Volatility Is Your Gift

Volatility. It is often feared by leaders and decision-makers. In reality, it is a powerful gift. 

As we gear up for 2024, learn the art of perceiving and embracing change -- a skill essential for leaders, CEOs, and decision-makers navigating today's dynamic business landscape.

Key Insights:

Strategic Perception: Master the ability to perceive and respond to changing conditions, shifting your focus from anticipating the nature of surprises to adeptly navigating evolving landscapes.

Team Conditioning: Equip your team with the skills to not only weather uncertainty but to thrive in it. Overcome the natural inclination to perceive change as a threat, fostering a culture where volatility is viewed as an opportunity.

Unlocking Opportunities: Explore why embracing volatility can position your organization not just to survive but to emerge stronger. A comprehensive analysis demonstrates the long-term benefits for companies adept at navigating uncertainty.

Dual Clock Management: Gain insights into managing the dual clocks of long-term strategy and short-term challenges. Learn how simultaneous navigation of both timelines empowers informed decision-making.

Financial Preparedness: Uncover the critical importance of a robust balance sheet, essential for seizing strategic opportunities in times of uncertainty.

Your Imperative as a Decision-Maker: Embrace the unpredictability of 2024. Instead of dwelling on the nature of surprises, focus on fortifying your organization to leverage the opportunities intrinsic to volatility. Join the discourse on strategic decision-making, financial preparedness, and transforming surprises into triumphs. Are you prepared to unlock the potential within volatility?

Transcript

There are no straight lines.

Corporate planners do something very predictable towards the end of the year, which is forecast with the year ahead is going to look like. We do the same sort of exercise in our personal lives in December when we think about the year ahead. What's our New Year's resolutions? What's our aspirations for what can be accomplished in the year? And always, in both the corporate setting and the personal setting, we aspire to be better than where we are today. 

I only know one truth in this process, which is that line never moves from left to right in a straight line. It will ebb and flow, peak and valley because of changes in the situational context. There will be surprises, and we will have to deal with them. 

In early 2020, the Covid pandemic would change all the forecasts about what would be happening in that particular year. 

In 2022, Russia invaded Ukraine. Unanticipated. Changed all the forecast, changed all the decisions ahead for the decision makers at that point in time. 

In 2023, the Middle East seemed to be getting more peaceful, more secure, and  relationships between diverse nations seemed to be coming together. And then Israel-Gaza flared. The Middle East now sits on a tinder box. 

The only truth in the process is that decision arc from left to right will never be in a straight line. You will encounter ups and downs, good times and difficult challenges. 

The question then is, what do you do?

Looking ahead to 2024, what is going to happen with that line? Where are the surprises? Could it be with the Middle East conflict that is emerging and rising out of the Israel-Gaza conflict? Freight prices are already increasing, oil prices have been stable, but could inflict in a material way. Trade patterns certainly are going to change. Next, it is an election year. We have two geriatrics competing for the presidency. Election years are always wild, and this one promises to be no different. There could be significant surprises associated with that. 

Next, the consensus view on Wall Street is typically that we are headed for a soft landing. Yet, material questions still arise. Have the interest rate hikes stemmed inflation. There are pockets where significant inflation is still present, such as in food prices. 

Banks are carrying some significant risk on their balance sheets. If that starts to spark, you can have a major problem associated with the banking sector in the United States. 

Next, the US consumers have been the heroes in keeping this economy really purring. They were flush with cash coming out of the pandemic and spent it. They've taken on significant debt since then. Is 2024 the year in which the US consumer pulls back and stops spending at the same rates and therefore pulling everything back with it? 

The commercial real estate market in the United States is on fire. Does that create a risk that it can take other things with it? Are these going to be the surprises? I don't know. 

Quite frankly, I feel like it is worth worrying less about trying to identify where the surprise comes from. It is more important to worry about what you are going to do when it inevitably happens. That is the one truth that we know is that there will be deviations. There will be crises. There are issues that we will have to manage through. Our decision-making in anticipation of that surprise is more influential to the actual nature and character of the surprise itself.

Going into 2024, here's what you should be doing. Don't worry so much about what the surprise will be or it’s nature or character, just yet. 

Worry more about how you first perceive changing conditions, and then how you react to it. 

Secondly, start conditioning your team to be able to manage through changing conditions. This is where a lot of teams that are less sophisticated, or less experienced, or less seasoned get stuck. 

If the brain perceives the change as a threat, people will start to shut down, hunker down. Timeline will start to shrink. Dopamine rushes in the brain. Certain executives are gonna rush into action because they are particularly strong at problem-solving against whatever the problem is directly in front of them. They will lose sight of the longer arc before them. 

Number three, understand this, which is that when there are changing conditions, not necessarily a threat, it can be your greatest opportunity. 

McKinsey released a study in December of 2023, and it's important. They surveyed a whole series of companies looking at their financial performance in periods of volatility. Those that reached into the volatility, emerged from that period stronger. What's more, they were stronger than their peers for years thereafter. 

That takes courage to do. 

It is easy to invest when times are good, everyone will say, ‘yes’, it is more difficult to invest in new ventures, new products, new services, adjacencies, new strategies, when times are volatile, when there are major questions at present. However, the yield is also more significant. Companies get stronger, but they have to have decision makers which have the courage and capability to make those decisions to ‘Go’, right then, right there.

So, what do you have to do? 

Number one, be prepared. 

Number two, have your team ready to go. 

Number three, you've got to manage two different clocks here, one of which is the game clock, and the other one is the play clock. You've got to be able to manage the long arc of your strategic objectives simultaneously with the short clock of whatever is in front of you that you must navigate through. Many decisionmakers can't keep their eye on both clocks simultaneously. The great ones do.  

Number four is manage your financials, which is perhaps the most important lesson of all. In these moments of volatility, you need to have a P&L and a balance sheet which are preconditioned and ready to go, so that when there is that change, when there is that volatility, when your competition might be perceiving a threat or are leveraged, you have the working capital, you have the liquidity, you have the investment capital, that allows you to be able to push into the new product, the new service, the adjacency, the acquisition, whatever that might be. You need the gunpowder to be able to make that play at that point in time. So prepare for it. 

Here's your assignment. Again, we're trying to provoke an ‘a-ha!’ in your own thinking. 

First, worry less about what the surprise will be, because there will be one, there will be significant volatility, there will be changed circumstances. This is not a threat. Instead, this will be your opportunity. 

Secondly, more importantly, your assignment is, what are you doing to prepare your organization for that moment, that opportunity?