The Brexit Impact Assessment: Why your Customer’s Business is your Business
Last month, on the 6th of December 2017, David Davis (Secretary of State for exiting the European Union) was hauled in front of a parliamentary committee. The hearing took several hours. Part of what was discussed covered the impact assessments that the government has (or hasn’t) been carrying out.
The Minister narrowly avoided being held in contempt of Parliament in a committee vote, helped only by the votes of friendly faces.
Being hauled in front of a committee for failing to prepare is a worst nightmare for most, but following the UK’s exit from the European Union at the end of March 2019, there’s a chance it will not just be politicians, but business leaders too that face questions over organizational preparedness.
The government’s crime? Having only carried out a qualitative sector by sector impact assessment. This misses the nuances associated with various deal scenarios that the government should be prepared for. As such, the government is (at least publicly) ill-prepared for informing businesses as to the likely effects of leaving the European Union under any scenario. In the world of business, most firms by this stage will have completed initial impact assessments. However, due to the long road ahead and absence of clarity on the destination of talks (The first stage breakthrough on the 3 prerequisites for trade talks coming just after the 6th of December Committee hearing on the 15th of December), many firms have put off conducting deeper impact assessments aside from than which would be strictly necessary only in a worst-case scenario.
There are crucial differences between the UK government approach and the general approach we have seen from businesses. While the UK government may be optimistic in outlook (in assuming a deal is forthcoming, not carrying out quantitative impact assessments etc.), businesses must plan for all possible scenarios. To do so requires an understanding of what that scenario will do to their business.
Some impact assessments we have seen include planning out different ‘deal’ scenarios, with a high-level project plans for execution that are in cryo-sleep. Others have merely worked out worst case scenarios and are planning around these. The apparent lack of detail or comprehensive analysis puts ill-prepared firms at a disadvantage to competitors that have better planned for a range of scenarios, based on qualitative and quantitative impact assessments on customers, business units and products lines.
Additional planning is therefore required by business leaders. We now know that there is likely to be a transition phase – duration unknown. No longer is there a certain date to aim at and plan backwards from. Important to remember though, is that the countdown to exit has begun. This is important because early certainty on duration of transition remains unlikely, meaning there is no longer a potential target date to aim at, or a set of circumstances that must be prepared for by a set date. Given this, firms must assess the ‘no-regrets’ moves they can make now, and be ready to invoke plans once stated trigger events have occurred.
For an insight into how to maximize positive andminimize negative outcomes with a variety of options, history offers a clue:
Lessons from Bismarck on Brexit for Banks
Bismarck, arguably the greatest diplomatic player of the 19th century, had a doctrine of preserving a maximum number of options until the last moment. He utilized the absence of clarity to great effect, being the most prepared for an array of outcomes to take advantage of moments of clarity in changes in international diplomacy.
Banks need to do the same in their approach to Brexit. To do so, banks need to know more about the realities of different scenarios and know the best way to minimize disruption (loss) or maximize clarity (gains).
It’s a repeatedly asked question but, how can we prepare for Brexit given the absence of clarity?
The answer remains the same, through 5 simple ‘no regrets’ principles and actions:
- Accept that true clarity will not emerge until the 11th (or 12th hour)
- Reaffirm your customer, market and business interests
- Assess impact against various scenarios with the above
- Plan and prepare to move what you might need to (short and medium terms)
- Execute ‘no-regrets’ moves – minimize expensive decisions that preempt event
Accepting Absence of Clarity
Due to the nature of ‘nothing is agreed until everything is agreed’ – accept a number of scenarios are possible until the final part of the negotiations.
At this point, due to the EU Parliament (and UK) voting on any proposed deal, there will be a run up where the options narrow to just two; the choice between a voted through ‘deal’ scenario or a ‘no deal’ scenario. This means that there will be two, relatively well-defined end states. The question will be whether your business is prepared for both.
This means contingency plans should strive to take a balanced path that preserves the most options until the last moment.
Re-Affirming your Customer, Market and Business Interests
Simply re-evaluating your business will help in understanding where potential pain points may be for you, your market or your customers.
Customer interests should be placed at the top of all Brexit assessments – their custom is your business. Customer facing staff should be brought into the discussion; and where possible, customers to better ascertain their immediate and mid-term concerns. This helps to reveal insights into their interests, the possible impacts on them, and as a result, on your business and the businesses of competitors in the same market.
Bringing your customers into the conversation does not just give business insight, it will also help to strengthen the relationship with your customer, particularly in the SME and corporate sectors. Your organization will almost always have more capacity dedicated to finding out the impacts of Brexit than many SME customers and insights will likely be gratefully received. Customers may even indicate where they feel they need more help.
Understanding customer concerns, informing them of potential impacts and being prepared for these impacts has a triple positive effect:
- Customers appreciate being involved in the process, building loyalty
- Customers may seek you out or move their business to you to take advantage of advisory services (e.g. law firm partnerships that can help with specific business concerns)
- Customers engaged on Brexit may take steps that help mitigate impact on their business, which is your business
Having examined your customer, market and business interests, you have outlined areas where impacts are, could be or would be painful. This should prompt further investigation for impact assessments (quantitative where possible, even if a range of assumptions must be made).
In re-affirming your business, markets and customers, you should uncover future pain points for customers. By knowing the potential quantitative impacts, you can be better prepared for impacts not just on your business or businesses in the same sector, but on the businesses of your customers too. Assessing the impact on customer sectors will lead your business to make the most of these assessments and strengthen your relationship with your customers.
While it may seem that a bank operating solely in the UK market may not have large exposure to the nature of future trading relations with the EU, our experience thus far however indicates that it is improbable that even a UK only bank that has no EU exposure. A vast number of SMEs have direct exposure in their supply chains, and through these businesses, a vast number of customers.
We expect to see ample opportunities for those that have detailed and executed preparation, principally vis-a-vis those that have not. Any business that can help alleviate future Brexit pains for customers will be providing a service that retains and draws in customers.
Prepare to move what you need to, where you need it
By undertaking to re-examine your markets and the products sold to whom and where, your business also has a perfect opportunity to assess its global footprint, impacts of business units upon one another and will be able to assess whether actions such as setting up a passporting office should be undertaken.
This can be either for current EU facing business booked out of the UK, or to set up shop in the EU to hedge against a UK downturn if your business is not currently exposed to the EU. Axis Corporate has direct experience of setting up passporting offices in the EU for clients in both Frankfurt and Paris and are currently helping with planning other locations.
Critically, given other early movers to cities and countries with limited talent pools and office space, careful assessments should be made as to where, and how many operations should move. Equally important is setting an internal set of policy responses to developments in Brexit negotiations. While this varies from business to business, there should be a set of defined ‘red-lines’ in executing operational plans.
Brexit programs should move to executing on ‘no-regrets’ plans that cover the largest number of possible outcomes. These can include renting office space and setting up skeleton offices to ensure worst-case scenarios are covered for, but also minimize disruption and cost to the business in the event of a positive outcome. Through preparing to cover a number of outcomes, Banks can ensure that they are in a position to take advantage of ‘moments of diplomatic clarity’.
Project execution offices should therefore be live throughout the remainder of the process, with plans triggered by events, while deciding a ‘BAU’ sequence of plans to put into execution regardless of progress should occur.
The governing thought in organizations should be the same degree of clarity we have seen from the EU’s negotiating guidelines – nothing is decided until everything is.
While preparing for the unknowns we expect to see after March 2019 will require an additional amount of work and investment, it both makes good business sense to do so and will help prevent egg-on-face moments if Brexit business planning and decisions come under scrutiny after Brexit. Planning well will help save business costs and mitigate secondary and tertiary impacts on your business and the business of customers. This is best achieved through revisiting Brexit impact assessments and including your customers in that conversation.
After all, their business is your business.
Article Co-authored by Daniel Sawko, Consultant based in London.