It feels like a no-brainer: When macro conditions are unsettled, a company’s appetite for risk should wane. If you don’t know what the future holds, slash spending and wait for the pressures of inflation, rising interest rates, extreme weather, political instability, and a lingering pandemic to recede.
While macro uncertainty is nothing new, this round feels especially severe to Dave Wright, chief innovation officer at ServiceNow. “It feels like the first change we’ve gone through where there isn’t an expectation it’ll go back to the way it was,” says Wright, an enterprise tech veteran whose career started in the early 1990s. “There’s now an expectation that things are going to shift permanently.”
Global uncertainty is on the rise after receding from historic highs during the early days of the Covid-19 pandemic. That’s according to the World Uncertainty Index, created by researchers at Stanford University and the International Monetary Fund. They update the index quarterly by text-mining Economist Intelligence Unit country reports for words related to uncertainty.
“Measuring uncertainty helps firms make decisions,” says Stanford economics professor Nicholas Bloom, one of the creators of the uncertainty index. “In periods of high uncertainty, it is very valuable to pay for flexibility,” he adds. “For example, renting rather than buying property or hiring contractors rather than full-time employees. It is also a period where contingency planning is extremely valuable.”
Periods of uncertainty also present excellent opportunities for upstarts looking to leapfrog market leaders. Macro disruption can change consumer behavior, as when COVID-19 forced millions of employees to start working from home overnight. At such times, consumers are likely to reward firms that offer innovative solutions to their most pressing needs. In this light, it makes sense that some of the world’s most successful companies—think General Motors, Microsoft, Google, and IBM—were all founded during downturns.
Many companies around the world see today’s macro environment as a business opportunity, according to a recent global survey of C-suite leaders from ServiceNow and ThoughtLab. As you might expect, smaller firms are more likely to embrace riskier strategies. Among companies with fewer than 5,000 employees, 37% of respondents say they’re planning to take advantage of the next two years to improve their competitive position, versus 26% of companies with more than 10,000 employees.