CEOs Gamble When They Plan for Just One Future

Dr. Nicholas Lang: Many of my clients come to me and say, hey, Nicholas, how should we prepare for the future? And my answer is, well, don't prepare for the future, but prepare for futures in plural. This report provides corporate leaders with a set of four plausible futures, but not only qualitative descriptions, but a lot of very hard facts. How will the work world in 2050 look like from an economic, a political, a, uh, defense, a societal and many other dimensions. And I think that makes the difference.

Georgie Frost: Welcome to the so what from bcg, the podcast that explores the big ideas shaping business, the economy and society. I'm Georgie Frost. In this episode, we live in volatile times and prediction feels like a losing game. Not planning though, at all would be reckless. Planning for one future is still a gamble, but planning for multiple plausible features, that's strategy. But how do you do it? Joining me today is Dr. Nicholas Lang, global leader of the BCG Henderson Institute. Nicholas, you've just launched a major new report looking into the imagined futures in 2050. But before we dig into your findings, just spell it out for us. The benefit of planning in unpredictable and volatile times.

Dr. Nicholas Lang: You know, we see clients, and particularly if you look at big impacts, whether it's pandemic, whether it's conflic, whether it's tariffs or other elements, I think many of our clients were just overwhelmed by the amplitude and suddenness of the shock. And I think the scenario planning allows you to be prepared, uh, for different futures. I think in the late 1990s, many companies did long range planning and predicted their revenues and their EBIT, uh, 10 years ahead. I think today the idea is to say, okay, what could happen? What could be different base cases, optimistic cases, negative cases going forward and develop your strategy according to this.

Georgie Frost: What do you mean plausible futures?

Dr. Nicholas Lang: So to look at where is actually the world going, scenarios are always precisely wrong, but generally right. Um, and very often clients tell me, well, scenarios are a qualitative description of the world. But that doesn't help me if I want to derive strategy from this. And so together with my team, we really spent time on saying, can we describe the scenarios not only in a qualitative verbal way, but can we quantify it? And so what we did is we quantified those scenarios along 20 KPIs key performance indicators, which cover varieties of society. You have economic indicators, geopolitical indicators, societal indicators, health indicators, environmental indicators that describe the world. And I think this is the powerful element of these scenarios, having four scenarios that go 25 years into the future and that go into a very clear, uh, quantitative Description of the world along all these parameters is quite rare and actually then gives the profound basis for strategic foresight work.

Georgie Frost: What about the truly extreme possibilities? Let's talk about those. Do you think that we're all a little bit guilty leaders too, of getting a bit bogged down or distracted by the more implausible scenarios?

Dr. Nicholas Lang: Every time I talk to corporate leaders they always come with the Black Swan of it. What happens if we have singularity, so AI taking over control? What happens if we have a war in space where satellites shoot each other down? What happens if nuclear fusion is changing the equation of energy management and so on and so on. I think these are obviously scenarios which we also described ah, in the report, um, but to a lower level because they are highly improbable. It would be wrong to focus your strategy only on this type of extreme examples. I think what we would suggest is that you take these four important scenarios which have a high, high probability, and then you can still stress test your organization with some of these black swan events. Um, but just making clear that those scenarios have a probability in the high double digit scenario probability, while autonomous swarms or a war in space is probably a low single digit probability.

Georgie Frost: Walk me through these four worlds, these plausible futures. What could 2050 look like?

Dr. Nicholas Lang: So the first one is called AI Abundance. It's actually a world where tech and AI are dominant, are clearly dominant, are uh, used in a beneficial way. This hasn't happened overnight. On the contrary, in these scenarios we predict major cyber attacks and cyber wars in the 2000s which triggers then humanity to say, oh, we need to have a much more responsible and positive perspective on AI. But the advantage is a highly productive world where AI is dominant, people working three to four days on average around the world, and of course benefiting of a high level of global interaction. The second scenario is called Battling Blocks. That's actually a very different scenario. It's a scenario where the world has separated in very different blocks, where you have different tech stacks, where you have different trade patterns, where you have also a, uh, high spend on military budgets and also a proliferation of conflicts in this area with the battling blocks. We are in an environment where people uh, work probably the same amount they work today, but in a much more tedious environment. The third scenario is called Climate Coalition. The Climate Coalition is what you would say the green world. But again, this world didn't happen overnight. Here also we predict some major climate catastrophe in the 2000s, 2000s, which act as a wake up call for the world to set up a World where you have climate control, where you have emission, ah, control where you might also have a higher level of taxing, and where you try to kind of distribute wealth in a meaningful way. This scenario again is very different from the fourth one, the digital Darwinism scenario, where you have actually a freewheeling tech world that is developing and progressing massively with big impact on productivity, on health, on innovation, but where this impact is actually reserved to a certain elite that can afford it. On the other side you have parts of the society that are in a very challenged economics in professional environment. So actually a very unequal world, uh, where of course you do not have the stability of other scenarios. So that was the attempt to explain you the world in 2050 along four dimensions in three minutes.

Georgie Frost: And you did very well. They're very vivid pictures. But this isn't about just storytelling, is it? You also put hard numbers on each of these futures. How did you decide which KPIs which measures to choose from? Because 20 is a lot, but I assume perhaps some were left on the table.

Dr. Nicholas Lang: Yes, of course. And this was a long debate on whether we take life expectancy or also biodiversity. So I think the first thing we wanted to do is we said we want 20 KPIs, uh, and um, a reasonable number but still diverse enough. And then we went with a clear perspective of saying we want to cover the key elements of the world. What I said before, there has to be something covering economy, something covering politics or defense, something covering, um, climate and so on. And uh, we obviously were also looking at KPIs which we can really predict. And I think this is also something which is interesting, KPIs which we can also trace back into history because, and I think what is quite powerful we did for some KPIs, we went back until 1850, so 175 years to see how the world evolved. Because although the future is unclear, the world is still, uh, an ecosystem which has always evolved along certain parameters. And so it's at least good to understand how the past was. And I think that was a little bit the combination. So is it meaningful? Does it cover the different dimensions? Is it traceable into the future and can we predict it? I think that's a criteria we adapted and applied to this selection.

Georgie Frost: So across those 20 indicators, the four scenarios, which ones do you think tell the most interesting story? What surprised you?

Dr. Nicholas Lang: Well, let me start with the one which I find pretty interesting, which is gdp. Uh, and why is it interesting? Because it's uh, in many cases at least an economic Sum of what all these parameters translate to. And so if you take GDP or uh, the growth of gdp, so the growth uh, of GDP over the years, it gives you the impact it has actually on the overall economy and the overall society. And what I found particularly interesting is that when you look at gdp, uh, you get a lot of very headline grabbing news such as AI will allow us to multiply GDP by 10x or more in a, I don't know, decade or two. Now when you look back at history, you see that actually GDP has never grown more than 5%, never, never more than 5% around the globe. The highest GDP growth we had was 4.7% in the early 1970s, uh, over, ah, a decade perspective. So um, I think that's one element where you say okay, 4.7% doesn't sound like 10x in 10 years. Uh, the other message you get is to say AI is like the invention of electricity. Well, when electricity was introduced in the early 20th century, GDP growth worldwide went from 1% to 2%. So again, we're not talking about 10x. So what I want to say is that it's important to ground GDP in the past development and to reasonably project it into the future. This doesn't mean that uh, our projections are very narrow. On the contrary, when I take the low projection and the high projection, the world in 2050 could have a GDP that is 1.4 times bigger or 3 times 4 bigger M. So there is a fundamental difference between the uh, projections we have, but it's still within reasonable boundaries.

Georgie Frost: You said a few things, surprised you. GDP was one. What were some of the others?

Dr. Nicholas Lang: Yeah, uh, one other which I found interesting is working hours. Again you have uh, a lot of headline grabbing news of saying, okay, people won't work at all anymore, we will have a, uh, universal basic income and things like this Today the reality is that on average the world works 2,100 hours per year. So every person, Europeans are at the lowest part of this, which about 1,500 hours. US is at 1,800 hours. What we foresee is that in our most aggressive scenario of AI abundance, we believe that probably we will end up in a three to four day work week, but we're not ending up in a one day work week for the world. Um, and we actually see that in most of the, let's say more traditional scenarios where AI is not uh, completely, uh, kind of driving this. We're in a more, I would say traditional, uh, perspective going forward. I found it very interesting again to go a Little bit beyond the headlines. And to say, if you look at the working time, if you look at real productivity, probably will have a reduction of working hours by 20% plus, but not by 80%. So that's for example, uh, point. Another parameter which I found interesting is defense spend. Those who spend, we spend on defense. The money we spend on defense. And given the moment we're talking about now, I think this becomes particularly relevant again. When you look back in history, you see that the world has rarely spent more than 5 to 6% of its GDP on defense. Actually, the highest spend was during the Cold War where we were at 6%. Currently we're at 2. Um, now people will tell you, oh, but that's not right because US has spent 12% during the Korea War, or Ukraine is spending currently 30 or 40% of its GDP. But the point is, these are single countries. This is not the global world economy. So if you bring it back to the global world economy, you see that actually in some scenario, in our most aggressive scenarios, battling blocks, we have 7%, uh, spend of GDP on defense, which is huge. Um, that's an extreme perspective. Uh, but it will not be 10, 20 or 25%. So I think that's something which is important to understand.

Georgie Frost: I think at a time when, and I Could be wrong, CEO tenure is about 3 years. Is 25 years or 24 years just a bit too long? Is there benefit to looking perhaps a little closer to them?

Dr. Nicholas Lang: Look, I think, uh, our perspective is that you should not only do 20 to 5 years exercises, but that it's a combination of what I would call a mid range scenario, a long range scenario, and then long term scenarios. And um, again for SEO, yes, I think there's a pressure of, uh, quarterly results. Uh, but at the same time, it is our conviction that uh, you need to take decisions now to be successful in the future. And uh, you cannot only calibrate into the short term. You need to have a long term perspective. And what is also interesting is I actually face a lot of CEOs who tell me, well, you know, my shareholders want to know where we stand in five, ten, maybe 20 years from now. Um, how resilient my operation is for a certain set of shocks that might not come in the next 18 months, but that might come in 10 years or later. Um, so I think a good corporate leadership has that also in mind.

Georgie Frost: So we've covered the so what, what about the now? What if I'm a leader listening to this? The range is wide, the future is uncertain. I can't bet on a single scenario. So what do I actually do? What am I? Next steps.

Dr. Nicholas Lang: We describe it in the report as a set of no or low regret moves. Um, the first uh, seems like a self advertisement but I think it's really important is use scenarios and practice strategic foresight. Develop the muscle to be able to do this. Uh, this doesn't come overnight because many of our corporate leaders used to do a one single mono dimensional future analysis. I think that's something which is important. But then when we look at the operations of the company, I think there are four or five areas where I double down on first and foremost supply chain and operating resilience. Um, don't focus on one single factory but set up a network of factories. Don't focus on a single supplier but have two or three supplier at hands to cover for unpredictable and unpredicted and unforeseen changes. Second, prepare talent for a new world where talent will have more support from AI but will also move to maybe more oversight jobs versus what they do today. Give them purpose. I think this is something which plays an important role. I think then the third element is also to really think around tech and AI. Where is your technology coming from? The future? Is it a tech that is freely available or is it tech that you will need to source from a strategic point of view? Then there is the whole dimension about how you set yourself up organizationally. Many of these future worlds are divided, are uh, fragmented. So is that the end of the global multinational company with one headquarter? Maybe you need stronger regional headquarters.

Georgie Frost: Nicholas, thank you so much and to you for joining us. If you want to gain more insight from Nicholas on this subject, you can find links to his report beyond tomorrow four scenarios for the world of 2050 in the show Notes.