Why geopolitical risk analysis should be standard business practice
We live in an increasingly unstable, unpredictable and multipolar world. Companies that lack the right analytical processes will get burnt.
This can lead to financial setbacks, such as regulatory penalties, operational challenges around market access or workforce risks, strategic missteps like failed mergers or missed opportunities, and reputational damage due to ethical breaches and negative market perceptions.
In an increasingly interconnected world, any business with global operations, customers and/or supply chains will have been, and will continue to be, impacted by the major events discussed in Healix's Risk Radar report, as well as a myriad of other external factors.
Resilient and successful companies benefit from investment in structured and proactive geopolitical risk analysis and management, not only to weather external shocks, but thrive through them. Yet many fail to make this investment.
The danger of neglect
Some large companies have successfully integrated structured and well-informed geopolitical risk analysis into their strategic decisions.
So why isn’t geopolitical risk analysis and management more common in the broader business sector?
There are several possible reasons:
- Apathy or complacency at the Board level: The Board may exhibit apathy or, more commonly, complacency in its breadth and depth of experience, and global business units may lack objective analysis aligned with company strategic goals within their geopolitical context.
- Short-term focus: Corporate Boards and leadership teams often prioritise short-term financial performance and individual project delivery over strategic planning.
- Perceived cost: Companies may view geopolitical risk analysis as a cost, competing against other capital and operational expenditure, rather than an investment, questioning its immediate relevance to their operations.
- Integration challenges: Incorporating geopolitical risk analysis into existing business processes and decision-making can require significant cultural shifts, active change management and dedicated resources.
- Lack of specialised expertise: Companies may lack appropriately specialised and experienced in-house resource, and may resist the cost of consulting external advisors.
- New market blind spots: Limited experience in unfamiliar markets can lead to risks being overlooked.
- Overwhelming complexity: The fast-changing geopolitical landscape can feel daunting, leading to a reactive instead of proactive approach to management of these risks.
To illustrate the complexity of geopolitical risk, consider two recent reports: The US National Intelligence Council’s Global Trends[1] and the UK Ministry of Defence’s Development, Concepts and Doctrine Centre’s Strategic Trends[2].
The quadrennial US report, last published in 2021, outlines five potential scenarios for 2040, three of which focus on US-China rivalry and varying degrees of international challenges. These include a resurgence of democracies, a divided world with competing powers, and China as a leading but not dominant force. The other two scenarios explore more severe global disruptions, such as the breakdown of globalisation or revolutionary changes following environmental crises.
Similarly, the UK report published in 2024 identifies six key drivers, including global power struggles, climate change, and technological advances, leading to five possible futures for 2055. These range from new multilateral cooperation to a de-globalised world shaped by conflict and shifting spheres of influence.
While the breadth and quality of analysis in these types of report far exceeds what most companies need, external consultancies may still propose – and overcharge for – this level of detail. Crucially, this type of analysis fails to answer the essential question: “So what?”
How will these potential geopolitical developments (if they manifest) impact the company’s strategic delivery plans? And how can the business most effectively, and cost-efficiently, manage these risks in a way that strengthens resilience and unlocks competitive advantage?
In the Healix Risk Radar survey, 58% of companies rated themselves as either ‘not very resilient’ or only ‘somewhat resilient’. Confidence in handling major disruptions was similarly low, with 56% expressing limited confidence. Companies clearly recognise the growing risks but lack the confidence in their ability to withstand them. This highlights an urgent need for better strategies.
Companies clearly recognise the growing risks but lack the confidence in their ability to withstand them.
The benefit of geopolitical risk analysis
Geopolitical risk analysis and management is only a worthwhile investment in the overall Enterprise Risk Management (ERM) framework if it is carried out within the context of a company’s strategic drivers and operations. While forecasting cannot anticipate every eventuality, a structured and informed approach – ideally facilitated by external advisors for impartiality – can identify the most significant geopolitical risks to strategic delivery, against which appropriately-targeted controls and mitigations can be prioritised, resourced and monitored for efficacy.
A mature and comprehensive approach to potential geopolitical shocks instils confidence among the Board, business partners, customers and supply chain providers. This not only measurably improves resilience, but also positions the organisation to proactively capitalise on opportunities arising from anticipated geopolitical shifts, whether related to conflict, regulatory changes, or adjustments in trade and other domestic policies including sanctions and tariffs.
A practical approach to horizon-scanning
The plethora of geopolitical information, analysis and advice available today in the public domain can confuse and potentially overwhelm if not passed through the filter of a company’s core business drivers.
A critical starting point is to define the geographical scope of mission-critical elements of the company’s operations; key facilities, clients and suppliers. Understanding how the company’s strategic drivers are likely to impact these elements over the short, medium and longer-term is essential.
From this foundation, select a manageable number of reputable and objective open-source feeds focused on geopolitical developments in mission-critical regions, combining media and specialist analyst outputs. Generative AI can assist in quickly crawling through and filtering vast amounts of open and deep web data and information.
Initially, it may be beneficial to engage external geopolitical consultants to kickstart the process; one approach could be to facilitate inward knowledge transfer with the aim of developing a dedicated in-house team to take over the collection and analysis over time, as the requisite experience is gained. Alternatively, outsourcing this function on a medium- to long-term basis is also an option.
There is no ‘one-size-fits-all’. What is important is to keep the range of information feeds under constant review, to avoid groupthink and confirmation bias, maintaining a sharp focus on the “So what?” and “Now what?” for the company. As the process matures, companies can explore deeper analyses or scenario-based war-gaming for the geopolitical risks identified as most impactful and highest priority.
Building resilience for future challenges
Vanishingly few private-sector companies are immune to geopolitical risk. Well-informed, proactive geopolitical risk analysis tailored to mission-critical activities (operations, customers, supply chain) should be considered an investment, not a cost. In a world rife with uncertainty, businesses must prioritise their understanding of geopolitical dynamics to navigate future challenges successfully.
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Office of the Director of National Intelligence’s Global Trends (dni.gov)
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Global Strategic Trends: Out to 2055 - Bite-size (publishing.service.gov.uk)
