Leading and Managing in a Global Economy
You have to think globally in everything you do,” says Sandy Sandquist, director of Global Security for General Mills. There’s no question that success in Sandquist’s position requires a global mindset: General Mills is one of the largest food companies in the world. It sells product in more than 100 countries and maintains offices and manufacturing facilities in more than 30. About half of General Mills’ 33,000 employees work outside the United States.
However, one needn’t have “Global Security” in his or her title to recognize the impact of the global economy on business in general, and on how businesses must manage risk. The importance of geographic barriers has dwindled in the face of the abundance of technologies and devices offering instant communication anywhere at any time. Major incidents in a single country – even in a single locality – create financial ripples for businesses on far-off shores as world stock markets react to one another minute by minute. When manufacturing components are sourced internationally, the potential for worldwide impact is considerable; at this writing, shortly after the earthquake and tsunami in Japan, the global manufacturing supply chain is being strained by the destruction or shutdown of factories that supply one-fifth of the world’s semiconductors, according to a Reuters report.
“As major corporations, we have to begin to think in terms of being global and acting globally as opposed to having domestic operations with an international arm,” says Sandquist. “The rules of supply and demand are changing because of changes in how resources will be employed and acquired in the future.”
Predicting the Future
We could visualize business risk as a loose knot, with individual threads – risk factors – entering and exiting in all directions. If one thread is pulled, it may loosen or tighten another. It can take a lot of examination to determine in advance which thread, when pulled, will impact which others – which action or event will influence the price, the quality, the safety of business operations. If we extend this analogy to business risk on a global scale, the visualization may at first look less like a knot than a huge, tangled mess. The issues or factors that could impact business for the better or the worse multiply exponentially, and each is intertwined with many others, so the difficulty in deciphering the potential impacts multiplies as well.
But there are definable cause-and-effect relationships hidden in the tangle. Finding them requires study, understanding and awareness of factors and issues about which the security professional may not have much existing knowledge. “How can the person responsible for managing security get their hands around what’s going to occur six months from now, let alone 20 years from now?” asks Sandquist. “You have to reach outside the boundaries of your day-to-day considerations to better understand where your business fits in a global economy and where that global economy is going.”
For Sandquist, that task entails looking at food as a resource and considering all the factors that influence its development and demand.
An Example from the Global Food Industry
“Each year my entire team gathers for a strategic workday. We talk about how to identify the risks we’ll face in the future and what mitigating strategies we need to be thinking about to prepare.” Sandquist has been able to base many of his forecasts on information gleaned from the Food Outlook document of the United Nations Food and Agricultural Organization, the most recent version of which was published in November 2010.
There are several areas of risk that a global food company may face, many of which wouldn’t traditionally show up on security’s radar. Some of the most significant risks are water scarcity, energy availability, population growth and the emerging middle class, and the impacts of political change. Each of these areas is influenced by the others in a web of global risk impact.
The FAO reports that water use in agriculture represents about 70 percent of global water demand, and global consumption of water is doubling every 20 years (more than two times faster than the population growth). FAO studies also show that while it takes about 1,500 liters of water to produce one kilogram of wheat, it takes 15,000 liters to produce one kilogram of meat. Now consider that as global economies grow and populations expand, their people increase their demand for proteins in the form of meat products, which increases demand on water production.
Population growth and a growing middle class in many nations impact political climates and also – think of Tunisia, Egypt, Libya – energy availability. A growing middle class also means industrial growth and more need for transportation, which increases significantly the demand on energy, at a time when known reserves of fossil fuels are already a worldwide concern.
Energy demands also influence farmers’ decisions on crop growth as they consider growing crops for biofuels rather than food. This impacts both energy and water scarcity. Clearly all of these issues are tightly interwoven.
Once risks have been identified, Sandquist recommends defining globally relevant courses of action in several areas. In the food industry, these may include the following:
1.Think about the enterprise risk management implications of a changing sourcing environment. Sandquist notes that the global economic picture today has made sourcing much more complex than first-come, first-served. Companies may have to look for or create new resources due to environmental restrictions and politically motivated export restrictions. Political unrest also makes sourcing more difficult and sometimes more dangerous. This will impact supply chain security in terms of political change, regulation, and risks associated with protection of certain types of assets.
2.Consider new and heightened threats to employee safety. “Employees in global industries are working in and traveling to locations where the environment changes on a moment’s notice and can become more unruly or difficult to work within because of changes,” says Sandquist. “Protecting employees and creating safe environments is critical.”
3.Conduct rigorous due diligence to ensure the company is in compliance with the Foreign Corrupt Practices Act. “Whenever there’s a stronger demand and supplies are reduced, there’s a chance that individuals and organizations that will try to take advantage of that to solicit bribery or favors in order for these resources to be distributed,” says Sandquist. A company in violation of the FCPA’s anti-bribery provisions can be criminally fined up to $2 million per violation.
How to Think Globally
Any organization that does business globally could probably benefit from taking a look at the three actions laid out in this article. But even domestic businesses are now global businesses in the sense that world economic and political events will impact them in some way. Even if the three actions don’t directly apply to them, security and risk leaders at most businesses would do well to look at their companies in a global context to see where those impacts might be and what security can do to manage the risks they may create. They must also work to ensure that they understand and can communicate the business value of their proposed risk management strategies. Sandquist offers a few words on advice for security leaders building a global perspective.