“It’s hard to make predictions, especially about the future”, once said Niels Bohr, the quantum physicist.
For many UK businesses, this has probably never been truer. The vote for Brexit has taken many by surprise.
While the consequences are more profound for some organisations than others, the long term uncertainty will handicap the majority. The finer detail of political decision-making and tactics, along with unpredicted events along the way, are likely to have material impacts on the macro situation. There is very little that anyone can predict with anything resembling certainty.
But this is no mandate for hesitancy and inactivity. In fact, the inverse is true: responding to Brexit requires decisive leadership.
A range of very different scenarios could play out, with very different implications for those affected. However, the lack of clarity can make it hard to understand how and when things will change. Many of the potential scenarios are likely to require organisations to take significant action to protect themselves in a competitive environment. However, the approach is likely to vary considerably depending on which future manifests.
Many public sector and third sector organisations understand that their role could be about to fundamentally change and that they will need to get ahead of the game if they are to adapt successfully. Businesses, meanwhile, are caught between two stools: aware that they cannot afford to stand still, but wary of making investments or changes that could be redundant or – worse still – take their company down a cul-de-sac that limits their future agility.
A recipe for action
In times like these, we believe the job of leadership teams is not to predict tomorrow, but to position their organisation to be best placed to respond to tomorrow’s events.
To manage this situation, we are proponents of strategic flexibility as the dominant managerial tactic: imagine the potential scenarios, evaluate the options and forearm yourself to respond quickly to the evolving situation.
We believe this requires excellence in execution in four areas:
1. Secure the present
through customer and staff retention
2. Adapt and orient
through scenario planning
3. Govern change investment
with robust agility
4. Exploit opportunity
1. Secure the present
The uncertainty caused by Brexit may in itself create immediate trading problems, particularly when it comes to your stakeholders. Both you and they will need mutual confidence in continuity.
Achieving this may require some operating model changes to remove or mitigate any detrimental uncertainty. Where these add flexibility at minor cost or business disruption, enact them immediately.
Customers: Customer retention may be impacted, particularly for long-term business that requires certainty. You may need to take steps to provide this in order to maintain continuity of income. For example, many players in the fund management industry are moving the tax location of some funds to Europe to manage investor concern about uncertainty of tax regimes for mainland European investments.
Staff: Your employees will inevitably ask themselves questions about the commitment of affected businesses to specific operations. They will also want to understand the impacts on their own personal futures, particularly if they are working internationally. Taking necessary steps to reassure and retain key staff will be critical, especially if career options with more certainty come knocking. A programme of timely and open communications is another important feature to avoid a damaging rumour mill, even if managers perceive the net impact of Brexit to be relatively benign.
Partners and suppliers: Just as you seek reassurance of continuity from your core customers, so your business partners and strategic suppliers will demand a redoubling of your commitment to mutual trade. Here you should seek assurances that Brexit does not cause continuity risks to your suppliers- especially for those purchases with a long lifecycle – while taking the opportunity to rationalise supply chains where it is cost effective to do so.
Governmental stakeholders and funding providers: It is imperative to prevent any perceived uncertainty that negatively impacts decisions made on regulation, policy or funding allocations. We recommend a structured programme of action to reach out and engage your stakeholders, rigorously assessing and implementing the operating model changes deemed necessary to provide reassurance and guarantee continuity.
2. Adapt and orient through scenario planning
Understanding the potential scenarios, and how your organisation should respond to them, lies at the heart of strategic flexibility. This does not mean second-guessing every potential outcome in microscopic detail. Instead, seek to define a small number of high-level scenarios that cover a range of potential outcomes at an 80/20 level. This requires a combination of art and science.
Once you have sufficient clarity as to potential future scenarios, you may start to understand how your customer propositions and operating model would need to change in each scenario, and consequently what investments you would make (in new products/services or business capabilities). This analysis will highlight two things:
- recurring commonalities: which change investments are needed in most scenarios, which are purely binary decisions, and which parts of your operating model demand additional resilience?
- redundant projects: existing investments that fulfil a useful role in few or none of the potential scenarios (these should be stopped and funds immediately diverted to better use).
A considered decision-making process will allow you to understand the best initial balance of investments to manage the risks that Brexit poses. It is not possible to cover all bases without too great a dilution of investment and focus. As a further piece of insight, we recommend understanding, with some precision, the ‘trigger points’ that would cause you to pivot to a new strategic option and change any of the ‘bets’ on future investment.
Lastly, understanding the potential scenarios and their pros and cons will leave you best placed to do what you can to influence your environment (such as regulatory policy). The payback for finding these opportunities is considerable.
3. Govern change investment with robust agility
It is not enough to simply develop a set of future scenarios and your potential response. You also need the mechanisms in place to make timely decisions and, importantly, to marshal your resources to change tack swiftly and effectively.
The OODA (Observe-Orient-Decide-Act) Loop was a simple framework developed by Colonel John Boyd, a Korean War fighter pilot and later military theorist. He used this framework to explain that the fighter pilot who could process this cycle more quickly than his adversary could ‘get inside’ his decision-making loop and literally run rings around him. Put simply, if the time it takes you to react, make and implement a decision is slower than the speed at which your environment is changing, you will be overtaken by events. Being on the front foot requires rapid decision-making and execution.
We advocate establishing dedicated forums with a clear mandate and accountability, at the right frequency. Each needs a clear decision-making framework, separating strategic and tactical concerns. Accurate and relevant information needs to be available at the fingertips of the decision-makers. A robust, transparent and fully agreed list of approved change initiatives – along with a ‘shelf-list’ of alternative options – is a key starting point. As well as cost and resource requirements, you need to be clear how each initiative contributes to your strategic scenarios. You then need close monitoring to give reliable data on your external environment, the trigger points discussed above, and the performance of each initiative (including their traction and delivery of benefits). This is not about unnecessary bureaucracy: a critical success factor will be to see the ‘wood for the trees’, for which a consistent basis for comparison is essential.
Self-evidently, a high-performing central Portfolio Office or strategic PMO function assumes critical importance in this context.
Implementing investment decisions is about much more than allocations of budget and project manager time. You need to thoughtfully consider the end-to-end ecosystem for delivering change. This can include an unexpectedly diverse set of resources, such as business-as-usual staff involved in receiving change, an external supply chain, HR, Procurement, Finance and stakeholders involved in brokering change decision-making. For the end-to-end system, you need an effective way to communicate and quickly redirect effort and focus on the new priorities. The leadership and cultural dimensions of this requirement are very important. Changes of direction and decisions to cancel projects can lead to tacit resistance which significantly slows down reaction times, or leaves the business pulling in different directions. Once again, active demonstrations of strong leadership and collective responsibility will be important to success.
Finally, we recommend designing change programmes to deliver in a series of increments to provide ‘islands of change’: stable operating platforms that are capable of delivering benefit, and importantly, provide the opportunity to learn lessons and pivot as the situation changes.
4. Exploit opportunity through innovation
Brexit carries some major risks for many businesses and for UK plc. more generally. However, times of uncertainty and change give rise to opportunities for those who are capable of taking them. For example, the credit crunch and economic downtown that followed provided the conditions for Airbnb to break through, by providing the dual impetus for potential users to get over the ‘social stigma’ of renting their spare room to strangers and for tourists to cut accommodation costs.
As outlined above, we believe that investing in strategic flexibility to manage the risks associated with Brexit is a prudent course of action. We also believe that seeking out opportunities – some of which will arrive at short notice – will be important for competitive success through this period. This means a commitment to innovation.
Firstly, this requires your organisation to adopt an ‘opportunity mindset’: a culture of always exploring potential upsides to each scenario. The fast-moving and complex environment around us means that the best insights into how to respond to emerging situations are unlikely to be developed via top-down hierarchies. Delegated empowerment should allow requisite parts of the business to invest in innovation and respond to opportunities that present themselves. The organisation then needs to be set up to identify and rapidly reinforce and expand innovations that are successful. It also needs to join up strategic decision making with bottom-up innovations. These require governance that fosters, rather than inhibits, innovation. This should provide support and space for ideas to incubate and evolve whilst applying robust but light-touch rigour for step-changes in investment. The governance of this investment should be dovetailed with that for wider investment in change.
A prize worth pursuing
These are indeed uncertain times, requiring organisations to think very carefully about how they manage their way through it. We believe this uncertainty compels managers to act deliberately and decisively to give themselves flexibility at a strategic level.
A hastily or poorly thought-through approach to strategic flexibility can result in something that is not based on sufficiently firm foundations, or that fails to introduce the systemic capability required to really provide the intended agility. This risks either giving false confidence – with management pulling levers that are at best only partially effective – or, worse, wastes time and causes a loss of confidence which takes the organisation backwards.
Success requires finding the right balance between analysis, pragmatic action and finding approaches that are sensitive to your organisation’s culture and circumstances. Those organisations that are able to get on the front foot, react quickly to events and exploit any opportunities are likely to fare better in responding to Brexit than those than do not.