There may be trouble ahead – and business must prepare accordingly

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A strategic planning meeting between four people

Strategy is not an optional extra: if your business does not plan for the worst, the worst may have plans for your business, writes James Sproule

At a recent event for small and medium-sized businesses, including IoD members, we viewed research showing around seven in 10 SMEs have a business plan. That’s a good start. Strategic planning clarifies the full costs of delivering a good or service, allowing a business to be agile in sensing if new opportunities are really advantageous and, crucially, where dangers may lurk.

So what are some of the scenarios businesses should be planning against? Obviously there is the possibility of Brexit, but there are plenty of other uncertainties, good and bad, which warrant due consideration.

A rise in oil prices. While they have risen by 50 per cent from their low of $30 (£21), they are still well below levels anticipated two years ago. Oil remains the most important commodity to modern economies and turmoil in the Middle East could shoot prices up even if Chinese demand continues to be weak.

A rise in inflation. Inflation has been so low for so long that people have forgotten how to cope in high-inflation times. Discretionary pricing power becomes critical – will you be an inelastic ‘price setter’ or elastic ‘price taker’? Remember also that high inflation means shorter investment horizons, so it places a premium on products that have a rapid payback.

Further troubles in the eurozone. Underlying Greek issues were delayed, not solved, and the eurozone’s problems extend well beyond the Aegean. Further quantitative easing seems likely, with negative implications for inflation in the longer term.

There are obviously lots of other scenarios worthy of thought, from a Chinese slowdown, to geopolitical disruption connected to Russia or the Middle East, to increased re-shoring, to technological innovation.

For all of these, there are some basic points to remember. Macro-economic volatility is invariably underestimated in official forecasts, and when volatility happens, customers’ reactions can be significant – just look at 2008. Is there a counterparty risk? Will clients be able and willing to pay? Not simply will they go bust, but will yours be the invoice they delay in order to manage their cashflow?

Do your customers view you as a discretionary spend or a critical one? Do not make this a judgement about your company’s worth; the goal has to be honest analysis leading to clear thinking about how to be that bit more indispensable.

Time spent on strategic planning is time well spent. With the best will in the world, unanticipated events shift customers’ focus from the ‘strategically important’ to the ‘immediately critical’. Having even a limited view, when others struggle to see at all, will pay dividends.

@jamesrsproule

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About author

James Sproule

James Sproule

James Sproule has been Chief Economist and Director of Policy for the Institute of Directors since January 2014. Prior to joining the IoD James led Accenture’s UK Research and Global Capital Markets Research. He started his financial career as a merchant bank economist working with both Bankers Trust, Deutsche Bank and Dresdner Kleinwort, and eventually helped to found the boutique bank Augusta and Company.

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