It’s 2018 and we’re back with our first episode of the new year.
In this episode of the Managing Uncertainty Podcast, Bryghtpath Principal & CEO Bryan Strawser and Senior Consultant Jennifer Otremba talk through Bryghtpath’s view of the Top 12 Global Risks of 2018. Topics discussed include national security, the global economy, lessons learned from the 2017 hurricane season, cybersecurity, and risk to companies from the ongoing sexual harassment revelations.
Bryan Strawser: It’s 2018.
Jen Otremba: 2018, Happy New Year.
Bryan Strawser: Happy New Year. Welcome back to the Managing Uncertainty Podcast.
Jen Otremba: We’re excited to be back in the New Year here.
Bryan Strawser: We are. We actually didn’t record any podcasts for the last three weeks of the year. I think we recorded four or five like that first of December and we used those throughout the months. So this is really our first time back in the studio here at our offices for a month or so.
Jen Otremba: It’s good. Much like many, it gave us chance to enjoy the holidays.
Bryan Strawser: It did. So in this episode we’re gonna talk about our view of the top risks of 2018. I think we’re gonna kind of run the gamut here from things that many of you are probably thinking about. Some things that we’ve talked about before and then some things that maybe you’re not thinking about that are gonna have an impact on you in some way, in terms of the global economy. Because that does impact you locally or foreign affairs and national security issues, which will also impact you in ways that you’re probably not thinking about today.
Bryan Strawser: So the first risk on our list of 12 risks that we’re gonna talk about today is the rise of China and I think we hear a lot about this. I don’t think people really understand the impact of what’s going on but under the current leadership, China’s really taken a different approach to geopolitical affairs and international relations than they have before. And what we’re seeing now with China is really they appear to have started to cooperate with a number of international institutions where and before they really kind of set themselves aside and didn’t do any sort of cooperation like this.
Jen Otremba: Yeah, they really isolated themselves as far as international trade, discussions, things like that.
Bryan Strawser: And what’s interesting about that is, that was really a role the United States has played historically. We are beginning to do less of that. China is beginning to fill somewhat of the vacuum or void left behind by our leadership. It’s not really a Republican or Democrat thing, it’s just that the direction that our country has gone over the last decade or so has been a different role Internationally. So China is starting to fill that gap and it’s an interesting comparison I think to think about the rise of China and what many perceive to be the decline of the United States as a geopolitical power for the last 20 – 30 years.
Is very similar to the situation that the United Kingdom found themselves in, in the late 1800’s where they made the strategic choice to hitch themselves through a surging United States as a global power and it has allowed the United Kingdom to bat above their weight in foreign affairs for well over a century. And perhaps we have similar opportunity to coach and guide the Chinese in the same way, but I’m not sure that our current administration or even previous administration is interested in doing that. They seem to be more interested in confrontation.
Jen Otremba: Well, I don’t even know that the mass population of the US is ready to do that.
Bryan Strawser: No.
Jen Otremba: Or ready to welcome that as being an option.
Bryan Strawser: But China will continue to be for the foreseeable future the world’s largest economy, one of the largest geopolitical powers, and I think we’ll see them continue to flex their muscle on the international stage for decades to come.
Our second risk is … and these are in no particular order by the way. Our second risk is North Korea. Obviously the threat here is North Korea is a nuclear power. They have achieved at least some intercontinental ballistic missile capability that seems to be advancing and the Olympics are in South Korea in just a short period of time here. And we have a significant amount of military forces in South Korea. They’re under treaty to defend South Korea who is a close ally of the United States. Nobody knows what’s going to happen.
Jen Otremba: No, but really interesting, right? To follow that and watch what will happen as we lead up to the Olympics there.
Bryan Strawser: We had a client call us, what … about four months ago and asked the question … first they kind of danced around the point and then they just got to it and said, “What we’re really concerned about is we have a billion dollars in product being manufactured in South Korea right now and I don’t know if we should think about where to manufacture that elsewhere or if we’re even going to get the product.”
Jen Otremba: And they’re not an isolated case, right. So there’s many of these types of organizations that have products coming out of South Korea, and trying to figure out what is the answer going forward.
Bryan Strawser: So North Korea will continue to be … I think they are the very definition of uncertainly really no idea of what they’re going to do. They don’t follow any international rule set that countries like United States are expected to follow. We don’t know what their decision making is going to be. There’s an awful lot of sabre-rattling that’s gone on and any type of military conflict would just be enormously damaging. Not just in terms of life but on the global economy as a whole.
Jen Otremba: Yes, very much so.
Bryan Strawser: Our third risk is really a risk to business, and it is about the impact of technology on how we operate. And this is really about the rise of three specific technologies and that’s automation, robotics and artificial intelligence. That we are seeing these as kind of the next huddle that businesses are going to be faced with that what you do today manually is going to be done in the near future and in some cases is already is, being done by systems that are robotic or automated or that utilizing artificial intelligence.
Jen Otremba: Yeah, and we’re seeing that already come out with cars, with helicopters, with obviously [inaudible 00:06:16] but things like that where there’s a lot of experimentation going on right now and I think it’s just gonna continue.
Bryan Strawser: We see that with Amazons Alexa, with Apple’s Siri, with Google Home and with these other products that are beginning to use … you know we think of it as voice recognition but what’s really happening here is artificial intelligence processing going on behind the scenes and making that happen. And I think this is gonna have huge impact on jobs in a way that people don’t expect today. If your job is something that you can replaced by software, that’s probably gonna happen in the next decade.
Jen Otremba: Yeah, and we’ve seen it happen in the past before.
Bryan Strawser: We have.
Jen Otremba: So it will be interesting to see how this evolves and how it continues to affect us.
Bryan Strawser: Fourth on our risk and this is really for US centric companies but is Mexico. The risk here is not about illegal immigration or people crossing the border. The risk here is strategic and it is about the desire of the United States to renegotiate the North American Free Trade Agreement or NAFTA, will undoubtedly have an impact on trade and on the price of goods and on the free flow of goods between the US and Canada and Mexico. This is all complicated by the fact that Mexico will have a presidential election in July and that could alter the United States’ relationship and the tenor and tone of these negotiations.
Jen Otremba: Which has already-
Bryan Strawser: It’s already happened.
Jen Otremba: … happened, yes.
Bryan Strawser: Number five on our risk is Iran. I’m sure most of you are not dealing with Iran in terms of working with vendors or sourcing product from there or visiting Iran for tourism purposes. But Iran, particularly over the last few weeks has been the site of kind of democracy driven protests against the ruling regime that’s in place and their form of government, which is very non-democratic and highly theocratic in nature.
The risk here is not so much about the impact on companies that might be doing business Iran ’cause that’s not happening. It’s really about Iran’s place in the Middle East and how this impact neighboring countries and the kind of general state of conflict going on throughout the Arab World. Iran is in the middle of a lot of that. In fact Iran has instigated or been in driving a lot of that particularly with Iraq and others there. We talked before the podcast, I think were both fairly pessimistic about the protest situation there.
Jen Otremba: Yeah. I mean in the course of history and what we’ve seen with protest is generally the outcome is not necessarily favorable of the protesters or to the cause. They don’t usually get what it is that they are hoping to get out of it.
Bryan Strawser: We’re both fans of Steven A. Cook who is a fellow at the Council on Foreign Relations in DC.
Jen Otremba: Yes, recently we got to see him talk.
Bryan Strawser: Got to see him talk at University of Minnesota Humphrey School and Dr. Cook has a great book called False Dawn about this rise of protest and democracy in the Middle East and North Africa. I can remember the money quote that you gave me this morning that there was no pot of gold at the end of the protester rainbow.
Jen Otremba: Yeah something along those lines. That was quoted from Steven Cook but maybe not exactly the way he said it but something like that. And it really rang true to what we’ve seen in protests really throughout history but specifically in the Middle East.
Bryan Strawser: Right. There’s a theory, and I believe in this theory to some extent and I don’t think this means that it’s … if you pair this with Cook, I don’t think this is optimistic at all. But Thomas P. M. Barnett who wrote the book The Pentagon’s New Map, really talked about the change in the Middle East and elsewhere, where you have isolated economies and countries, Myanmar and Haiti were examples of this. That connectedness with the outside world drives the kind of protests and pro-democracy behavior because people start to understand that there is a life beyond the form of government and the regime in which they live under.
I’ve seen that sighted, this connectedness to the outside world through satellite television, through mobile phones, through the internet as being kind of a catalyst for some of these protests. But it still doesn’t make me optimistic that they’re gonna be successful in the long run. It will require other change to happen.
Jen Otremba: Right.
Bryan Strawser: Number six on our list is protectionism I trade. Again, this is more of a US centric issue but it will have global economic impact. The current administration, President Trump’s administration has said in numerous ways that they wish to pursue essentially a trade war, but they’re interested in pursuing tariffs on certain products coming into the United States.
And I don’t think there’s any way to talk about that without realizing that those tariffs are gonna be reciprocated in some way shape or form. We were talking about tariffs on foreign steel particularly Chinese steel, which is much more … it’s much cheaper than steel manufactured in the United States. But if you put big tariffs on that, the Chinese will find a way to reciprocate, it might not be on steel but they’ll find another issue, televisions, Apple products that are manufactured there and they will make them more expensive in retaliation.
Jen Otremba: So it’s a risk, so we’ll see where that goes, what happens there.
Bryan Strawser: Number seven on our risk is Brexit in the United Kingdom. This has been a multi-year battle now across two prime ministers following the referendum about the UK leaving the European Union. Their negotiations are ongoing. But this has been a really difficult thing to work through for the British Government, it brought down the previous prime minster who was of course opposed to Brexit lost, I think did the smart and honorable thing and resigned. And now Theresa May who is his successor is leading the Conservative Party as Prime Minister and is really struggling from a leadership standpoint to get through the Brexit negotiations are bringing this to a close.
You know she called a snap election, didn’t pick up the seats that they thought they were going to get. She thought they were in a good position, turned out they had read the electorate wrong. Probably isn’t gonna make it as Prime Minister given what we’re seeing over there in terms of politics, you can get toppled by your own party and in sometime this year if things don’t improve.
Number eight on our list is the sexual harassment scandals of 2017 and how they will continue to play into 2018, definitely not a risk that’s going away.
Jen Otremba: No, we did a whole podcast geared on this topic alone where we talked a lot through what that risk looks like for organizations, corporations, things like that.
Bryan Strawser: So we don’t go in a lot of detail there except to say that the tolerance for this kind of behavior is at I think at an all time low. I think accountability for this behavior is high and getting higher. And I don’t really think there’s been the impact in the business community yet that we’re gonna see down the road. Still seen this ripple through entertainment and news. But I think they’ll be more about company scandals that we’ll learn over time. Number nine is on our risk of top threats is the failure to deal with the lessons of the 2017 hurricane season.
Jen Otremba: This is huge.
Bryan Strawser: So there was a number of lessons that came out of the hurricane season last year, three major hurricanes. The most difficult hurricane season, biggest hurricane in a very long time in the US. And we’re still dealing with the aftermath of this and the US Virgin Islands, and Puerto Rico where we still don’t have 100% power restoration and water restoration. But there’s a number of lessons that came out of this, we’re gonna talk about these on an upcoming webinar later this month.
But the real risk out all of this is not that I don’t think of the risk is that, ‘Hey we’re gonna have another really bad hurricane season,” statistically-
Jen Otremba: We will, we know at point.
Bryan Strawser: At some point we’re going to. But to us the real risk is that in the month or so following the hurricane season wrapping up, lots of companies wanted to do a lot to address the issues like not having a good crisis management process, not having good communication, not having the logistics in supply contracts and place to deal with things, not knowing how to account for your team.
Jen Otremba: Not having good plans.
Bryan Strawser: Not having good plans. These are all things that need to be addressed and if they’re not addressed, well that’s the real risk. The real risk is, “I’ve decided not to deal with these things,” thinking that, “Hey, this isn’t gonna happen again.” But it is going to happen again and it might not be a hurricane, it could be another issue. We’re seeing smart companies deal with the lessons learned of the hurricane season. We’re seeing a lot of companies that are like, “Well, it’s okay.”
Jen Otremba: “It’s a risk we’re willing to take.”
Bryan Strawser: Yeah or, “Well, we don’t have money this year so we’re gonna wait.” And that’s not a good strategy.
Jen Otremba: It’s really not.
Bryan Strawser: Number 10 on our list is just the uncertainty of the world today. And we were speaking prior to the podcast but a lot of the recaps of 2017 going into 2018 particularly here in the United States were around this, “God, 2018 is just gonna be a mess and a disaster. It’s gonna be so difficult.” I don’t think we feel that way.
Jen Otremba: No.
Bryan Strawser: But there is more … It feels like there’s more uncertainty and more potential for disruption than before. I think part of this is the … we think part of this is just the political turmoil that we kind of feel here in the United States where if you watch the news and they’re talking about politics, state, local, federal, it’s exhausting.
Jen Otremba: It is. I walked in the office this morning and I even said that to Brian. I was like, “Gosh, I’m just so exhausted with everything and then the media right now.”
Bryan Strawser: I can’t watch it. Yeah, I can’t watch the news.
Jen Otremba: Everything is a significant emotional event so it is exhausting. So how do organizations become more resilient to be able to manage through that?
Bryan Strawser: And how do they make sure that their team is resilient, that we can deal with this kind of up and down situation that they have to be faced with. I was talking to a reporter this morning about that very issue is, I think their question when they called was, “What do you tell small businesses about how to help their employees be more resilient with all of this.” I mean she describes just all of this chaos that’s going on in the world. And I’m like, “Well, one is, I wouldn’t frame it that way. I don’t think the world is that chaotic but the world’s uncertain. You really have to be able to help your employees understand how to deal with the ups and downs of the business cycle.”
Jen Otremba: Like roll with the punches?
Bryan Strawser: You gotta roll with the punches and there’s gonna be down cycles of things that happening. You have to manage through that as an individual and as an employee and you have to drive those behaviors in your business. Number 11 on our list is Terrorism that this an issue we don’t think goes away.
We certainly saw, I think over the last two or three years there’s been a clear trend towards some shifting of strategy when it comes to terrorism attacks in the Western world, in Europe, in the United States, Canada and elsewhere. We are seeing more vehicle-borne attacks where fire arms or knives are not necessarily involved. We’ve seen knife attacks even here in Minnesota in [inaudible 00:17:59].
And then we continue to see the … I hate to use the phrase lone wolf ’cause it’s so overused. But we see this individual who might be motivated and radicalized for some purpose who then plans and executes and attack on their own without any kind of command or control structure and that’s incredible difficult to detect and even more difficult to stop because you really don’t know it’s coming, you don’t know who to watch in that case.
Jen Otremba: Not unless you know some of the risk factors anyway.
Bryan Strawser: Right, there’s obviously risk factors in some of those cases. Well, there’s things that people should have seen that we don’t wanna react to.
Jen Otremba: Right, ultimately I think we don’t want to, is a good way of putting, yeah.
Bryan Strawser: Yeah, if you see something, say something.
Jen Otremba: Exactly.
Bryan Strawser: Last on our risk and certainly not least is the whole issue of cyber security. I think there is a good article I was reading last night about, “The cyber security piece has really come to a standoff between the ever increasingly high barrier to breach into an organization and the incredibly more sophisticated tools that hackers and those that seek to do harm like state actors, intelligence agencies and others, their tools are getting more and more sophisticated over time.”
I mean we saw an attack here in the last 18 month where someone basically used an exploit that the US National Security Agency had discovered and used that exploit to breach into organizations, steal information and PII and PCI data.
So it continues to be more difficult. And one of the gaps that we see pretty commonly here is, you know, we don’t do technical infosec work. That’s not the field that we’re in. There are many reputable places that do that kind of work. We are more interested in when the thing happens, how do you react and what is your process and how do you manage the incident? What happens if you really have a breach and how do you handle the crisis communications from that?
Jen Otremba: And what are your plans?
Bryan Strawser: And what are your plans and do you practice those plans? And wow, people are not good at this.
Jen Otremba: And do you exercise them and people are not good at this.
Bryan Strawser: They’re not good at all. So there’s a great opportunity that I think goes back to the hurricane lessons, which is what is your crisis strategy, your incident strategy leading to a crisis that allows you to react and deal with these things.
Bryan Strawser: Those are our top twelve risks for 2018 as Jen just outlined. And we’ll be talking in some depth about a couple of these risks moving forward in some more in-depth additions to the podcast and on our blog in the future.
Jen Otremba: And certainly how they evolve throughout the year.
Bryan Strawser: Thanks for listening.