The destination Brexit is taking us towards is still unclear, but organisations can work to mitigate the impact of this uncertainty.
The uncertainty that’s affected organisations since the referendum will continue until a trade deal with the EU is in place. Yet executives, who are already facing an unprecedented wave of change through technical and regulatory transformation and shifting customer habits, might be in a better position to cope with Brexit than they realise. Our research shows agile organisations achieve better financial performance because they’re more able to adapt to change. And that agility will help them make the best of any Brexit scenario.
Did you know the top 10% of financial performers are 30% more agile than the rest?
Agile Brexit preparations should include regular scenario modelling and analyses to evaluate the financial and market impacts of alternative Brexit proposals. In our experience, the ongoing uncertainty has highlighted three crucial areas to focus planning on: People, Goods and Regulations.
One of the benefits of EU membership for employers has been Freedom of Movement but, despite government analysis showing it’s a boost to the economy, Brexit is set to end it. Some EU citizens are already leaving the UK, or thinking about doing so, even though there’s no requirement for them to go. Meanwhile cities like Frankfurt, Amsterdam and Luxembourg are actively attracting them away from the UK.
The government has proposed a post-Brexit visa arrangement, favouring workers earning over £30,000 a year. This is likely to most heavily impact sectors such as the National Health Service, hospitality, logistics and agriculture. All rely heavily on EU nationals and typically pay less than the threshold salary.
Agile planning can counter this uncertainty by ensuring organisations have the right people in place, while workforce planners can advise on whether to ‘build, buy or borrow’ people with specialist skills and experience.
Brexit is also speeding up the need for organisations to address the needs of a modern workforce that demands purpose and flexibility. Our research into agile companies suggests the top-performing organisations in financial terms have made a conscious effort to create a work environment that’s dynamic, encourages collaborative work practices and empowers people. Investing in building this culture of organisational agility will help with recruitment and retention in the Brexit era.
Claire Logan, PA people and talent expert, explains: “Ensuring you retain the right people through this period of uncertainty means looking carefully at your employee value proposition. Not just financial reward, but how you empower people in their roles, how you set up teams to remove barriers to achievement and how you strike the best work-life balance. These are all pillars of agile organisations, and we have worked with many organisations to help them create this culture.”
The EU’s single market has also meant freedom of movement for goods. The UK’s manufacturing and retail sectors rely heavily on deliveries from or via the EU. This is in part thanks to our reliance on just-in-time and just-in-sequence delivery and manufacturing methods. Carmakers, for example, don’t have large warehouses of parts because they can get daily or weekly shipments from Europe.
Brexit: The impact on the automotive supply chain
Similarly, fresh fruit like tomatoes or lemons can quickly arrive from Spain, so only a few days’ supplies are kept in warehouses. We also rely on Europe for a wide range of short shelf-life goods, including pharmaceuticals.
Organisations will, in the short term, need to look at how best to manage inventories, especially for products, such as pharmaceuticals, food and imported manufacturing components. Risk-management and contingency planning will help with issues such as warehousing and longer lead times, though these can only be a stop-gap.
Businesses may, in the long-term, need to consider relocating processes or parts of their businesses to the EU, or moving them from the EU to the UK to remain competitive. They will also need to investigate new processes and IT to support changes in customs arrangements.
The best way to prepare for these long-term changes is by adopting agile approaches – designing for simplicity and focusing on customer needs. Agile companies that respond quickly to such challenges may well find they have a competitive advantage over slower rivals.
Tim Lawrence, PA supply chain expert, explained: “Agile organisations are always looking to make things simpler, focusing on what customers really want and need to optimise processes and reduce costs. To deal with Brexit’s uncertainty, all organisations should start focusing on these areas.”
For 40 years, the UK and the EU have shared regulations on everything from food safety and atomic energy to finance and data collection. Brexit brings uncertainty around how UK regulators will use their newfound freedoms, while the requirements of new international trade deals will mean some level of shared rulebooks for both the UK and all its future trading partners.
Changes to cross-border regulation can be a headache for executives, and its impact is already felt in almost every sector. But even here, there are likely to be opportunities. Our research into the regulatory landscape has found a clear link between companies that manage compliance effectively and financial success, with a higher total shareholder return for those that manage regulation well.
Regulatory management shouldn’t be an adjunct to your overall strategy. Its potential impact on future business performance means it’s as important as financial, quality or risk management. Non-compliance, meanwhile, can derail ambitious project development and lead to regulatory fines that can damage reputations and harm brands.
Instead, companies should see the changing regulatory environment caused by Brexit as a chance to develop links with regulators in other territories, and even help shape the rule-making environment in fast-developing areas such as technology, health and financial services.
Conrad Thompson, PA business design expert, explained: “Regulators have to change with business – 92 per cent of organisations think they’ll feel a negative impact if regulators fail to evolve within three years. And Brexit is the perfect opportunity to develop new relationships that drive such an evolution. Breaking from Europe means businesses and UK regulators can work together to stimulate innovation.”
Regulation has the potential to enhance business, pointing it towards sound governance, effective risk management, fair treatment of customers and, ultimately, strong performance. Any credible management team should have a pro-active approach to creating an effective post-Brexit regulation strategy.
The one certainty of being in business is that every day comes with uncertainties. Events like Brexit just make us realise it more. Organisational agility gives us the tools to deal with such uncertainties by enabling us to respond quickly to the challenges of a rapidly changing world.
Whatever happens in Parliament, the uncertainty around Brexit won’t end soon. Despite this, we can plan for the things we know and the things we don’t. Businesses say the Withdrawal Agreement would bring a level of certainty to a transition period, while ‘no deal’ would create bigger difficulties for the unwary. Agile preparation will help companies weather the storm and rise to Brexit’s challenges – as well as find opportunities that others will miss in the turbulence that lies ahead.