India is ready to play key role in an emerging new world order
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Geopolitics
How to survive on PLUTO, a radically different planet
A new framework encourages leaders to see the world as PLUTO – polarized, liquid, unilateral, tense, and omnirelational. It’s time to think differently and embrace stakeholder capitalism.
In his book The Changing World Order, former hedge fund manager Ray Dalio argues that we are witnessing the end of one of the big cycles in history, and that a new world order will emerge from a drastic restructuring of debt and the reconfiguring of the global system.
Dalio may go too far, but the center of economic gravity is moving east, and the US is forfeiting its leadership in some spheres. The strength of China and a reassertive Russia requires careful management by the US and Europe.
The upheaval has given many senior executives serious strategic problems. To cope, it is important to adopt new frameworks to understand the situation, and adjust strategies to prioritize a stakeholder approach and build resilience. But what does the optimal framework look like?
Frameworks to understand the world
Over the years, scholars, journalists, and academics have produced easy-to-remember phrases to describe reality, which can help with what Stanford’s David Baron calls nonmarket strategy. Baron’s essential idea, developed in his landmark 1992 textbook Business and its Environment, is that sustained business success depends on looking beyond simplistic analyses of markets and understanding the environment in all its complexity.
A quick review of some commonly used frameworks indicates how the business context has changed. Among the first was the neutral PEST framework, created by Harvard professor Francis Aguilar in 1967 to encourage business leaders to look at political, economic, social, and technological factors. Legal and environmental factors were added later to complete the PESTLE concept.
In 1985, professors Warren Bennis and Burt Nanus began describing the world as volatile, uncertain, complex, and ambiguous, or VUCA. At the time, Bill Clinton was US President, Mikhail Gorbachev became Chairman of the Soviet Communist Party, Spain and Portugal had just entered the European Union, and Deng Xiaoping was beginning work on building China into an economic powerhouse. VUCA became a common theme in business schools and corporate boardrooms. The futurist Jamais Cascio upped the stakes three decades later, introducing BANI: an increasingly chaotic context that was brittle, anxious, non-linear, and incomprehensible.
Introducing a PLUTO world
The emerging world order of 2025 calls for new concepts. Some of my colleagues at IESE have coined the term PLUTO to describe a situation that is polarized, liquid, unilateral, tense, and omnirelational. With PLUTO, we signal that it’s a different world, and one which can sometimes feel like a different planet.
Polarization refers to how divided the political scene is in so many countries. While Donald Trump scored a sweeping victory in the electoral college votes in November 2024, his lead over Kamala Harris in the popular vote was only 1.5%, and almost as many people chose not to vote as voted for the two candidates combined. A similar situation exists in many other democracies, including Germany, Spain, the UK, Chile, Argentina, and Turkey.
Liquid means that things are changing fast. The Trump administration upended 60 years of US trade policy in just a few months, sometimes announcing and reversing decisions within days. Traditional alliances are quickly unraveled, and former enemies are approached. This sense of liquidity is felt beyond politics. The race to develop generative artificial intelligence and the battle over which companies and countries will take the lead is happening at breakneck speed.
Unilateralism is replacing multilateralism in the US, China, and Russia. The Trump administration, like that of George W Bush, rejects multilateral agreements and prefers to go its own way. Even if the American electorate chooses to limit this administration in mid-term elections or elects a very different leader in 2028, the trust the world has placed in the US as the principal leader in cooperation and free trade will take years to recover. Regardless of what happens in Ukraine, Russia will pursue its policies unilaterally, and there is no easy answer to what happens post-Vladimir Putin. China’s development policy has long been centered on economic and technological self-sufficiency, and it has resisted international pressure for political reform.
Unilateralism makes the situation tense, although the strains between China and the US did not start with Trump. Eight years ago, former Dean of Harvard’s Kennedy School of Government Graham Allison wrote about what he described as the Thucydides Trap, which is when a nation’s ascent threatens the position of the dominant power and causes conflict (Destined for War: Can America and China Escape Thucydides’s Trap?).
However, there is no denying that tensions have risen under Trump, and even allies haven’t been spared. Europe faces problems and divisions as it struggles to support Ukraine, doubles down on sustainability, and seeks unity in the face of a possible divorce from the US.
In the Middle East, there is an omnidirectional conflict between Israel and Palestine, Saudi Arabia and Iran, Shiite and Sunni, and essentially all the countries in the region. For example, Saudi Arabia is in the middle of a remarkable transition whose success depends on the continuing flow of profitable oil exports, which could be jeopardized if China transitions to a low-carbon economy.
Southeast Asia is trying to retain military links with the US while growing closer to China, which is an increasingly difficult balance. African and Latin American nations are also struggling to gauge where to position themselves in the China-US contest.
The climate crisis and a technological shift that threatens to open a Pandora’s box of radical change add to the tension. It’s hard to imagine how our polarized political process will rise to these challenges without major disruption.
Finally, the current context is omnirelational. The global shake-up means that countries and regions need to forge new allies and agreements and look for opportunities in new places. For example, if Europe can no longer rely on the US, it must speed up trade agreements with other countries and regions, including Mercosur, India, Malaysia, and the United Arab Emirates.
Shifting to stakeholder capitalism
Despite the 2008-2009 financial crisis and the COVID-19 pandemic, many business leaders somewhat complacently believed that global expansion would continue, sea lanes would be safe, and “business as usual” was a reasonable future scenario. But even before Trump supercharged global disruption, there had been several illustrations of the fragility of international trade. For example, rebel attacks on shipping in the Red Sea, war in Ukraine cutting vital energy and agricultural supplies, and around 1,500 Western companies exiting Russia.
Business leaders must change their thinking and double down on the stakeholder model for companies. In 1984, Edward R Freeman introduced the stakeholder approach, arguing that companies must balance the needs of all stakeholders – employees, customers, suppliers, etc. – rather than simply maximizing shareholder returns. Many leaders speak about taking a wider view, but for many years, corporate behavior has largely emphasized driving down costs while boosting willingness to pay and capturing value.
When companies are mindful of all stakeholders, they are more committed to maintaining employment, bringing prosperity to their communities and suppliers, and delivering medium-term returns to shareholders.
On the cost side, this meant outsourcing activities, including moving manufacturing and back office functions to low-cost countries, and underpaying suppliers. On the value capture side, it meant leaning in to business models that put the company first, well ahead of customers or others. A more comprehensive stakeholder approach stresses value creation and then talks about how to share that value with customers and the supply chain.
When companies are mindful of all stakeholders rather than reacting to market volatility to protect only their stock price, they are more committed to maintaining employment, bringing prosperity to their communities and suppliers, and delivering medium-term returns to shareholders. Stakeholder capitalism provides stability in decision-making, which is crucial in turbulent times.
Three perspectives to build resilience
This pivot away from seeking the lowest cost and maximizing shareholder value implies putting the resilience of a company’s value chain over its leanness. To do this, business leaders and boards of directors should consider three levels of potential challenges. The approach echoes the “Three Horizon” framework proposed by McKinsey in 1999, which categorizes growth initiatives in companies by existing business, emerging opportunities that build on the existing business, and fundamentally new businesses and breakthrough innovations.
Companies are accustomed to considering direct impacts, but the interconnectedness of global geopolitics, the climate crisis, national politics, and resource scarcity makes it difficult to predict where the next crisis will come from. Executives should look at three levels of complexity:
- What may directly impact the business today?
- What may indirectly impact the business now or soon?
- In the worst-case scenario, what may have an impact but is not expected?
Direct impacts are measures such as tariffs applied to a country where you source material, or semi-finish or complete projects. Adding 145% to your cost base may well price you out of the market. To examine direct impact, conduct a deep geopolitical and geoeconomic analysis of those countries and regions critical to your business, either as markets or supply sources.
Indirect impacts involve looking in detail at the supply chain and trying to understand the degree to which your key suppliers depend on others who operate in places you normally do not include in risk planning. For example, you may source something from Japan, but a more thorough investigation might reveal that the supplier is sourcing components from China or Thailand.
The final level of analysis concerns potential risk or events we do not consider or even imagine. For example, business leaders typically do not contemplate war. It is essential to think the unthinkable and develop scenarios for such events. Referring to the war in Iraq, former US Secretary of Defense Donald Rumsfeld famously spoke about “unknown unknowns” (in addition to known knowns and known unknowns) or the things we don’t know we do not know.
The tariff dispute between the US and China could be a suitable topic for a three-tier analysis:
- Direct impact: Have tariffs been applied on materials or products your company purchases in China?
- Indirect impact: Have local suppliers been subjected to tariffs? Do competitors have more or less exposure?
- Potential risk: The worst-case scenario would be a war between the US and China over Taiwan, cutting off supplies from China.
What would be your plan B in the event of war? To avoid disruption, Schneider Electric has at least two sources of supply for every component it buys, located in different parts of the world. As a result, it managed better than most during the COVID-19 pandemic.
New organizational capabilities and structures
This three-part planning requires new analysis capabilities. Companies must be able to monitor world events and react accordingly. Public affairs departments, for example, typically explain the company to governments and work to influence legislation; they may now also need to help interpret the world to senior management. There is a need for talent with expertise in geopolitics and emerging events, and how those may impact specific sectors and companies.
Managers must develop an understanding of systems thinking and complexity. Many business majors, engineers, and finance people have a linear way of viewing the world. In addition to training them in strategy and leadership, they must learn about global complexity and how to process non-linear, omnidirectional developments. This will prepare them to develop a resilient strategy and give them the functional capabilities to make it real. Scenario planning may be the best tool for strategy development, but you also need supply chain capabilities to develop alternatives and sales capabilities to shift to safer markets.
The size and structure of the operation will depend on your business. Marriott International, for example, developed a 24/7 command center that monitors global news to detect threats to its 9,300 hotels. The center is linked to the company’s global response capability; some are in-house, and others are outsourced to companies that provide security and emergency response.
To protect customers, employees, shareholders, and communities, business leaders need to embrace today’s complexity and develop strategies that will prove resilient come what may.
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