The playbook for seeing around geopolitical corners

Geopolitical surprise has become a permanent cost of doing business—and a one-size-fits-all approach to scenario planning can’t keep pace with it. In this episode of The McKinsey Podcast, Partner and Global Director of Geopolitics Ziad Haider joins Editorial Director Roberta Fusaro to unpack five tools for sharpening foresight: horizon scanning, scenario planning, contingency planning, simulations, and tabletop exercises. They discuss why so few companies use these tools at scale, how AI is starting to reshape geopolitical risk assessment, and why human judgment remains essential for seeing around corners.

The McKinsey Podcast is cohosted by Lucia Rahilly and Roberta Fusaro.

The following transcript has been edited for clarity and length.

A tool kit beats a crystal ball

Roberta Fusaro: Ziad, you and your coauthors wrote the article “The art, science, and technology of geopolitical scenario planning” for McKinsey.com. There’s a great question from a CEO at the beginning of that article that asks, “Is scenario planning broken?” What’s your honest answer to that question?

Ziad Haider: It was an excellent question, because the CEO was acknowledging the fact that we seem to keep getting buffeted by different strategic surprises, whether it’s Russia’s invasion of Ukraine or even something like the COVID pandemic in the nongeopolitical realm.

One of my reflections on this topic, after spending time with clients, is that there is a methodological aspect to how you approach foresight planning that probably needs to be strengthened. Equally, it’s also about what your objective is when doing this scenario planning exercise. If your objective is crystal ball predictive clarity, that’s an unrealistic objective. We try to discuss the idea that scenario planning itself needs to be demystified and understood as the art of foresight, and that there are different tools of foresight to use for different objectives.

Even though the article contains many references to scenario planning, in one of our latest surveys of executives, 53 percent said that scenario planning is really important, but less than 30 percent said their organizations are actually using this tool.

Roberta Fusaro: Let’s unpack things—the article cites five tools to help leaders develop foresight. They are horizon scanning, scenario planning, contingency planning, simulations, and tabletop exercises. Can you give us a sense of each tool?

Ziad Haider: The first one is horizon scanning, to look toward the near-term future, such as over the next year, and thinking about the big risks or opportunities that could be presented to your organization. Often, the way to engage leaders is to give them a colorful term to help them wrap their minds around that. I like to frame them as “black swan events.” What could be the “gray rhino events”? These scenarios are appearing across the global landscape, and while you know they are happening, you don’t know when they’ll hit you or how hard. And then there are silver linings, or opportunities.

Typically, companies think about this concept in their annual risk snapshot for the board at the end of the year. That is often when they offer a perspective on the geopolitical risk outlook for the year ahead.

Roberta Fusaro: What does scenario planning look like?

Ziad Haider: Scenario planning is probably the best understood tool. The idea behind scenario planning is to think about multiple futures and outcomes, like how the world would react to trade relations between the US and China or to the conflict in the Middle East. Scenario planning should inform your strategy, positioning, and global footprint. If you compare this to horizon scanning, which focuses on near-term risk, scenario planning requires you to lift your gaze and consider multiple future strategies and positioning over a longer-term horizon.

Roberta Fusaro: What can you tell us about contingency planning?

Ziad Haider: Contingency planning is the cousin of scenario planning, but it’s the sharp end of the stick. It’s not about thinking of multiple futures that could potentially play out, but about thinking of the most intense future that could occur and how you will handle it. For example, contingency planning means hypothesizing about what kind of global event might force you to leave a market on short notice, pull your people out, and shut down your factories. The way you prepare for that sudden shift gives you a very different end product than just imagining the scenario.

The questions you must answer during a contingency planning exercise are: What’s the exit plan? What’s the phase-down plan? How would we get our people out? This mindset is much more about resilience and crisis response than scenario planning, which focuses on strategy and long-term positioning.

Roberta Fusaro: How can leaders use simulations to develop foresight?

Ziad Haider: Simulation is an interesting one. Quite strikingly, in that same survey, less than 5 percent of respondents said their organizations use some form of simulation. The objective of a simulation is to move from simply laying out a bunch of scenarios or contingencies on paper to making your leadership team live it. Imagine putting your whole team in the room. You have a facilitator. Across the room, you have your head of North America, your chief risk officer, the head of a few other key regions, and the rest of your leadership team. You’re feeding them information in the form of questions like, “X event has happened, how would you respond?” It forces the leadership team to grapple with how they would react.

Ultimately, this forces a degree of planning in which everyone comes together on how they would respond in alignment. Often, these discussions aren’t intended for leadership teams to compare their colleagues’ perceptions of potential threats or actions. It is role playing to make the issue, or the vector of shock, come to life and to work through the problem together in a live, facilitated exercise.

Roberta Fusaro: The last one here is tabletop exercises. When I think of “tabletop,” I think of tabletop gaming. I know that’s not what this is, so tell me more about what tabletop exercises look like.

Ziad Haider: There are a few different words for this tool. I like your version because it sounds a lot cheerier! Tabletop, or war-gaming, is a term that’s used more in the public sector. Fundamentally, the idea with a tabletop exercise is that it’s almost an educational tool for the audience in the room. Typically, in a tabletop exercise, you’d be role-playing two sides in a conflict. You want to ask, “What would they do? What tools would they reach for? Will they use things like sanctions, export controls, or blockades?” All of that questioning informs the audience observing this exercise, and sometimes participating in it, as a contingency planning exercise.

It educates the audience about which policy tools might shape our landscape if a particular military conflict or trade shock comes to pass. Again, that is much more about helping the audience think about state actions that may happen, as if to draw the comparison to a red versus blue team. We see a lot of this in the public sector, but many private companies want to understand, in a more contested world, what actions and tools governments may use to inform their own planning and positioning.

Roberta Fusaro: What are you trying to achieve through these exercises? Does your choice of tools and how to use them depend on your business objectives?

Ziad Haider: Absolutely. You pick the instrument of foresight based on the objective, which is shaped by a range of factors, including a temporal dimension. Are you looking near, medium, or long term? Are you thinking about strategy? Are you thinking about resilience? Are you thinking of it as a way to create alignment in your organization? Some themes cut across all of them. I think being clear about the objective before you reach for the instrument is important, because oftentimes we jumble all of this into the elastic phrase “scenario planning,” whereas I would argue that you have a tool kit to choose from.

AI spots the rhino, and humans read the room

Roberta Fusaro: It appears every conversation these days is about AI. Assuming it’s no different in the world of geopolitics, how should leaders think about where AI helps with foresight planning, and where it can potentially mislead?

Ziad Haider: In the article, we talk about the art, science, and technology of geopolitical scenario planning. The technology portion relates very much to the theme of AI. Without a doubt, the entire discipline of geopolitical assessment and risk management will be disrupted by AI. But I’d argue we’re probably still in the foothills of that, and we haven’t yet seen organizations using it at scale.

Even in reference to the Russia–Ukraine conflict, some organizations said they were able to leverage AI to triangulate across social media and map troop deployments. This provided an early warning system. But that example still feels somewhat nascent in terms of at-scale tools. Of course, many organizations do leverage tools like AI to synthesize the overall framing of the problem, or the watch points necessary to track and identify which scenario they’re in. I think a lot will have to emerge to make these tools accessible enough that people will use them at scale.

I’d also add that, particularly in this world, there’s tremendous power in human-to-human intelligence. There’s no substitute for a human when developing scenarios, which is an art of creativity and imagination when talking to a wide range of individuals, like policymakers, think-tank experts, and your peers in other businesses. AI will have a growing role, but the richness this skill requires will always rely on some component of human-to-human intelligence, gathered through classic methods of information gathering.

Roberta Fusaro: So synthetic personas will have to be complemented with humans.

Ziad Haider: I think that’s right, yes.

Roberta Fusaro: What separates the organizations that navigate geopolitical uncertainty well from those that might struggle?

Ziad Haider: Two things come to mind. One is that we used to talk about the term “geopolitical risk” a lot. You rightly called it geopolitical uncertainty, because amid that uncertainty, there are two branches: the risk branch and the opportunity branch. The organizations at the cutting edge of navigating this uncertainty are quite clear on both aspects. They’re clear about identifying the opportunity set they hold in this volatility, and they’re clear about building the muscle they need internally to manage the risk.

For example, on the opportunity side, we see many companies looking at shifting trade agreements. There’s a lot of focus on tariffs, but we’re also seeing a lot of new trade agreements come online. They’re looking at the new trade corridors coming online and how they can surge into them, like the new India–UK trade agreement. Or they see the surge in defense spending around the world and consider how they can be part of some of those solutions.

That mindset of saying there’s “opportunity” for us is very important. I use “opportunity” in quotes because, in some instances, these are opportunities quite adjacent to very difficult moments of war and peace and humanitarian exigencies. It remains incredibly important.

The second part is that the best organizations are also thinking about how to more systematically understand, monitor, and mitigate geopolitical risk and various shocks. Here, we’re talking about foresight, but there are a few other elements at play as well. Perhaps the most essential one is insight. Where in your organization do you develop an integrated view of what’s happening in the world and share that with your leadership? So many organizations think about either standing up an internal geopolitics unit or building out a wider ecosystem of insight on geopolitics. There’s an insight component where you must ask yourself, “What’s your eye in the sky, or satellite, to guide your organization?”

There’s also an oversight component. The board can no longer afford to consider these topics once a year with an interesting guest speaker. Many boards that do this properly have a very structured cadence and framework by which they stress test the business on different dimensions of volatility, and make choices about how they want to operate, whether it’s through supply chains, capital, or technology R&D.

There are a couple of other tools that I think are really critical in this day and age, and in this new geoeconomic era, on the risk management side. It’s also important to invest in capabilities like corporate and government affairs. We’re in an era where governments are drawing lines in the sand, and you must figure out very quickly how to navigate. If you fall on one side or the other, it could be the difference between fortune and existential threat.

When I say fortune, I mean industrial policy and new incentives to scale manufacturing. On the threat side, it could be export controls or sanctions. Thinking critically about how you’re engaging with your stakeholders and shaping your reality versus being shaped is quite important.

The opportunity side and the risk, or geopolitical-resilience-capability side, are two sides of the same coin. The organizations that are thinking about and acting on both are the ones I see surging at this moment.

Turbulence is the new normal

Roberta Fusaro: Amid all this uncertainty, are there good examples of companies that are just getting it right and finding opportunities amid disruption?

Ziad Haider: Absolutely. For example, in the trade space, companies that are reorienting are succeeding. There’s a broader theme in the world today of diversification, or having multiple trade partners, routes, and channels. Companies that are leveraging these new trade agreements, often with a lot of momentum from their governments, are doing very well as they reposition.

Maybe I can turn to the theme of the Middle East for another example. There’s a lot of focus on conflict because, obviously, we are in the middle of a conflict there. However, many companies see a real investment imperative in that region on the horizon. They want to invest in different forms of resilience, whether it’s hardening digital infrastructure and data centers or diversifying and building out pipeline networks. There’s a whole investment thesis on resilience in the Gulf that we’ll see play out in time, and many companies are already mobilizing to think about how they can be a partner in that effort and journey for the countries in the GCC [Gulf Cooperation Council].

Roberta Fusaro: The world’s not getting any less complicated, and the CEO role is getting more complicated by the minute. What is one mindset shift that you think every leader could make to thrive amid all this increasing uncertainty?

Ziad Haider: I recall a terrific quote: “The greatest danger in a time of turbulence is not the turbulence itself. It’s to act with yesterday’s logic.” The biggest mindset shift for many leaders today is that they must develop a new logic for how they run their business, which will be different from the one they grew up with in their organizations.

They probably came of age in an era of hyperglobalization and interconnectedness, and we remain deeply connected as a global trading system. But there’s the level of contestation, and the fact that you have multiple of those gray rhinos operating and charging at once.

For many business leaders today, the question they really need to think about is, “What is today’s logic for how to operate my business amid all this uncertainty?” I think one of the themes we’re trying to discuss here is that you’re going to have to get much sharper at understanding the geopolitical landscape and invest in the capabilities in your organization to navigate it. You will need to include some of the tools we have discussed here, which our data shows are not being systematically leveraged at large. The key insight here is, “What is today’s logic, and are you applying that logic to make sure your business not only survives, but thrives?”