Long reads

Brexit: the crisis management guide

28 Mar 2019 By Francis Churchill

The government may not yet have a plan to steer us out of political uncertainty, but that doesn't mean organisations don't need one

In the mid 1980s, a small Brazilian beer company called Brahma was founded with a singular mentality. It started lean and ruthlessly cut its costs further still, meaning that when Brazil’s currency crisis hit in the late 90s, it was in a much better place than the rest of the market and bought its largest competitor, a firm called Antarctica, for next to nothing.

With the spectre of Brexit looming ever more uncertain over UK businesses, there is a lot that can be learned from Brahma, says Julian Birkinshaw, deputy dean at London Business School. Principally, that at a time of crisis, it is the businesses that are lean and agile that are best placed to adapt to uncertainty.

“All Brexit is doing is exacerbating the challenge businesses have always been under, which is a fast-changing external environment,” says Birkinshaw. “And when faced with an unpredictable environment, you need to be operationally agile.”

For employers, Brexit represents a – perhaps unwelcome – opportunity to re-examine talent strategies and undertake renewed workforce planning. By treating it as a piece of crisis management, with the ultimate aim of achieving business continuity, there is the chance to mitigate or even benefit from the profound changes to migration and the wider economic landscape that lie ahead.

But first, there is a minefield of political stalemate to negotiate. At the time of publication, prime minister Theresa May was looking to extend Article 50 to 30 June 2019 at the latest, but the potential machinations involved made it uncertain whether this would be acceptable either to the EU or to parliament. The immediate implication for migration was that EEA nationals who arrived in the UK before the original Brexit date of 29 March would be allowed to apply for settled status, but it is now unclear whether that will remain the cut-off date for applications.

Any potential Brexit delay could also imperil the eventual implementation of a post-Brexit migration solution, spanning both EEA and non-EEA nationals, which is crucial to determining businesses’ future prospects – something that has been overlooked in the rush to solve more immediate concerns.

In the meantime, businesses are feeling the impact of the uncertainty. ONS figures released in May showed EU migration to the UK in 2018 had dropped to its lowest level in a decade. The care and hospitality sectors are being hit hard by concerns about future recruitment prospects, according to Paul Holcroft, associate director at consultancy Croner, while construction firms are already raising concerns about a shortage of applicants. 

Business development and managerial talent is also thinning out, adds Holcroft, with consultants reporting fewer opportunities too. “[This] could, in turn, lead to a lack of innovation and growth during this uncertain period,” he says.

Chris Galway, chairman of the Immigration Industry Association, says businesses are “topping up” the declining number of skilled workers arriving from Europe with talent from Australia, New Zealand, Canada and further afield. This is more costly, he adds, but may be unavoidable: the number of national insurance numbers issued to workers from south Asia increased 30 per cent in the year to December 2018, while applications from Europe fell 16 per cent. 

This isn’t all bad news, says Gerwyn Davies, senior labour market analyst at the CIPD. “Yes, migration restrictions will hit certain sectors such as hospitality very hard – but it could be positive for organisations who recruit from outside the European Union.”

Davies points out that the government’s immigration white paper, which indicates its long-term plans, includes proposals to drop the skills threshold for visas from graduate level to A level-standard occupations, which opens up roles that would have otherwise be excluded.

But, he adds, the underlying issues resonate regardless of the political situation: “The labour market continues to tighten ever further, so organisations shouldn’t really need Brexit to require them to rethink how they recruit and retain their staff.” 

Some employers are being proactive in this area, in the form of better employment conditions, more full-time permanent contracts and increases in pay. Travelodge, for example, recently announced a returners programme set to create 3,000 jobs for parents – tapping into an underused pool of workers with flexible and school-hour roles. 

The same actions that businesses are taking to address skills shortages prevalent in the UK will also help mitigate restrictions on migration. “There’s no doubt that Brexit will come as a shock to low-skill employers in particular,” says Davies, “and they will need a wider range of responses to deal with it. That will include automation in some cases, or raising pay. Employers can also adopt more sophisticated practices through flexible working arrangements and a more inclusive approach to recruitment.”

With employment at record highs, workforce planning and upskilling are important regardless of Brexit. Businesses have become too reliant on sourcing the talent they need from outside their organisations, and Brexit is an opportunity to address this. The role of the manager will be paramount, says Davies. “The UK fares badly compared to our OECD counterparts in terms of line management capability, which many employers overlook as a reason for their retention difficulties.  

“It’s still the case that too many employees are promoted into people management roles because they have good technical skills, then receive inadequate training and have little idea of how their behaviour impacts on others or how to get the best out of their staff through coaching and upskilling.  When done well, the productivity and retention gains from upskilling managers can override the very recruitment difficulties that many employers fear.”

This doesn’t mean existing EEA nationals should be forgotten. Employers who haven’t already done so need to start auditing their employees now to work out who is an EEA national, who should apply for settled status and who has which rights to work, says Galway. “It’ll be much easier to facilitate change in any migration legislation that’s introduced in the future if [an audit] is undertaken now.”

For Sharon Platts, organisational change and design director at consultancy Connor, preparing for Brexit means business modernisation. That comes down to operating models, organisational structure and the way in which culture affects how decisions are made: “We must recognise that organisations need to be faster, smarter and better.”

And Brexit is not the only dynamic that requires this kind of thinking. “You take the emergence of the Asian economy and the impact of that on the European economy, irrespective of our specific position within it, and it demands a new approach to making sure we can compete,” says Platts. “I think that should have been debated more as part of the Brexit referendum. Are we better equipped with Europe to meet the challenges of the Asian economy or not?”

The problem is that, for at least half the businesses Platts says are actually planning, the focus remains on how to grow and retain top talent. “Where they are less ready is around the ability of the organisation to adapt. Those sorts of changes are not things that you can effect and enact overnight,” she says.

Birkinshaw echoes this narrative. Businesses need to be able to flex over the next 12-18 months, ramping production up or down as needed. They must get better at experimenting with new offerings, new ways of reaching customers and new back office systems, responding to regulations in a more experimental way. “We want to know that if the worst happens and companies are actually damaged, if we know that our systems are tightly run, we will actually survive better in that downturn,” he says.

When Brahma bought Antarctica, it became AmBev. This company went on to merge with Interbrew and then Anheuser-Busch to become the world’s largest brewer – AB InBev. The lesson, says Birkinshaw, is simple: “This philosophy of creating a really low-cost, efficient, operationally agile entity for me has always been a good way of managing in bad times.” 

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