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• Unlike the relatively stable market of the recent past, today’s economy is marked by upheavals that are extensive, global, and unpredictable.
• International conflicts, surging prices, and unstable supply chains have caused governments to intervene in ways that are influencing the market.
• Business schools must offer interdisciplinary and stackable programs that help managers navigate through the chaos.

 
Turbulent market conditions are created by many factors, and one of the most powerful is known as geoeconomics. This term describes what happens when the state displaces firms as the main decision-maker in a widening range of product markets. Governments do this by instituting sanctions, subsidies, and export controls in markets from medical supplies to energy to semiconductors to agriculture. States intervene in economic relations to further their political goals and seek advantages for their countries.

Today’s volatile market has been deeply affected by geoeconomics, and management education must help students understand this new reality. It’s particularly important for business schools to cover geoeconomics in corporate strategy courses. To understand why, it’s useful to review the history of global commerce.

A Stable Past

For approximately 40 years, from roughly 1980 to 2019, business schools focused on the organizational structures and processes that allowed firms to create and capture value in particular product markets. Although the environment of business was by no means simple, it was relatively calm and predictable.

Since 2008, globalization has been , as measured by the ratio of exports to global GDP and the growth of foreign direct investment. Still, firms competing internationally—including companies competing indirectly as domestic suppliers in cross-border supply chains—could pursue relatively stable strategies. These firms were able to access funds on mostly open global capital markets, anchored in the relatively secure role of the U.S. dollar. They also could focus on efficiency as the primary organizing principle for supply chains, and they could serve increasingly globalized customers in generally open international markets.

In this world, it was sufficient to understand just a few key factors shaping the global economic environment, including monetary and fiscal policies and exchange rate movements. Business leaders also needed a grasp of strategy-relevant institutional arrangements that drive the flow of goods and capital to specific markets, such as and policies created by the European Union and the ASEAN Economic Community. In addition, firms needed to be able to assess political risk in their particular product markets.

During this period, the only disruptions to the global economy arose from intermittent events, such as the Asian Financial Crisis in 1997–1998, the dot-com bust in 2000, and the Fukushima earthquake in 2011. These disruptions were mostly confined to geographic regions such as Asia or sectors such as IT. Even the global financial crisis of 2008—which left a lasting mark on the financial system and deeply affected the level of public and private debt—had its greatest impact in the financial sector.

Our New Reality

Today, however, economic upheavals are extensive, global, and unpredictable in their nature, scope, and impacts. One recent example is the COVID-19 pandemic and the policy responses designed to contain it. Another is the Russia-Ukraine war and related sanctions enacted by other nations.

We are living in the sort of “turbulent environment” introduced by F.E. Emery and E.L. Trist in in Human Relations. The situation is characterized by instability and complexity caused by rapid, interconnected, and far-reaching changes in diverse areas. As a result, enterprises face increasing uncertainty and risk.

Today, economic upheavals are extensive, global, and unpredictable in their nature, scope, and impacts. As a result, enterprises face increasing uncertainty and risk.

Corporate strategy is fundamentally about leadership. It is most essential during periods of transition, and most challenging when past certainties are in question. In times like these, corporate strategy plays an especially important but difficult role as business leaders evaluate differing and often inconsistent interpretations of possible futures for their enterprises. Consider the following concerns that affect the strategies and operations of firms today:

Geopolitical factors. Examples include both the “hot war” between Russia and Ukraine and the “cold rivalry” between the U.S. and China. Firms must ask the following types of questions: What impact will the Russia-Ukraine war have on commodity prices, risk premiums, and economic prospects in markets around the world? How will the intensifying U.S.-China rivalry affect key supply chains and related market access?

Supply chains. Disruptions are occurring across many important supply chains, including those for semiconductors, energy, and food. These disruptions are forcing businesses to change their organizational structures and even their geographic locations. Resilience is the byword overtaking efficiency. The International Monetary Fund has stressed that and uncertainty of access could soon become the norm. How will disruptions to supply chains work their way through the production cost structure and feed into consumer prices, reshaping final demand? How will particular product markets be affected if there are constraints in logistics systems—for example, in the operation of key ports and the movement of trucks across borders?

Monetary and fiscal policy. Surging prices have forced governments to raise interest rates to curb inflation and safeguard financial stability. These changes are happening against the backdrop of historically high private and public debt. Will central banks continue to aggressively tighten monetary conditions, possibly tipping economies into a recession? Or will they ease up, perhaps risking further price increases now and harsher restrictions in the future? If countries take fiscal measures designed to shield firms and households from higher costs—if, for example, they subsidize electricity—will those measures work at cross-purposes with actions that tighten monetary policy? Or, due to mounting shortages and rising prices, will fiscal policy also tighten, possibly leading to slower growth and a political backlash?

Financial markets. Rising interest rates mark the end of low-cost debt and an increase in the cost of borrowing for firms and households. Regional bonds have experienced escalating yields due to changing risk premiums and the uncertain future cash flows of financial assets. These factors have led to widening credit default swap spreads, declining and uncertain equity markets, fluctuating currencies, and growing uncertainty with respect to the soundness of , particularly in the U.S. and Europe. How should enterprises plan, structure, and finance their investments in this uncertain climate? How will the heads of households adjust their borrowing and spending?

Managers might feel like they’re dealing with a cluster of interconnected earthquakes continually transforming the context for strategy and operations. As governments get involved in a widening range of product markets, today’s business world is increasingly characterized by the “” and the “.”

Few CEOs and policymakers have the experience or playbook for navigating in such a chaotic environment. The usual approaches to risk management—for example, assessing political risk in a particular country or geographic region—are no longer sufficient. These approaches do not allow managers and policymakers to identify, let alone manage, uncertainties and risks that are increasingly cross-border and global in nature.

The Role of Management Education

In a volatile and unpredictable world, it is essential for leaders to have a deeper practical understanding of the wider context and key factors shaping the strategic business environment. To provide leaders with the information they need when they need it, business schools must embrace new educational formats and financial models. Some of the following tactics are particularly useful:

Integrating disciplines. Strategy courses need to provide students with an appreciation of relevant geoeconomic factors. Schools should take an application-oriented approach to combining management theories with an understanding of history, economic policy, international relations, and specific areas of the world (such as Asia). When schools create well-structured interdisciplinary programs that have a pragmatic management focus, they will prepare business students at all levels for the “futures we are in.”

In a volatile and unpredictable world, it is essential for leaders to have a deeper practical understanding of the wider context and key factors shaping the strategic business environment.

Creating modular and stackable courses. Schools are finding it increasingly appealing to restructure current degree programs into smaller bite-sized options that students can stack as needed. Many disciplines and focus areas—including geoeconomics and analytics—can be covered in modules that combine specialty knowledge with a practical management orientation.

Expanding the toolkit for strategy. Methodology supporting corporate strategy in times of turbulence must combine analytics with creativity. Business leaders must be able to conduct strategic analyses that identify complex and dynamic sources of uncertainty and the potential implications for their firms. One useful method they can learn is how to construct that allow them to test the resilience of their chosen strategies. Typically, managers create baseline, optimistic, and pessimistic scenarios, depending on the assumptions they make about current and future conditions.

However, given factors such as the Russia-Ukraine war, U.S.-China relations, and supply chain disruptions, few managers will be able to rely solely on scenario planning to guide their product market strategies. They will need to think creatively to identify a wider range of possible futures—that is, they will need to make assumptions about specific issues and options. These assumptions will require explicit . Different reasonable assumptions yield a broad range of disparate but equally plausible futures. Therefore, through can help leaders make sense of a volatile situation.

Adapt and Collaborate

Even beyond the walls of the business school, organizations are seeing how management education is being reshaped by geoeconomics. For instance, The Economist recently launched that explores how business is being affected by geopolitical realities that include war, as well as climate change, migration, and aging populations.

As enterprises change their approaches to strategy, business schools must adapt the way they educate managers. One solution is for business schools to creatively collaborate with the wider university on interdisciplinary programs that show business leaders how to navigate a turbulent world.