Business strategy models have to adaptable to future disruptions and developments. In this TV show Keith Coats of TomorrowToday discusses strategic thinking for leaders.

Business strategy models in an unpredictable world

Leaders have to be future-focused. Levi right now have a great slogan, which says ‘the future has left, so go forth’. Jim Data is a retired futurist and he articulated that past thinking amongst futurists was something like this … I might have some of the percentages slightly wrong but the rough ratios is 80% of our tomorrows would be built on what futurists call continuations, so if you want to understand tomorrow, look at the DNA of today, 80%. 15% would be cycles – economic, political social cycles – and 5% would be novelties. Now, in the futurist language a novelty is the curve ball, the unexpected, the 9/11, the thing that very few people could foresee. I’ll preface that with past thinking. Current thinking amongst futurists has inverted that table, turned it on its head. They are telling us that up to 80% of our tomorrow is what they call novelty, we simply do not know. Now, even if they’re half correct I wouldn’t go to war over those percentages, it’s the trend here we’re looking at, that the bulk of our tomorrows is going to be a surprise, going to be the unexpected, the unpredictable. The question then becomes how do you build continuity in that? What does the organisation that learns how to build planes in the air, as it were, look like in that context? For one thing it renders redundant strategic planning, you cannot plan your way into that kind of uncertainty. We need companies today who understand the emphasis needs to be on strategic thinking and at all levels of the organisation, this is a leadership agenda.

Inside Finance is very interested in business strategy models and the future business world. Browse our video player for related content.

Informed financial planning is essential when it comes to investments. Investment managers should be well informed of tax rules so that no errors are made. Michael Pagliari explains further in this business TV show.

Informed financial planning and investments

There are different categories of planning, so for resident domicile UK clients the principles are pretty well-established, there are certain types of securities that should and can sit perfectly well in portfolios and there are other types of securities that shouldn’t. So, to give an example, there are some tax efficiencies through using fixed income securities which trade at which trade at discounts, there’s advantages in using OECs but there are some other instruments which effectively take a capital gains tax charge and transform it into an income tax charge at, you know, a much higher rate. And then if you move on to the sort of res non-dom world, that’s a very sort of … a much more complicated area with much more potential for error. So for example it’s very important that income and capital are separated, managed in separate buckets; if those are mixed there can be very severe tax consequences. So it’s really basic housekeeping-type issues but extremely important that the investment manager has a good handle on them. Investment does involve risk. The value of investments can go down as well as up. This video contains information believed to be reliable but no guarantee is given. See Video for full disclaimer.

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Business risk can come from many unknown variables. When working with an investment manager people should be clear about how much risk they are prepared to take, as Michael Pagliari explains in this TV show.

Investment & business risk

I think that you know individuals sometimes tend to give misleading answers when asked about the amount of risk that they want to take. So for example a typical response that you get from an entrepreneur is ‘oh, I don’t really want too much risk but you know I’d like to make 10% returns’. Now in the current sort of environment that we exist, where interest rates are at zero, 10% is a very ambitious rate of return, so the statement is actually pretty incoherent. So at that point I think you need to dig deeper and find out exactly what the client needs as a minimum requirement and make sure that it is coherent with his underlying thought process. They understand risk very well in their own business, in the context of managing financial assets my experience has been that that knowledge is of the same type of thought process does not necessarily transfer itself well to their financial assets. And that can mean, that can mean that either they take on too much risk in their financial assets or they take on too little. Ideally, I actually think that it takes about a couple of years until you really understand a client’s risk profile and as you get to know him you make some adjustments. So my personal suggestion or my personal methodology is to start with a relatively conservative risk profile until I feel that I really understand and know the client better. Investment does involve risk. The value of investments can go down as well as up. This video contains information believed to be reliable but no guarantee is given. See Video for full disclaimer.

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Business risk may hit in unexpected ways during an economic downturn. In this TV Doug Hall discusses a case where a contractual breach caused major loss.

A business risk case study

A commercial contract between two parties has to be mutually advantageous, so I acted for a client in the Czech Republic a couple of years ago and they supply components which go into engines for ships, very large components. In 2007 ship building in the far east was booming and err, their Korean customer wanted to make sure they can sufficient of these components, they wanted to secure suppliers, so they’d make a contract with my Czech clients. In 2008 the world changes, suddenly they literally stop building ships, so what was previously mutually advantageous suddenly is onerous for the Korean party to that contract, they don’t want those components anymore so they breach, they say ‘We don’t care about the contract, we’re not going to buy your components anymore’. So firstly there’s a question on liability, where they entitled to breach. The second question is what has the Czech manufacturer lost by reason of not being able to supply those components. So the question is how many units they will have sold and what profit they would have made per unit and both of those variables sound very simple but if you imagine how you can make a profit or how you’d measure profit in a very large manufacturing business there’s all kinds of detail in how you do that. So that’s broadly a kind of situation where a breach causes a loss. So in that case err it was tens of millions of dollars, you could have exactly the same situation where it’s £10,000, err one party to a contract decides they don’t want to continue with it, the other party says ‘Well if you had continued I would have made some money and I want to be compensated for the money that I’ve lost as a result of your breach’.

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Attitude to risk may depend on the age of the client or the business. Younger people lean more towards risk, as Michael Pagliari explains in this TV show.

The young person's attitude to risk

I think that goes back to sort of life cycle questions.  As clients are younger and are looking to build assets they may well have a higher disposition towards risk and that might lead them towards more growth-type portfolios.  As clients advance through that life cycle and perhaps sell a business or begin to retire then it’s really a question about draw-downs and inheritance tax planning and so on, and portfolios tend to de-risk to some extent.  So as you grow through that life cycle portfolios do tend to sort of de-risk over time.

Inside Finance will continue to follow discussion on attitudes to risk and we have plenty more videos featuring experts from our channel partner Smith & Williamson.

There are many business benefits of the UK environment as Stephen Drew of Smith & Williamson discusses in this TV show.

UK's business benefits

I think there are a variety of reasons as to why people would choose the UK as a good place to invest. Certainly we have some interesting sectors that appeal to a large number of investors from outside of the UK, and in particular we’re seeing a lot of activity in life sciences, the creative industries around professional practices and professional services and in the technology space. So they’re sectors that are seen as high growth and there are foreign investors that want a piece of that action and therefore they have a certain amount of appeal to see how they can get involved with those sectors. When combined with a business environment that’s reasonably friendly and it’s quite easy to get involved with those businesses, to make the investment programmes, and to start fresh businesses and that makes it an easier investment decision compared to other territories. The UK government has been very helpful in trying to make the taxation environment business-friendly and therefore there are attractions again for encouraging foreign investors to actually put cash into the UK economy, which will help the general improvement in what we’re looking for within the UK as well.

If you are interested in discussion around UK business benefits and investment in different environment, please browse more TV shows on Inside Finance.

Legal sector had a change in the types of case brought to them when the economic downturn disrupted businesses across the globe. In this TV show Doug Hall discusses the increase in breach of contract cases.

Legal Sector: The impact of the recession on commercial disputes

Very simply, it may be a cliché but the recession meant that pretty much overnight in some sectors the world changed and the example of the ship building is a prime example of that, in 2007 manufacturers in the far east can’t make enough ships, in 2008 suddenly people operating ships don’t want to buy them anymore, so suddenly the world changes overnight. That creates an impetus for all kinds of breaches to take place, because the world has changed simply. So what we saw after the recession or after the recession started was a big increase in the number of breaches of contract cases, we’ve seen a higher incidence of shareholder disputes and that’s simply there may be longstanding issues between shareholders but when there’s strife, when you’re operating in a difficult environment, maybe those tensions are amplified and they fall out, the same with partnerships, including professional partnerships. We’ve seen actions against professionals which for example arise out of insolvency, so a company goes down because times are tough, and in the lead up to the company going down there’s been issues with what advisors, professionals, auditors have done, there may have been issues with what the directors had done, they were doing their best to save the company but maybe they end up committing a breach of fiduciary duty or selling assets at under value, or getting confused about what’s their money and what’s the companies. Keep browsing the fantastic TV shows on Inside Finance to hear more about how the legal sector deal with business disputes. Look out for more form Doug Hall.

The attitude to risk form those in high risk environments is to exercise caution as Michael Pagliari explains in this TV show.

A cautious attitude to risk

I actually have a few clients that have done exactly that and I’ve actually found that there I’m on the more cautious of our clients.  So their business risk, if you like, is very high and they’re well aware of it and the last thing they want to do is suffer losses under their financial asset portfolio, so I’ve tended to find those people the most cautious of all the clients that I manage money for. Investment does involve risk. The value of investments can go down as well as up. This video contains information believed to be reliable but no guarantee is given. See Video for full disclaimer.

Keep visiting Inside Finance for more great videos on attitudes to risk and similar subjects.

Business assets valuations are needed for commercial and tax purposes. It is a complex process. In this TV show John Rugman explains the art & science of valuations.

Business assets valuations are an art

Valuations need to be done well because the value of any business or asset is really dependent on the future performance of that business. So it’s less about the past and more about the future and that’s quite judgemental, it’s not a matter of fact, it’s a matter of opinion and analysis. So valuations are as much an art as they are a science and it’s important to get that judgement right. To do a proper valuation we really need to understand about the prospects for a business, so we really need to understand what the prognosis is, what the future performance of that business might be and the sorts of risks that might affect that performance. All valuations are very different, doing a valuation for tax purposes is a very different exercise to doing a valuation for commercial purposes. We use a variety of different approaches and techniques to make sure that any conclusion we reach is one which we’re comfortable with. Keep browsing videos on Inside Finance TV for more expert insight into business assets valuations, risks to the assets, and legislations that must be followed.

Informed financial planning advisors pass on their wisdom to clients. If a company fails they will naturally look at back at this advice. In this TV show Doug Hall discuses throwing the spotlight on professional advice.

Informed financial planning advisors

For example auditors, we are dealing with a number of cases, where a company has failed, and if the company had not failed there wouldn’t be an issue. But in the company going into administration for example, major creditors had lost and they may say that they have relied for example on audited accounts to make decisions, to lend money or to support the company and in the cold light of day the company having failed, that’s an example where you may go back and look at what the auditor said in earlier years.  So we have situations arising from insolvent companies where the spotlight is thrown onto a whole range of professional advice that they were given before the company failed. Which never would have come under that spotlight if the company hadn’t gone into administration for example.  It's not an area that we get involved in but valuers have seen a big increase in the number of actions against them very simple because the banks relied on valuations of properties for example, and then when the company has gone into administration and the bank has lost out, they then go back and look again at the professional opinions that they relied upon, in making their original lending decisions.

Inside Finance will continue to produce great videos on informed financial planning advisors and similar subjects.