Scenario Planning for the Brexit challenges ahead

The latest ICAEW Business Confidence Monitor saw the indicator move into back into negative territory at -8. Contributing factors are said to include the snap election, the hung parliament and less than convincing start to Brexit negotiations. The result is set against a backdrop of worsening economic news with input prices rising, a reduction in current and predicted GDP growth, a slow-down in the housing market, and low consumer confidence at post-referendum levels. Against all that, there are record numbers of people in work.

Brexit represents a potential tsunami of change and uncertainty. There are signs that a smooth transition might be possible, but even that is not clear. ‘Uncertainty’ is today’s relentlessly over-used word and it won’t find a resting place in this article.

It’s official – only 4 degrees of uncertainty

The strategy types at Harvard Business School have actually defined business uncertainty levels (fig 1 right), with the severity of conditions being faced at each of four levels of uncertainty being associated with a different set of remedial strategies.

So which level are you facing? This is likely to be different for different companies and markets, but many of the companies that we see at EMC see Brexit as Level 2+ verging on Level 3. The question is how do you see it? What level are you looking at for your business?

No doubt many domestically-based businesses see ‘a clear enough future’ but I suppose the question for these businesses is not so much about the direct impact of Brexit but its indirect impact – domestic economic conditions, consumer spending, supply chain etc.

Source: ‘Strategy Under Uncertainty’ by Hugh Courtney, Jane Kirkland, Patrick Viguerie – Harvard Business Review.

What’s a business to do?

Fortunately I have found a quote from which we can all draw comfort. The famous American author, Doctor Rachel Remen, has been recorded as having said: “The willingness to consider possibility requires the tolerance of uncertainty.” Therefore, if we can tolerate Brexit uncertainty, we might be able to consider what is actually possible whilst in its midst or as a result of it.

At EMC, we have noticed that high performing and sustainable clients are treating this period of uncertainty much like any other. While cautiously continuing with ‘business as usual’, they are also making plans. Some are contingency planning, others are carefully nurturing core markets, and some are spotting new opportunities that change can deliver. Our observation is that businesses are falling into three categories;

1. Shapers – those that are willing and able to play a leadership role in their sector
2. Chameleons – agile, fleet of foot, grasping opportunities, dropping others
3. Observers – those that are investing enough to stay in the game but avoiding commitments

Which might apply to you? Or do you recognize these behaviours in other players in your sector or industry?

Crystal balls

To adopt any sort of position in these times you need a crystal ball? Don’t you? Well, yes and no. Along with an assessment of your business capabilities, the development of business strategy starts with a clear understanding of the environmental factors that might impact on your business and its markets. It’s time to dust off the practice of Scenario Planning.

Scenario planning allows you to face the uncertainty of the future. By having an awareness of what could happen, you are better able to prepare for what will happen. Professionally structured and researched scenario planning enables a business to identify the top three most likely future outcomes, ranked in order of probability, reviewed and amended in real time.

Seven steps to effective scenario planning

1. Determine what your ‘focal’ issue or issues are, e,g, the primary areas of uncertainty (this may require internal and external research).
2. Commission an outsider to project manage and facilitate the scenario planning workshops.
3. Create the ‘scenario team’ – usually members of your management team mixed with some ‘change agents’ (possibly younger members of staff).
4. Identify the ‘driving forces’ – usually political, economic, social, etc.
5. Identify the ‘critical uncertainties’.
6. Develop plausible scenarios.
7. Define their implications and strategies – rank these.

Top tips

If you are going to attempt this it really is important to use someone from outside the business to structure the process, conduct research and facilitate the workshops, otherwise you’re likely to trip over one or some of the following….

Don’t make decisions or assumptions based just on what you already know – research the area, find published research, understand what your trade association thinks about the future.

Challenge over-confidence and excessive optimism that’s not based on a pragmatic and practical view of the situation. We all like a drama and so don’t place too much emphasis on unlikely events. Challenge the “I’ve seen it all before” syndrome – in other words never assume the future will look like the past.

Having said all this, it’s important to encourage a free and open debate amongst the scenario team. Keep your top three scenarios by your side during management meetings and planning sessions. Review and amend them as you go.

Conclusion

Well-structured and researched scenario planning will enhance your ability to pilot your business through the uncertain times ahead. Without a doubt it will improve your confidence in decision making and help you determine if you’re a shaper, chameleon or observer. It might even give you a tool with which you can do more than simply tolerate the uncertainty, but rather see the possibilities it presents.

Get in touch

If you would like to discuss scenario planning for your business (or for a clients business) then please get in touch. I am also offering a ‘Headline Review’ – a no obligation, no fee perspective on your business development strategy, a brief report with suggestions on the way forward.

Call me (Chris) on 07970 710543 or email chris.white@emcltd.co.uk.