It is clear from our conversations with senior government and industry experts in the aerospace, defence and security (ADS) sector that the prolonged political and economic instability of Brexit will bring additional challenges to a sector that has already been tested by a long-term reduction in spending.
Existing challenges will be brought into sharper focus such as cost-down demands, new regulation, globalisation and new ways of working; competitors will use the opportunity to disrupt existing relationships and seize market share; and exit positioning has already begun so ADS original equipment manufacturers (OEMs) cannot afford to get left behind.
As Brexit momentum builds, manufacturers will need to develop an action programme that creates fresh opportunities and drives future growth. And to do this, the plans should follow four stages: pause, prepare, shape and engage.
Pause to take stock in building resilience against periods of uncertainty and review the portfolio to identify critical levers, relationships and regional priorities. Companies should reassure stakeholders (investors, customers and employees) by using scenario planning to explain potential effects on the business. For instance, how will the future workforce be managed if the free movement of European labour is suddenly restricted? However, a pause to take stock should not be an excuse for inaction. Companies should take advantage of quick wins to grow market share and mitigate risks. The sterling exchange rate, for example, presents new export opportunities – particularly for services that can be delivered quickly and flexibly.
Prepare by positioning the business to embrace the changes to come. Organisations should quantify the challenges to their existing global and regional business models from Brexit. This includes reviewing particular business unit operations and functional strategies and then developing plans to enable them to deal with a changed world. There should be a clear focus on how Brexit adds to the complexity of sales, design, manufacture and in-service environments. If the UK is outside the single market, then companies will potentially be subject to different regulatory regimes and requirements in their home markets from those in their customers’ countries. Organisations need to prepare for increased complexity by increasing the agility of their business processes, governance and resource management arrangements.
Shape the future portfolio for the post-Brexit world by identifying challenges to the assumptions which underpin longer term corporate strategy and investment plans. Many organisations, for instance, had implicitly assumed continued steady movement in Sterling exchange rates. From political and economic uncertainty to further pressure on defence spending, companies need to stress-test their business against each of these future scenarios. They can then ensure their portfolio is the right one to deliver sustainable returns in each of the different business environments they might encounter.
Engage throughout what is likely to be a protracted Brexit negotiation, to ensure the company’s position is recognised by government, clients and the market generally. This should include strong messages to government (coordinated as required through industry fora) to ensure practical and technical issues are accounted for in trade negotiations. Existing contracts may also need renegotiating to address areas such as increased costs or a changed supply chain, and also to harness new opportunities. Many of the latter are likely to be export-led and will need to be negotiated and brought to a close.
To succeed in each of these areas, and to seize the opportunities of Brexit, companies will need increased expertise in four areas:
1. Agile delivery expertise – proactively increase speed of delivery to cope with increased uncertainty. This can be achieved through the use of proven methodologies and analytical tools
2. Scenario modelling and analysis expertise – evaluate the financial and market impacts of alternative assumptions, including scenarios related to a possible Scottish referendum; Brexit timing; and the exact nature of the relationship with Europe. This can be achieved most effectively using specialists with expertise and models developed from a variety of market sectors and geographies
3. Strategic workforce planning expertise – having the right people in place is a key determinant of competitive advantage. This can be achieved by using workforce planners to examine whether to ‘build, buy or borrow’ people with specialist skills and experience
4. New business expertise (market shaping and negotiating) – assess and deliver brand enhancing regional opportunities and new market exploitation through a detailed understanding of the customer’s priorities and value chain. This can be achieved by portfolio managing performance for new business.
To find out more about how we can help you seize the opportunities of Brexit, please get in touch with our public sector aerospace, defence and security experts.