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The role of cities in industrial strategy

August 16, 2017

The Centre for Cities organizes a series of lectures on how cities can move themselves forward. The latest, on July 20th, featured Professor Diane Coyle, visiting professor at the University of Manchester and Director of Enlightenment Economics, on the role of cities as part of a modern industrial strategy. The podcast of her talk is here.

The Warwick Business School played host to the talk – with spectacular views of the City from its 18th floor position in the Shard.

Cities photo

Prof Coyle began by addressing the central economic challenges the UK faces today. Innovation is behind the rest of the G7, labour productivity is poor, the number of people over-qualified for their jobs is at an all-time high (implying low investment in advanced systems), the trade deficit is unsustainable and the UK is the most regionally unequal in the G20, due to its over-reliance on London. (All these assertions backed up with commendable statistics and graphs).

There are bright spots – pharmaceuticals, media/creative industries, the City, and some localised, specialist manufacture (eg F1).

She argued that government should look beyond the traditional sectors and aim to develop a multi-sector supply chain and encourage new entrants.

Interventionist industrial strategy has a bad reputation, from the days when “picking the winners” led to failure. But Prof Coyle suggested that good industrial strategy could act as a co-ordinating force (encouraging skills development), pooling risk and creating new markets, and support public goods, managing externalities. The US industrial strategy is the Department of Defense!

The talk then turned to the role of cities. Typically, regional policy is seen as “jam-spreading”, with the assumption of it being a zero-sum game. Prof Coyle argued that “agglomeration” effects, where a critical mass of related skills and supply chains came together, could lead to higher growth and development. As an example, she suggested that if C4 is to be moved out of London, it should go to Salford where it would build upon the BBC initiative. (Typically, in a zero-sum view, one questioner wanted it moved to Birmingham instead).

Summing up, the priorities for government intervention were seen as:

  • de-carbonisation
  • infrastructure renewal – how did the Victorians build infrastructure for 150 years capacity?
  • Health and social care
  • Incentives for long-term investment.

The talk was very well-attended – well over 100 I should think – with a wide range of age groups from early twenties to the retired. The event rounded off with drinks and canapes – a very pleasant venue indeed!

Written by Huw Williams, SAMI Principal.

The views expressed are those of the author and not necessarily of SAMI Consulting.

If you enjoyed this blog from SAMI Consulting, the home of scenario planning, please sign up for our monthly newsletter at eSAMIsignup@samiconsulting.co.uk and/or browse our website at http://www.samiconsulting.co.uk

Business and Brexit – what now?

August 9, 2017

It seems that every time one stops to examine the process of Britain leaving the EU, the matter gets more imponderable. Every statement by ministers is minutely analysed; minute changes in phrasing are dismantled for hidden meanings; every hour seems to bring more analysis, which itself brings further confusion.

Business does not have time to wait. The departure from Europe will happen in March 2019; EU states will need six months for ratification (October 2018). Companies will soon be starting their 2018 budget process with no certainty whatsoever on the results of the negotiations. Business planning is about stability and opportunity; and there is no stability, and no proof of opportunity in the post-Brexit UK.

In the absence of security in the future, businesses are making their own plans: EasyJet is setting up in Vienna, Bank of America and others in Dublin; and Frankfurt is to become an expanded home for Morgan Stanley, Citigroup and Deutsche Bank. The list will keep growing.

Recent lessons from central Europe

In mid-June, I was in Vienna as co-speaker at a series of round table events on Brexit with government, corporate and regulatory bodies; trying both to explain the British decision and chart ways forwards.

A number of conclusions:

  • The referendum result remains incomprehensible to Europeans, and to European business;
  • Europe has moved on. Britain is no longer considered to be part of the “EU28”, which is temporarily the EU27+1; the real concern is with Europe’s future;
  • The British negotiating positions as set out are almost entirely unacceptable to the EU. Not “unacceptable” in a British sense – changeable with reasoned argument – but “unacceptable” in a very Germanic sense – they are simply not acceptable, full stop. The UK has little to offer in return of concessions it is requesting.
  • European business is sanguine about losing access to the UK market post-Brexit, since it is confident of developing other markets both internally and worldwide.
  • The UK has lost its reputation for pragmatic, considered thought; it seems from outside to be a divided nation going through a form of national nervous breakdown, responding to the same distinctive Anglo-Saxon version of nationalist populism which gave rise to Donald Trump.

Brexit modelling

At SAMI, we have posited a range of post-Brexit scenarios for the UK and Europe:

  • Canada model: very relaxed and open relationship, many open border attributes
  • Mexico model: generally friendly, immigration constraints, stricter regulatory requirements
  • Cuba model: formal embargoes and mutual distrust

Joe Ravetz’s blog posts on this site proposed a “28 Months After” range from, essentially, societal collapse to a flourishing EEA relationship in a harmony of nations.

Which of these scenarios, if any, look more likely in the light of our findings from Europe? The local variables are quite daunting enough, but one must also bear in mind the more macro ones – an unpredictable USA setting its face against international institutions, a Russia which is more openly adventurous after its invasion of Ukraine and its involvement in Syria, climate change and its effect on migration patterns, and a rise in cyberwarfare. These larger elements are outside the control of the negotiating parties, but their effect may echo into their respective priorities.

Coupled with a weak UK government surviving on a supply and confidence agreement with a minor party that itself has mutually conflicting aims from the Brexit process, it can seem as if the future is entirely unpredictable. But let us try.

Options for the future

The Labour party has explicitly said that “Labour must evince a positive vision for the future of our country outside the EU. One that is consistent with the leave voters’ objectives…”. Since that is now the position of the government and opposition parties, we can say that remaining in the EU is not going to be possible. We are then faced with a range: from no deal (the Prime Minister has consistently said that “no deal would be better than a bad deal”) to a “soft Brexit” Norway option, with EEA membership and essentially an associate membership of the EU – our Canada model.

It seems to me that the Norway/Canada option is optimistic. It retains too many of the leavers’ red lines. However, (a) the pattern of the negotiations to date has been that the EU has had the upper hand (David Davis’ failure to produce “the row of the summer” over the process of the talks), and (b) the Repeal Bill implies the acceptance of EU law into UK law, so it must be marginally possible that this option carries through. With the time pressure, it may be the only soft Brexit solution that is achievable.

What seems more likely is that the EU remains constant on its requirements. These requirements are unacceptable to the British side. No real negotiation is possible, and it becomes clear that the British will either have to agree to what Europe wants, or not. Britain would need a different government, and a different opposition, to agree to departure on these terms.

Without that change of government, and without an extension of the negotiation period, one option seems more possible: what, using our previous models, we may call Cuba plus – a Britain outside Europe, running under WTO rules, with hard borders. Membership of NATO remains the most significant link to Europe, coupled with some security-sharing protocols. A long and complex free-trade negotiation process begins with Europe, at the same time as UK attempts the same process with other nations.

It is no surprise that business is already making its move.

Written by Jonathan Blanchard Smith, SAMI Associate.

The views expressed are those of the author and not necessarily of SAMI Consulting.

If you enjoyed this blog from SAMI Consulting, the home of scenario planning, please sign up for our monthly newsletter at eSAMIsignup@samiconsulting.co.uk and/or browse our website at http://www.samiconsulting.co.uk

Key trends and drivers of change in information and communication technologies and work location

August 2, 2017

As part of our work with the European Agency for Safety and Health at work (EU-OSHA), on their project ‘Foresight on new and emerging occupational safety and health risks associated with information and communication technologies and work location by 2025’. we produced a report on the key trends and drivers in ICT and work location. This report is now available via our website here.

Trends and key drivers of change were identified in a three-stage process: horizon scanning, consultation with experts through phone interviews and a Delphi-like survey and then a mini-workshop. The report lists and describes these important trends and drivers, which are organised by STEEP (Societal, Technological, Economic, Environmental and Political) category.

From demographic changes to technological innovations, these are the factors that will decide what occupational safety and health (OSH) challenges, associated with the digitalisation of work faces Europe in 2025.

Naturally, we found both potential benefits and risks for OSH. The main benefits included:

  • Removing people from hazardous environments through the use of robotics
  • Providing new means of promoting good OSH practice.

Risks were primarily psycho-social, relating to issues arising from work-related stress, 24/7 working practices and the loss of hierarchy and interaction at work, and ergonomic, through the use of mobile devices and novel human-machine interfaces.

Some 17 key drivers and trends were identified.

  1. Virtual and flexible working, including zero-hours contracts and platform working
  2. Changes in supply chains, with more sub-contracting and an increase in e-commerce
  3. The rise of small/micro- businesses, with opportunities for entrepreneurs but also pseudo self-employment
  4. The European Single Market, and the effectiveness of regulation
  5. Challenges of the economic environment – rates of growth, globalisation or its converse, and levels of investment
  6. Gaps in ICT skills and the need for frequent re-training
  7. Attitudes to online privacy, online bullying and ethics
  8. The scope for collective action, perhaps through social media
  9. The economic value of data and the rise of the knowledge economy
  10. Population demographics: the ageing population, migration, generational differences and the proportion of women in the workforce
  11. Built-in OSH, through user-centred design
  12. Robotics, AI and autonomous vehicles
  13. Internet of Things and big data
  14. Cybersecurity
  15. Virtual reality and augmented reality
  16. Growth of communications networks
  17. Man-machine interfaces, including direct computer/brain interfaces.

Later parts of the project convert these drivers into scenarios and then policies are tested against each. Further reports will also become publicly available in due course.

Written by Huw Williams, SAMI Principal.

The views expressed are those of the author and not necessarily of SAMI Consulting.

If you enjoyed this blog from SAMI Consulting, the home of scenario planning, please sign up for our monthly newsletter at eSAMIsignup@samiconsulting.co.uk and/or browse our website at http://www.samiconsulting.co.uk

 

 

What is Scenario Planning?

July 27, 2017

Several new clients have asked recently for a quick summary of the whys and wherefores of scenario planning. We have produced a comprehensive round-up of what we see as the key issues and techniques in Scenario Planning – A Primer. But we thought that a quick blog to summarise some key points might be useful for those new to it or those, faced with Brexit issues, who are thinking of returning to it.

Brexit is a wonderful example of the difficult circumstances in which scenario planning can help organisations address the future. There is change ahead, but no one knows what will happen, few know how it might affect them, fewer have plans in hand to prepare themselves for change.

There are plenty of views about what might happen ranging from apocalypse to a nirvana of freedom from the shackles of foreign power. And it is likely that for each individual or organisation the impact will be different, ranging from not a lot to life changing.

The first stage of scenario planning is to identify the kind of possible key changes in the future that are likely to affect the organisation in the future. These of course are a matter of opinion, but in scenario planning the more diverse opinions the better. The process of scenario planning takes all these views, analyses them for probability and impact, groups them as similar or opposite in possible impact, and develops a number of plausible scenarios covering most of the biggest issues. These scenarios are mental models, they are qualitatively different, they present a range of possible futures. They give a framework and language that permits rational discussion about the different directions in which things may change, and what the organisation should do to prepare for whatever might be thrown at it

No narrow forecasts of what might happen, no arguments about what will happen, just consensus about the need to prepare for the future. As with other business techniques, the process itself and the participation by influential members of the organisation can be as important as the production of a plan, or plans, themselves.

If you feel the need to know more, please help yourself to an in depth read of our Scenario Planning – A Primer. Or you can see chapters of “Scenario Planning – managing for the future”, which is the standard text on MBA courses, on www.unlockingforesight.org.

Written by Nick Jackson, SAMI Principal.

The views expressed are those of the author and not necessarily of SAMI Consulting.

If you enjoyed this blog, sign up for our monthly newsletter at eSAMIsignup@samiconsulting.co.uk and/or browse our website at http://www.samiconsulting.co.uk

The Future of Europe – navigating the complexity webinar, 5 July 2017

July 26, 2017

Recently I joined a webinar about using futures thinking in organisations hosted by Unlocking Foresight and Atkins. The speaker, Francesca Lagerberg from Grant Thornton International, discussed how they had recently used some futures techniques, facilitated by SAMI Consulting, to bring futures planning to life both in Grant Thornton and with their clients. The aim was to use these techniques to help all parts of the business to engage with, and meet, the challenges of the future.

Beginning with a quote from Yoda (Star Wars – The Empire Strikes back) ‘Always in motion is the future’, she set the scene around how futures thinking techniques acted as a basis for conversations and how these enabled sharing of thoughts and perceptions about what the future might have in store both for their business and also their clients. This was very much a ‘starter for ten’ futures exercise, designed to get people talking and thinking about the future and the challenges that their various business might meet so, in the interests of time, some steps were shortened.

They were interested in the future of Europe in 2030 so, rather than start with the usual brainstorming of ideas about what they thought Europe might look like then, they used the exercise of ‘Looking Back’ first. Ethnographic studies suggest that change happens twice as fast going forward as going back so in starting by considering what has changed in the past 26 years you begin to get some indication how much faster things might happen the next 13.

Just think for a moment how things have changed in the years since 1990 – then there were no smartphones, not even really an Internet and Germany had only just begun its unification following the collapse of the Berlin Wall. If change is really going to happen faster over the next 13 years what indeed might we see!

Then, using some pre-prepared drivers for change (as time did not permit the groups to develop their own), they populated the Three Horizons model with ideas about what indicators for these drivers could be seen now and in Horizons 3 (far future) and 2 (near future). Having generated a lot of varied discussions around the various drivers and ‘Horizons’, the indicators were collated and examined in the light of possible scenarios that had, like the drivers for change, also been pre-prepared.

The scenarios were introduced through a description of the axes used. These were Globalisation vs Localisation and Economic Focus vs Social Cohesion and gave rise to four scenario stories. Different groups took different stories and, in a deep dive into their particular story, thought about what headlines might be seen or heard in the media for that scenario and how it might affect their particular business.

This last exercise, which enables people and businesses to look for the indicators of change, is a key part of the value of scenario planning. When groups of people are alerted to such indicators then it becomes easier to identify the likely future issues that may impact your business as soon as they appear.

Using these processes, both within an organisation and also with clients, provides a very helpful framework to navigate the future and helps to develop collaboration by encouraging people to work together and gain a shared understanding.

Gaining a sense of direction of where to start looking for indicators of the future helps you make some educated guesses about future direction and enables you to ask the ‘right’ questions.

The slides used and the webinar recording are available via Slideshare at https://www.slideshare.net/secret/BiDp5jEyQABrsn

Written by Cathy Dunn, SAMI Principal.

The views expressed are those of the author and not necessarily of SAMI Consulting.

If you enjoyed this blog from SAMI Consulting, the home of scenario planning, please sign up for our monthly newsletter at eSAMIsignup@samiconsulting.co.uk and/or browse our website at http://www.samiconsulting.co.uk

Analysis: The Taylor Review of Modern Working Practices

July 19, 2017

The Taylor Review of Modern Working Practices is an ambitious attempt to address changes in the UK economy where more and more people are no longer employed in the traditional way.

This poses a direct challenge to Government policy development and also to protection insurers and advisers and of course to individuals themselves.

As the Report says, many people like the flexibility of working atypically – and we must not lose this.

However, “flexibility must not be one-way with individuals absorbing all of the risk.

“For many, not knowing when work will be offered, or whether they are entitled to protections like sick pay or holiday pay mean they are unable to make informed choices, book a holiday or even arrange a hospital appointment. This is wrong.”

Wherever possible, people should know who they are working for, how much they will earn and what rights they have – including sick pay.

This should be developed further to ensure it is relevant to “dependent contractors” (agency workers etc).

As we know, many “traditionally employed” workers have little idea of their sick pay entitlement either – so the proposal that the Government should specify the format of the written statement so that information is transparent, in plain English, and accessible is very welcome as people will then know to what extent they need to cover themselves in the event of sickness absence.

The insurance industry has been advocating the provision of such information for some time and the publication of the Report gives added impetus to this demand.

Moving from “traditionally employed and dependent contractors”, chapter 10 of the Report recommends a new deal for the self-employed – the Government should focus on encouraging self-employed people to plan for the future, reducing the potential that the taxpayer has to pick up additional costs associated with ill health or inadequate retirement saving.

The Report points out that all self-employed people are not the same.

Like those who are employed, the experiences and vulnerabilities of this group range from billionaire entrepreneurs to taxi drivers working 90 hours a week simply to pay their bills and includes many people who are gaining income from self-employed activity alongside their main job.

While many self-employed people would not expect sick pay, paid annual leave or automatic enrolment to a pension, for others, the availability of this safety net is essential to make sure they can pay their rent, put food on the table or plan for the future.

This can lead to the same levels of anxiety and illness that are experienced by those employed on casual contracts.

So what could be done to address these anxieties?

Here we see some innovative thinking. “Portable Benefits Platforms” provide ways for people who are self-employed or engaging in other non-traditional labour market activity to gain access to a range of benefits and protections.

They also present an opportunity to ‘nudge’ people who are self-employed to set aside money for the long term, e.g. for retirement, in case of injury, or to pursue personal development and training opportunities to further their career.

These are not statutory employment protections. Instead they could allow individuals to move freely between platforms because benefits accrued while working on one platform could be retained and topped up if the individual started working on another platform instead or even simultaneously.

The Report includes an interesting case study. The Black Car Fund is a benefits platform for limousine and black car drivers in New York. It is a not-for-profit insurance provider that provides compensation for drivers that are injured while working.

A 2.5% surcharge is added to passenger’s fares for drivers that are in the scheme, and this entitles the drivers to claim, in case of injury. The Fund also offers safety training for drivers in the scheme.

Although this platform is not portable, it has led to some initial calls for Portable Benefit Platforms for those working in the sharing economy.

Portable benefit platforms can also be third-party vehicles supporting gig economy businesses to make payments on behalf of an individual working through them.

This might cover benefits such as sick leave, holiday leave, occupational illness or injury, pension plans, and further training.

Payments could be costed according to the number of hours worked or as a percentage of gross wages.

It seems to me that portable benefits platforms could be developed in the UK by insurers to support self-employed people and also some dependent contractors.

The vast majority of such people will never have access to group insurance schemes and income protection would form a key component of schemes over here.

There is also the potential to link these schemes to state-based welfare rights and entitlements – so people are financially encouraged to take them up – and not penalised at the point of claim.

The Report recommends that the Government should work with partners to create a Catalyst to stimulate the development of a range of such platforms in the UK.

This would allow new and emerging solutions to develop and grow, in a “sandbox environment” with a view to better supporting self-employed people.

The insurance industry should be actively involved in this innovative work.

While the Report recommends that the Government should reform Statutory Sick Pay so that it is a basic employment right for which all workers are eligible regardless of income from day 1, SSP is a very small element in meeting the range of possible needs of the self-employed and dependent contractors.

And one last point, The Report recommends that the Government should identify a set of metrics against which it will measure success in improving work, reporting annually on the quality of work on offer in the UK and that measurement of success could come in the form of more regular running of the Workplace Employment Relations Study (WERS) as well as other qualitative and quantitative measures both at a national level and across regions or specific sectors.

The Bill to set up the Single Financial Guidance Body currently going through Parliament could be amended to include such metrics that are relevant to access to guidance on financial services which can support individuals in the event of the income shocks – especially sickness.

Written by Richard Walsh, SAMI Fellow and first published in Cover magazine, July 2017.

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Governance, risk and reporting

July 12, 2017

The UK Corporate Governance code, policed by the Financial Reporting Council has been revised several times since it first emerged. And in 2013 the Department of Business Innovation & Skills (BIS) was driving the agenda.

It felt that companies spent too much time reporting past success and not enough on forecasting future returns, so introduced the requirement for an explanation of business model including strategy and risk. This caused some complications for dual-listed corporations who had also to comply with the US regulator who took a different view. While the UK was encouraging corporations to talk openly and honestly about future risks, the US was much more wary of reporting any risk without some prior legal protection for the disclosing party. Jurisdiction alignment was a barrier to better reporting.

This dilemma highlights the confusion surrounding the word risk itself. The economist Frank Knight wrote on the distinction between risk and uncertainty in 1921 where he postulated that the two terms had not been adequately separated. To him risk was measurable and uncertainty immeasurable, however today we accept risk as a control function thanks largely to the way risk is seen as a threat to business continuity which demands some contingency planning. Risk as opportunity or gain tends to be eclipsed by the understanding of risk as threat. Uncertainty is a word that needs more exposure.

The dilemma also posed the uncomfortable question of the ability of auditors – whose skill lies in forensic examination of performance – to police future forecasts of strategy and risk both of which being speculative defy any comparison with ‘the right answer’. Back in 2013 the European Financial Reporting Advisory Group (EFRAG) took the view that future forecasts should have no place in accountancy practice, which must by definition be evidence based. Although the BIS has since been renamed BEIS, adding ‘Enterprise’ to its remit, it still struggles to ‘boldly go’ into the risk debate.

This brings me to the two remaining questions: what is the purpose of risk reporting and who determines what is a significant or principal risk? Let’s tackle the purpose first as this is marginally the easier of the two. This is the warning to investors that they may lose as well as gain; it is the government’s ‘caveat emptor’ requirement. The purpose of risk reporting is to aid the decision process. It is not to list every possible known eventuality, history shows that crises were always absent from risk registers, catastrophes are always termed ‘unimaginable’ or ‘exceptional’. Good risk reporting within the FRC is articulating future uncertainty with clarity and candour.

Reporting risk to a regulator is not the same as reporting risk to an investor, their appetites are different, what is attractive to one is repellent to the other. This becomes a challenge like a juicy bone thrown to Corporate Communications, or passed between Investor Relations and Compliance. In a stakeholder aware corporation messages need to be adjusted to suit audience expectations, but risk is a topic that comes with baggage. This of course is if it ever leaves the board room with a consensus in the first place. Every director will bring their own perspective to the table about what constitutes a risk and whether it is acceptable or not.

This leads me neatly on to the second question, who defines and determines a risk? Is it the Chief Risk Officer (CRO), Head of Risk & Audit Committee or some other ‘expert authority’ within the organisation? Given that the board should take collective responsibility for risk, there are still a large number of organisations where the board relies on a single individual or a department as the risk authority. Anyone around a board table can identify a risk and should argue for time to debate it, but how often does this really happen?

Risk is a topic that needs to be properly rehabilitated within boardrooms, especially in times of economic and political uncertainty. Risk aversion will not produce growth and will stifle innovation so a more positive approach to risk is urgently needed to stimulate the UK economy, especially with the Brexit negotiations breeding further uncertainty. Throughout 2017 the FRC has been looking at risk reporting within the Financial Reporting Lab and a report is due by the end of the year. The BEIS will be looking to see risk as an enabler not a limiter, so this could be very interesting.

Written by Garry Honey, Chiron Reputation Risk CEO and SAMI Associate.

The views expressed are those of the author and not necessarily of SAMI Consulting.

If you enjoyed this blog from SAMI Consulting, the home of scenario planning, please sign up for our monthly newsletter at eSAMIsignup@samiconsulting.co.uk and/or browse our website at http://www.samiconsulting.co.uk

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