As we rapidly approach the end of the Brexit transition period on 31 December, we know change is coming. Far be it from me to say esteemed psychologist Abraham Maslow was wrong when he said, "In any given moment we have two options: to step forward into growth or step back into safety," but we currently don't have two options. Businesses must step forward into growth because stepping back, or even standing still, simply aren't options.
In my experience working with clients on Brexit, previous deadlines were characterised by seeing many businesses take a calculated gamble to do nothing. The reasons for that approach varied, but it worked, in hindsight. We know this deadline is different, because the only guarantee is that things will be different.
As this issue of FM was going to print, we didn't yet know whether we're preparing for a "deal or no-deal", though for many businesses the impact will actually be the same, and hopefully you're currently well advanced on concrete changes in key areas such as customs and supply chains.
If you have put these in place, for many it's still unlikely to be the finished piece of work. So what should you be doing now? At EY, we are using the framework of "Now, Next & Beyond" to help think about managing change and uncertainty. Consider these three issues as you move beyond Now, into Next and Beyond.
- Build resilience.
- Manage uncertainty.
For many businesses, the solutions they have implemented for 1 January 2021 are likely to be temporary. They are designed to cover the requirements, for example, of customs paperwork, at a minimum or basic level. As the situation stabilises over the first quarter of 2021, businesses need to move to optimising. Whilst it will vary from business to business, that will typically cover:
- Safeguarding trade flows and how the business operates, by examining what is working in your supply chain and identifying areas for improvement. This could include areas such as the location of material suppliers or taking advantage of alternatives to reduce or eliminate tariffs (depending on your location).
- Putting support processes on a permanent footing, for example IT and staffing, by streamlining processes and making changes to IT systems that provide the maximum efficiency benefits.
These are practical issues, but in the first instance they require businesses to operate with a mindset that retains the ability to look beyond the Now and challenge themselves on how best to move towards Next. Everyone is busy, so in the first instance this is a mindset shift that requires conscious consideration of key issues, and a move away from focusing on the most urgent (but perhaps short-term) problem.
Throughout March and April of 2020, COVID-19 showed how many supply chains around the world are actually quite fragile. For some companies, just-in-time approaches with tight lead times are widely used — by food and car manufacturers, for example. Low stock levels, limited flexibility, and a small number of key suppliers all contributed to situations where the consumer demand (irrational as much of it was) could not be met. Interruptions couldn't be managed properly, and there was limited or no redundancy available within supply chains. Other businesses were held back by their lack of IT resilience as they rapidly adopted new ways of working and collaborating.
It's time to bring together COVID-19 and Brexit planning teams so that your business is looking holistically or thematically rather than working on individual questions. As you move to Beyond, how does the business become more resilient? This resilience is across the organisation, including balance sheet, IT, people, supply chain/operations, and stakeholder management. For changes you make to these areas, do you sacrifice something else? Finding this balance — whether financial, flexibility, service, or people impact — is the challenge, but one that must be addressed to ensure the business is the right shape for the next macro threat.
The world continues on an unceasing arc of complexity and unpredictability. With an unprecedented level of technological developments and a more interconnected world, it seems there is more of this complexity than ever before. How is your business configured to identify, react to, and respond to these factors? After COVID-19, Brexit, political turmoil, and civil unrest, what's next and what does it mean for your business? Questions to consider include, do you have:
- The people with the right skills, resilience, and flexibility?
- Processes and IT systems that are adaptable and scalable?
- Partners or alliances that can be tailored to help protect or grow your business?
When considering your people, do your teams contain people who thrive on uncertainty or are they challenged by it? Will they have the proactivity and flexibility to help bring your business on a mission to change, rather than be constrained by existing structures, policies, or practices? Some leaders are best suited to a "steady state" environment but don't have the vision or capability to identify and manage the tension that comes from uncertainty. Start by considering how your existing staff have each reacted and responded to the uncertainty of the last six months, and work from there on identifying areas to address.
One example of process capability is your financial planning and analysis (FP&A) function. Whilst we can't ask it to guarantee the future outcome, we can expect it to design forecasting tools and frameworks that achieve the following:
- Flexibility to consider varying scenarios.
- A forecasting mindset that considers which macro trends will affect the business and assesses the consequences of these trends.
- An honest assessment of the probability of outcome, balanced with a realisation of the impact if it occurs.
- A response capability that acknowledges a trade-off of precision for speed.
In recent years, an option we have seen many clients follow is to enter alliances with new partners. These alliances take advantage of a particular speciality or technology, are quick to conclude, can be short-term, and do not carry the same integration risk as, for example, an acquisition. The financial profile of an alliance is different from an acquisition, but so is the risk.
As the curtain closes on an unforgettable 2020, it's a good time to reflect on what it has meant for your business, but more importantly, what you can do, whether relating to Brexit or other issues, to prepare your business for 2021 and beyond.
Simon MacAllister, FCMA, CGMA, is a Strategy and Transactions partner and Brexit lead for Ireland at EY. To comment on this article or to suggest an idea for another article, contact Oliver Rowe, an FM magazine senior editor, at Oliver.Rowe@aicpa-cima.com.