Risk is global, confidence is local. That was the theme of our latest Risk and Confidence report, and a premise vividly brought to life by this week’s Brexit turmoil in the UK Parliament. Politics and economics are close bedfellows so it’s no surprise that business leaders are feeling rattled by the lack of clarity that the ‘deal or no deal’ scenario is creating.
What is interesting, however, is how much change has already been ‘priced in’ by business leaders. When we surveyed British business leaders back in the autumn, Brexit uncertainty was already clearly driving a shift in their business investment priorities and bringing to the fore new risks that business leaders had begun to consider.
The big divide
Brexit is dividing sentiment across the Channel. European business leader confidence is riding high with 81% confident in their ability to grow and prosper, according to our latest Risk and Confidence research. This is not the case with business leaders of UK-based businesses, where only 39%, are confident about their business’ ability to thrive, the lowest confidence level across all the regions we surveyed.
When we delved into UK business leaders’ views on how Brexit is impacting on their investment decisions, we also found a distinct divergence of views across various industry sectors. Brexit is quite clearly sector-specific in impact and in how it changes investment planning and risk profiles.
A schizophrenic picture
When asked how Brexit uncertainty was impacting investment plans for hiring talent, fintech (55%), life sciences (44%) and transportation and logistics (42%) firms lead the pack, and all plan to increase their investment in staff. This is possibly an attempt to ‘lock-in’ talent prior to a potential ‘hard’ Brexit that could make employing EU nationals harder.
On the flip side, over a third of manufacturing, professional services and healthcare firms are looking to decrease their investment in talent due to Brexit. This move is likely to be linked to cost management, and an unwillingness to commit to longer-term investment at a time of so much uncertainty around the direction of political travel.
Technology high on the agenda
When we explored how Brexit is impacting investment in technology, there is a different picture. Every sector we surveyed, bar manufacturing, predicted their investment in technology would increase due to Brexit uncertainty. Nearly 70% of the businesses we spoke to plan to invest or maintain investment in technology, as they see it as key to their future growth enabling more efficient operations, improving customer engagement and service performance.
The big losers
The investment areas hit hardest by Brexit uncertainty are corporate development including M&A and investment in plant and equipment. Firms are dialling down their expectations and plans in these areas until there is more certainty linked to the import-export environment of the future, and the long-term economic prospects for the UK.
From ‘storming’ to ‘norming’
What is notable is how much Brexit uncertainty has become ‘the norm’ for UK firms. Without knowing what the Brexit outcome might be, business leaders have altered their investment strategies, using their ‘best guesses’ to drive their strategy no matter what the Brexit outcome.
With a continuing uncertain political landscape, business leaders know they need to reset their risk radar to cope with the intangible, but wider and more complex risk environment that we now see approaching.
Although technology provides numerous benefits, its inherent interconnectivity creates cyber liability, supply chain, regulatory and reputational risks. These risks require a proactive approach to risk preparation and prevention which needs to be understood and endorsed at a leadership level and throughout an organisation. This requirement to work together to face a major structural change is one that mirrors the demands of Brexit.
So perhaps this turbulent political story has a positive side. The storms of Brexit might be forging an attitude of planning and preparation around evolving risks that could help business leaders make a successful transition not just into a post Brexit world, but into an environment of ever-more interconnected risk.
By Dave Brosnan, CEO