Navigating Polycrisis - Strategies for Effective Risk Management

When a cluster of economic and global risks interconnect in a way that they create a far greater threat than they would in isolation, we term it a polycrisis.

Business leaders need to stay agile, innovative, and dynamically flexible in their thinking to combat these multi-faceted risks.

Even when businesses cannot mitigate external and macroeconomic threats, they can prepare to counter them and thrive during challenging times.

Understanding Polycrisis in Today’s World

A series of interconnected crises, one after another, creating a cluster of risk events, and compounding effects on the global economy - in short polycrisis.

If you look at these global risk factors in isolation, you’ll probably argue that these factors are disparate crises.

Since all of them have occurred in the recent past, others are in the present, and a lot more are inevitable in the coming years, their total impact far exceeds the sum of each part.

It is a macroeconomic concept, discussed by strategic planners of economies, but the impacts will inevitably come down to each business.

Businesses and leaders can only mitigate risk factors under control. However, careful planning and taking a proactive approach can help them mitigate external risk factors too.

The global economy is yet to recover fully from the pandemic effects of COVID-19. The layoffs, sell-offs, sluggish economic growth, and disrupted supply chains have hardly come to the normal levels of the pre-pandemic era.

Then, the Russia-Ukraine war exacerbated the already disrupted global supply chains. It meant higher input costs for businesses around the world.

A stagnant global economy as a result of the pandemic, regional wars, changing geopolitical factors, and an uprising trend in regional alliances have played some crucial parts in adding to the current crisis.

At the moment, rising inflation is combined with higher costs of borrowing, which means the total costs of living are on the higher side.

What it means for businesses is slower expansions, stagnant growths, and increased business risks in the short term.

The long-term challenges arising from this so-called polycrisis are the effects of global climate change, resource scarcity, regional conflicts and wars, shifting global priorities, emergence of regional geopolitical blocs.

What are the Challenges for Businesses in Polycrisis?

Some of these factors are rare like a pandemic and stagflation, some others have been warned about for years like cybersecurity threats and climate change crises.

Business leaders must proactively grasp these risk factors before they materialize and leave no path for recovery.

The Talent Problem - Shortage of Skilled Labor

The COVID-19 crisis didn’t start the remote work culture, it only accelerated an already growing trend globally.

Mass layoffs from established companies meant people went to hybrid or remote job models. Most of them were compelled to change industries and/or their professions too.

Even though we are back to the “new normal” in a post-pandemic era, companies globally are citing the acquisition and retention of skilled professionals as a key challenge.

Disrupted Supply Chains

Global supply chains were merely returning to their normal levels before tensions in the Middle East and a war between Ukraine and Russia exacerbated an already daunting issue.

Regional conflicts are growing and we aren’t seeing the ongoing ones abating anytime soon either.

Realistically, businesses are worried about global supply chain disruptions and may have to rely on domestic or regional resources more than ever.

Geopolitical Crisis

Conflicts, wars, and changing geopolitical scenarios directly impact regional and global trade policies.

For instance, we have seen renewed calls from the BRICS forum to introduce an alternative global currency to the US Dollar in the last few years.

Businesses must be vary of these global and regional risks and plan accordingly.

Sluggish Economic Recoveries

High interest rates and soaring inflation rates are joining hands to make the cost of living and costs of financing higher.

It becomes a double-edged sword for businesses that are deprived of cheaper financing opportunities as well as a lower purchasing power of the masses.

Financial Risks

If you want to talk in purely business terms, it boils down to the business and financial risks faced by a business.

Any business would face consequences of these polycrisis hardships sooner or later in the form of diminishing revenue, shrinking profit margins, and obstacles in business expansions.

Strategies for Effective Risk Management in Polycrisis

The first step in taking on these deep-rooted challenges is to rethink the way you tackle these risk factors.

In today’s ever-so rapidly changing business dynamics, business leaders must remain proactive and start non-linear thinking.

Understand Where You Are

You have already faced these crises one after another in the past. You have documented data on how well or badly you managed things in the past.

As a starting point, try to understand where things are right now for you. Take a deep internal review of your past performance.

Then, find the blind spots and know where the shortcomings are. Your next task is to connect the dots and link your past with the future.

Understand that Volatility is the New “Stability”

If you think the current concatenation of risks is short-lived, you are mistaken. Many of these events have occurred in the past and are highly likely to impact your business in the future.

It means dealing with volatility will be your constant challenge in an uncertain business world.

Your aim now should be to keep future vulnerabilities and challenges in mind, remain proactive and flexible, and shun the static leadership thinking that only reacts to historic events.

Embrace a New Leadership Style

You need to develop and promote a new leadership style that embraces a strong risk culture. You should try and embed this new risk-aware leadership style into your organization from top to bottom.

●      Invest in people and make them ready for upcoming challenges.

●      Trust your management and empower them with decision-making powers.

●      Map out your critical business factors and measure them with correct KPIs to know how and when to respond if a challenge arises.

●      Take all stakeholders and key people into consideration when making tough calls and responding to crises.

Understand the Key Pillars of Your Business

When responding to economic and business risks, it’s critical to understand the key pillars of your business.

Often, revenue is considered the backbone of any business. It may not be true in all cases.

What happens if buyers are willing to buy from but you have run out of raw material supplies that come from China?

Deciding on the key pillars of your business from the customers’ point of view is critical.

Stay Agile - Turn Crisis into Opportunities

When lockdowns became normal during the pandemic, only innovative businesses who responded quickly could survive.

Many businesses realized they could do with the work-from-home culture in the long run, others started e-commerce, and some went into diversification.

If you want to combat the ongoing polycrisis, you must stay agile. You must find opportunities in these challenges, not only to survive but to thrive.