Business leaders increasingly find themselves in unfamiliar territory marked by high levels of uncertainty and instability, a slowing global economy, and shifting political realities. Global economic policy uncertainty has tripled since 2000 and continues to accelerate.^[1]See, for example, the Global Economic Policy Uncertainty Index at http://policyuncertainty.com. Our own research shows that this systemic uncertainty feeds into corporate decision-making. Companies are more exposed than ever to economic and political feedback,^[2]See M. Reeves and J. Harnoss, “The Business of Business Is No Longer Just Business,” June 6, 2017, www.bcg.com. and their performance swings are increasingly due to noncompetitive effects.^[3]BCG analysis comparing the relative performance effects of noncompetitive factors (political/regulatory exposure) and competitive factors (e.g., profitability, EBIT [earnings before interest and … Continue reading This phenomenon affects players across entire industries and, in the extreme, can threaten their very survival.

Take the U.S. retail industry, for example. Over the last several decades, companies like Walmart, The Gap Inc., and many others successfully played a global cost arbitrage game by taking advantage of labor cost differences, low trade barriers, and IT advances. As we know today, such sourcing strategies have unleashed economic, social, and political feedback effects, culminating in strong political backlash. Retailers now face the possibility of a border adjustment tax, which, if implemented, could wipe out a substantial proportion of the industry’s profits.^[4]See M. Reeves and J. Rose, “Rethinking Your Supply Chain in an Era of Protectionism,” March 22, 2017, www.hbr.org.

The examples are manifold and not limited to the United States. Consider utilities in Europe, where companies underestimated the social demand and resulting political support for renewable energy. The top 10 European energy utilities lost 40% of their market value since their peak in 2007 — the top 3 lost as much as 75%.^[5]BCG analysis based on S&P CapitalIQ.

Political and macroeconomic forces are shaping the business environment as never before. The implications for corporate strategy and leadership are profound.