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.

Business communication between company leaders, shareholders and the workforce explaining the reasoning of a director's pay could help satisfy everyone. Caroline Newsholme explains further in this TV show.

Business communication is vital

A lot of shareholders probably feel dissatisfied and feel that director’s remuneration is more and more out of kilter, in some instances, with reality. When you look at what some directors are being paid it does feel a very long way from the average wage of a shareholder or a member of the workforce of that particular organisation, so there is bound to be increasing focus on what directors are being paid and how they are being rewarded. I think people just want to understand that they’re worth it and that it is justified.  

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Dynamic boards are now using expertise form generation y to inform their business development. In this TV show Peter Klauber discusses this change.

Modern thinking in dynamic boards

I think Y generation has a lot to answer for. I think it is fantastic. Ideas come from everywhere in an organisation not just the board. I think most switched on companies will enable everyone to add some opinion to the process of business development. We now have very dynamic boards with all ages, looking for expertise to help and there's no fear in using it.

If you want to hear more about dynamic boards, the role of directors and generation Y, keep browsing Inside Finance TV.

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.

Business disruption from absence is bigger than may leaders realise. In this TV show Matthew Haswell answers the question - Do business owners understand the cost of absence?

Awareness of business disruption

I don’t think they do, I mean that’s a broad brush answer, I don’t think they do because sickness absence costs, although in a couple of years, in the last year they have actually gone down slightly but as an overall cost it’s still pretty huge for UK industry particularly, well the private sector most research is done on. Now health and wellbeing and employee engagement and connection and holistic approaches to health and wellbeing is a subject that a lot of people, particularly HR consider, whether HR directors consider it from a cost perspective only or they actually think about holistic products is another question. I think what we’d like to do is encourage finance and HR to look at the question of sickness absence together and come up with a strategy to actually minimise the impact. It’s very difficult to get a finance director to sign off on a request from HR when the finance director can’t actually see why putting these procedures in place or even purchasing insurance or the health related products can actually help matters.

Inside Finance will continue bring you expert insight in to business disruption and related topics.

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.

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Business strategy models will involve pre-empting business disruptions and being ready to deal with them. Some issues will be more sensitive than others. In this TV show Matthew Haswell discusses sick pay policy.

Good business strategy models pre-empt difficult situations

The pure cost in terms of sick pay to be paid to someone who is off long term sick is very much reliant on the sick pay policy that the employer has, if they only pay statutory sick pay that’s obviously going to be a fairly low cost, if they have a promise to maintain that individuals salary for say three months, six months, obviously the cost will be higher. What we are finding, particularly in smaller companies is that some employers only tend to think about these kind of strategies when the event occurs. Now it’s very difficult if you don’t actually have a sick pay policy to suddenly try and make one up when someone goes off sick and it’s also very difficult to just say ‘Right we’re going to stop paying you full pay after a month’ if that’s not in contracts of employment or that’s not something that’s been communicated to staff prior to the event of sickness.

Keep watching Inside Finance for more expert insight into good business strategy models and similar subjects.