Brexit. Coronavirus. War in Ukraine. A new UK Government. The US trade war. These are a few of my favourite things. The boardrooms are alive with the sound of musings. Sadly, business uncertainty has become a common discussion point in the higher echelons. Risk, once something that people reluctantly discussed, is now commonplace. In truth, the world perhaps became a little complacent. Surprisingly, it is now over 25 years since Gordon Brown’s infamous quote claiming to have eradicated boom and bust. It is also nearly 17 years since the global financial crisis began to unfold and the world economy unravelled. So, what do we do about it? Risks are always present, sometimes in unexpected ways. Today, we discuss business uncertainty and building business resilience for success.
Business uncertainty
It sounds obvious to say that businesses and their leaders prefer certainty. A stable set of external factors, from the economy to geopolitics, increases confidence in decision-making. Uncertainty creates doubt, lower tolerance to risk and higher investment hurdles. Investing in a new warehouse or a costly piece of equipment requires greater scrutiny of need, cashflow forecasting and the opportunity cost of tying up cash that you might need.
On average, the world seems to face a crisis every 15-20 years. However, we seem to be experiencing a period of history that creates them for fun. Successive negative shocks have weighed on global growth. The World Bank published a report at the start of the year predicting GDP growth of 2.7% globally. We suspect that will be optimistic in light of the tariff shock and awe. According to the IMF, global inflation was just under 6% last year, which may not have fully seeped through to consumption and trade. The IMF has just revised their growth forecast for 2025 – down from 3.3% to 2.8% – as of 22nd April.
The importance of building business resilience
Whether you blame it on Just-in-Time (JIT), the boogie or management over-confidence, supply chains were devastated by Coronavirus. However, we are not just talking about during the pandemic but in the recovery from it. As people rushed out to buy new cars, electronics and consumer goods, they found that stocks were limited. Supply chains had very little stock from raw materials through to finished goods on the shelves. As manufacturers tried to scale back up, they found scarce availability of raw materials that their competitors were also scrambling to acquire. As customers clamoured to hand over their excess COVID cash, companies struggled to produce the goods. The reason? There was little slack in the supply chain before the shutdown and so it was that much harder to ramp back up.
Business resilience means having a little bit of slack in the system to cope with bumps in the road. It means having alternatives when your primary choice isn’t available. It means having plan A, B and C for various eventualities. If you are running at capacity and you win a huge order, it will be very difficult to fulfil it without detrimental impact to your customer experience. Similarly, if you have few materials available and production starts to ramp up, what happens if the prices increase and lead times extend? When critical processes depend on a single person or a single supplier, what happens when the number 63 bus runs over John or Jane? Resilience is having alternative strategies and options to overcome potential crises and disruption. Those who did so before Coronavirus capitalised to a huge extent.
Building business resilience
Just to be absolutely clear, we are not talking about the resilience of your employees. That is a completely different matter. What we mean is building a business that can weather storms. When Crowdstrike’s security update brought the blue screen of death (BSOD) to thousands of terminals, did it stop you from operating or did you have an alternative process? Crucially, we are not talking about adding to the risk register. This does not build business resilience. What we mean are some practical steps that you can take to be more immutable in challenging circumstances.
Here are 10 suggestions for building business resilience (this list is not exhaustive and is in no particular order):
- Create alternative supply chain strategies;
- Don’t put all of your eggs in one basket with a supplier, material or country;
- Diversify your business’ offerings;
- Diversify the markets into which you sell your offerings via greater international trade;
- Maintain more than a bare minimum level of stocks of raw materials and finished goods;
- Pay greater attention to your strategic planning process;
- Invest more in research to spot potential problems earlier;
- Assume the worst and prepare with the risks in mind;
- Identify critical infrastructure, people and partners and prepare mitigations;
- Update business continuity plans and consider testing them in real life.
Waste or resilience for success?
Ask your CFO or FD what they think of investing in the maybe, the just in case, the spare capacity. In most cases, the answer will be that you have a tough set of numbers to achieve and they don’t want to tie up working capital. However, from the CEO’s perspective, a good year and a crisis are very different. A good year of exceeding targets may get you a little bit of credibility and decent remuneration. A crisis, or a failure to capitalise on the opportunities afterwards, might get you your P45. Furthermore, a CEO that experiences a lot of peaks and troughs may appear less in control than the board would like. That little bit of buffer, margin for error and slack to overcome a problem might come in handy.
Minimise business uncertainty and increase resilience
Think Beyond works with senior leaders to find new growth opportunities and to accelerate performance. We offer expert support to fulfil your research, planning and change needs. Let us help you to understand the risks and opportunities around and ahead of you. Let us help you to make your strategic planning count and get prepared. Call on us to support your change and make a more predictable and resilient competitor.
If you would like to find out more, simply reach out to our helpful team.
Alternatively, why not email the team at sales@think-beyond.co.uk.
Finally, why not read a corresponding article on how we provide business assurance.