On 17 January, the UK’s Prime Minister, Theresa May, delivered a major speech on her plans for leaving the E.U. For the first time, she has confirmed clearly and unequivocally that she will not to try to preserve membership of the European single market. Instead she hopes to conclude a deal with the rest of the E.U. that will still give business the access it needs to trade with the rest of the continent without barriers, tariffs or any new obstacles.
Given the uncertain world businesses are operating in, I thought it was the right time to look at how scenario planning will help you navigate this uncharted territory. But before we get into scenario planning, let’s spend a minute reflecting on what we do and don’t know about what’s going on in the external environment.
We actually know little more about the outcome of the Brexit negotiations than we did before her speech. But what we do know is that:
- This decision will fundamentally withdraw the political, economic and commercial map.
- The deal the U.K. negotiates to leave the E.U. will necessarily be inferior to the current agreement.
- Theresa May’s threats to European leaders, coupled with recent comments that could be perceived as insulting from Boris Johnson and David Davis will not help the U.K. negotiating position.
- The geopolitical landscape barely resembles the one from a year ago. What’s more it’s changing fast. The Chinese President Xi Jinping, visiting the World Economic Forum in Davos for the first time, argued in support of globalisation and free trade. There is a palpable sense that the world order is changing coming from Davos.
- The British government and the E.U. will spend the next few years negotiating a divorce that balances their economic, political, and social interests. The terms of exit and the trade deals that follow are unprecedented in their complexity, and there are no clear rules to follow. (In 1985, Greenland’s exit from the European Economic Community took three years to negotiate, and this involved just one industry, one product, and 56,000 people).
- There is not a reliable timetable. Negotiations were supposed to be concluded within two years. But the High Court’s decision in November, mandating that Parliament must be involved calls this timeline into question. Even if this decision is reversed, which seems unlikely, there are issues such as the post-Brexit status of Scotland, Northern Ireland, and Wales to be determined.
- The terms of the British exit require approval from at least 72% of the E.U. member nations. Whilst the UK must negotiate trade deals with nations such as China and the United States. Despite what Trump has said, both nations have incentives to delay, and the E.U. could intervene if ancillary negotiations start before the main negotiations are concluded.
So How Should Small and Medium Businesses Respond?
Clearly small and medium businesses don’t have the bargaining power to try to influence government talks and resulting policies as some corporates have been able to do. Which is not to say you shouldn’t get involved at a local level through your Chamber of Commerce for example. Next month, I’ll be at a meeting with my local MP. I intend to ‘bend his ear’ about the implications of a hard Brexit on small and medium sized businesses and remind him that we are the backbone of the U.K. economy.
I’ve heard some business leaders suggest we adopt a ‘wait and see’ approach. This is really bad advice. The world is changing fast, and we must face the brutal reality. Our job is to ensure we’re in the best possible position to respond to, and emerge stronger from, the challenges that lie ahead.
Review your Business Plan
This is the perfect time to take a good, hard look at your business plan, and decide whether it’s fit for purpose. Does it include all the key elements of a robust, well-thought through business plan? Market research. A SWOT analysis. A PESTLE analysis. Financial forecasts, stress tested to take account of different scenarios.
Have you thought about how you can create resilience in your business? How you can build a stand-out brand? How you can invest in your marketing strategy to achieve rapid and sustainable growth?
I’m aware that there are ‘business gurus’ out there who argue that you don’t need a business plan – a one page business strategy will suffice. Think about this. Do you really think any thriving business has succeeded off the back of such flimsy thinking? I’d go as far as to suggest that such advice is irresponsible and reckless.
Spend Some Time Scenario Planning
Develop a course of action that you are confident will be robust under a variety of different scenarios. Your basic goal has to be to run your business from a position of strength and readiness, no matter which way the geopolitical winds blow. Because blow they will.
Scenario planning (also referred to as contingency planning) is quite simply where you consider a number of different scenarios, and consider the different ways in which they could unfold. Scenario planning is about asking the questions “what could be the consequences if X happened” and “what are the different ways my business could respond?”
Scenario planning means taking the decisions you make today, and considering the different ways in which they could play out. Then developing a plan with sufficient flexibility to deal with any of these different scenarios, should they occur.
Let’s take the example of a US based e-commerce business. China is a huge and growing e-commerce market so you might want to sell your products there. Thinking back to the Chinese President’s comments at Davos, this could be a great strategic move. But what if there’s a trade war between China and the US? Not such a fanciful idea given the state of geopolitics. Germany is also a large and growing e-commerce market. You might want to sell your products there. What if there’s a US trade war with Germany? Not out of the question after Trump’s recent comments about one of the strongest US allies.
Or how about if you’re a U.K. based business and receive payments in different currencies? If the pound falls sharply, as it did earlier in the week for example, your revenues could be hit and costs could increase. Your business may not be significantly impacted if the pound rallies quickly. But what if the value of the pound doesn’t recover so fast?
You may think you’re not directly affected by Brexit or other global events, but look more widely. Bear in mind that you’re in a ‘supply chain.’ Your suppliers could be affected. Likewise your customers who may decide to spend less for the time being.
Scenario planning requires a degree of strategic foresight. But the process of business planning – which includes doing your SWOT and PESTLE analyses – will help you to develop the strategic foresight needed when it comes to scenario planning for your business.
Join The Conversation
Question: Which potential scenario most worries you in this changing geopolitical world? I love reading your feedback so please do reply using the comments box below.
Explore These Additional Resources
Did you miss?
- How To Create Resilience In Your Business In 2017
- Marketing In A Weak Economy
- Take Stock Of Where You Are Now
And my recent series on how to get financially prepared for 2017:
- Understanding Business Growth Strategy
- How To Prepare A Sales Forecast – Part 1
- How To Prepare A Sales Forecast – Part 2
- Why Hitting Breakeven Point Is Critical To Business Success
- 5 Strategies For Hitting Breakeven Point
- How To Prepare A Budget For Your Business
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I’m Denyse Whillier, a London based business coach and consultant. I guide entrepreneurs from across the globe to achieve profitable, scaleable growth and create businesses that are Built To Succeed™. Built To Succeed™ is my proven success system, developed during my 8 years in the trenches as a CEO, 25 years’ experience at senior leadership and managerial level and training at Cranfield School of Management, the UK’s leading business school. It’s this background that sets me apart and helps my clients to get BIG results.
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