there is a crisis that causes more issues in supply. This is a topic of growing importance to wargame out and will be the topic of additional reporting at OODAloop in the coming months (we examine scenarios for global computer chip supply chain disruption in this Stratigame).
Optimizing Small Data, Training AI/ML, and Leveraging new NLP approaches
For over a decade enterprises have focused on ways to optimize the use of large data sets using new algorithms and storage and processing capabilities. This Big Data movement remains important. But there are indications that not enough attention has been placed on the need to analyze smaller data sets where traditional machine learning capabilities are not optimized. The need to analyze small data, accurately, may be of growing importance if the chip shortages discussed above cause even larger disruptions.
Whether data is small or large, most all high end AI/ML capabilities need to be trained. The cost to do this training is rapidly declining, with ARK finance showing data that indicates the cost to train ML models is declining at twice the rate of Moore’s law. This is a good spot to be in for those seeking to use AI to disrupt and continue to improve business models.
Other key breakthroughs include the use of unsupervised learning in new methods of natural language processing. Savvy tech strategists may find this to be the most disruptive of all tech developments. For more see: What Leaders Need to Know About the State of Natural Language Processing
The Metaverse Is Coming And It Will Disrupt The Current Internet
The age of the Metaverse is upon us. The Metaverse is the successor to the Internet of today. It is a future state that will include persistent interoperable virtual worlds and the platforms required to support and interact with them. It will have its own thriving economy and deliver experiences unavailable in the physical world. It will be a primary means of educating our youth and delivering knowledge through life, and will be a leading form of social interaction and entertainment. For more see: What To Know And Do About The Coming Metaverse
Unstoppable Bitcoin: Opportunity and risk of the cryptocurrency revolution
At this point we cannot think of a force that will stop Bitcoin. In years past this was a concern, although the math is solid and it was designed to be distributed, if enough nation’s were allied against it or if laws were changed the system could be destroyed. But doing that would take will and based on the popularity in open societies that will is not there. Too many people, businesses, institutions and communities now believe in Bitcoin. To some degree this is also true of Ethereum and a handful of other approaches to cryptocurrency. To prove this point, consider the shift in attitudes by Secretary of Treasury Janet Yellen, who has now been pulled into the bitcoin fan camp. For more on the disruptive potential of Bitcoin and Ethereum see: What CEOs Need To Know About Bitcoin: Including potential new business models to consider. FYI, we believe the reason the Metaverse is going to be real is the rise of an Ethereum based capability that can be a store of value that works across all stand alone metaverses to build a single interoperable trust layer.
Cyber Risk Trends
Stronger Connection Between Geopolitical and Cyber Risks
Over the last two decades as every region of the world and every corner of humanity has increased Internet access, regional issues have increasingly impacted events in cyberspace. This has evolved to the point where every major issue is a cyber issue and cyber risks must be considered as top tier risks for corporate and government leaders. We report on cyber issues on a daily basis and every single day we see this connection between geopolitical risks and cyber risks strengthen.
Ransomware Evolving Fast
The technology of ransomware has evolved in sophistication and the business models of the criminal groups behind it have as well. The result: The threat from ransomware has reached pandemic proportions. Fortunately there are things that can be done to mitigate this threat. For more see: An update on the nature of the ransomware threat
Uncertainty Around Cyber “Net Assessment” Growing
Over the last several decades both government and business leaders have sought ways to measure and comprehend both cyber risk and cyber security. Today there are many metrics in these domains, but few are really actionable in assessing the true state of security. In the end it seems that the only assessment that can be made is wether a given system can be broken, there can never be an assessment that a system cannot be broken. But assessments can be made that inform and prioritize actions to reduce risk.
There is a need for understanding of the cyber dynamic beyond just building action plans to mitigate risk. Companies, governments and citizens need an ability to understand the state of cybersecurity in context of cyber threats. This type of net assessment has always been hard and, due to the now ubiquitous nature of modern technology, is getting harder to make with confidence.
The fact that so many sudden changes are happening at the same time complicates situational awareness and can impede optimal decision making, which leads to our most important recommendation. Every organization should assess the current approaches to collecting the right information, assessing it and making informed decisions. For more insights into this see our series on Decision Intelligence.
Mitigate Cyber Risks Through Continuous, Informed Action
A trend we have previously articulated for OODA members is the rapid increase in events that are described in terms of being the most significant in history. Clearly criminals and nations in cyberspace are unrelenting. But leaders should be aware that there are things that can be done to make it harder on adversaries. Mitigating cyber risks takes awareness and action not just from the IT department and CISO but the entire leadership team. The government has a role to play too, but we never advise waiting for the results of any government action (for decades the government has had an “on again, off again” approach to working with industry to help reduce risks). For more, including actionable advice from practitioners on how to mitigate risks, see: Cybersecurity Sensemaking
As many of us are preparing for a long weekend, the FBI and CISA have issued multiple warnings about vulnerabilities which can enable ransomware, as if they have some indications that big attacks are coming. And on a completely different topic, the DoD Cyber Command and NSA have been publicly underscoring the importance of patching vulnerabilities in Atlassian solutions, emphatically stating that this cannot wait till after the holidays. This underscores that security and its leaders have to be always on. Coverage over weekends and holidays is critical. Build your teams for long term endurance. Burnout can be an issue for many so make it a conscious choice to build in rest and recovery time for your people.
In An Age of Uncertainty, Corporate Intelligence and Scenario Planning Is Of Increasing Importance
Businesses now face more than traditional competitive challenges. In the age of continuous crisis there are exogenous threats that must be avoided or mitigated, including many that are just too hard to even try to predict. Tracking risks closely underscores the need for Scenario Planning to inform corporate decision-making. Scenario planning is needed now more than ever. Scenario planning is a methodology for helping leaders think through alternative futures in a way that enables identification of issues. It raises potential outcomes and impacts and helps conceptualize potential risks and opportunities so organizations can be better prepared. We strongly encourage every company, large or small, to set aside dedicated time to focus on ways to improve your ability to understand the nature of the significantly changed risk environment we are all operating in today, and then assess how your organizational thinking should change. For more see: Corporate Sensemaking: Establishing an Intelligent Enterprise
Scenarios should be informed with fact based assessments and observations on strengths and weaknesses of the economy. In the US, the economy will be in a period of turmoil and recession, but may bounce back quicker and in a better position than most others. The US has many advantages including geography, natural resources, agriculture and a system supporting innovation. Recommend that during the coming turmoil businesses should plan for scenarios that include a recovery to a system that is more resilient, more productive and more sustainable than ever before.
Updating Your Strategy For The US Drought and Need for Food Security
Much of the Western US is now officially in a drought. Business and government leaders should know about this including insights into how drought impacts key sectors of the economy. It also provides four scenarios that can be used for organizational strategic planning. It concludes with recommendations for business and government leader consideration. For more see: How Drought In The US Should Impact Your Mid To Long Range Strategic Planning
Companies that can contribute in significant ways to the nation’s food security could be poised for growth in the coming decade.
All Businesses Need To Plan For Continuous Covid Disruption
Covid-19 continues to impact geopolitical relations, with the now released assessment from the US Intelligence Community implying that most scenarios for the rise of Covid-19 put some sort of blame on China. There is not agreement on exactly what happened, but the full report indicates at a minimum China should have done more to alert the world, and it may well have been the fault of poor virus handing at the Wuhan Lab. (read more here).
Tracking the rise or decline in COVID cases is important, but for planning purposes we recommend all businesses and governments plan for COVID always being with us in some way or another. For more see: COVID-19 Sensemaking Page.
Businesses should plan to operate in a world where Covid disruptions will always be with us. What does this mean for the future of your workforce? It is prudent to expect that there will always be a large component of the workforce remote and distributed, but also expect driven achievers to seek to work in person. There is nothing like being in the room when the big decisions are being made.
The Trend To Reshoring Will Only Accelerate: But reshoring requires prudent planning
The trend towards reshoring of existing manufacturing signals a shift for new manufacturing, not just in the US but globally. The fact that no region wants exposed supply chains means all regions will move to having local manufacturing. All regions will need to make their own products, grow their own food, produce their own energy, defend their democracy either alone or with well established alliances, and automate to support aging populations. Reshoring takes time and planning and is never simple. Many famous examples of failed reshoring exist, with many failures due to underestimating complexity. Extensive analysis needs to be done and this takes time for engineering, design, production, finance, procurement.