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COMMUNITY UPDATE

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Forget the doom and gloom in the news. There are multiple reasons for CEOs and boards to be optimistic this year, provided they’re running organisations with a strong global presence and have senior leadership teams capable of recognising the opportunity new technology presents for improved business performance and a better customer experience. Simple… 

… Well, not quite. In many cases, there is plenty of hard road to travel to realise those aforementioned opportunities. Yes, it’s encouraging to hear experts show confidence about the US and China driving global growth, combined with stronger economic performance in the Eurozone, but we all know by now that the political-economic landscape can turn upside down in a heartbeat. 

As for the UK, it remains in a weakened state as Government wrestles with the technical and emotional complexities of Brexit. These views are reflected in research conducted by Criticaleye, where 29 percent of respondents are extremely confident of growth in the global economy, whereas only 3 percent have the same conviction for the UK. 

Here, Members of the Criticaleye Community give their predictions for the year ahead. 
  

Global Growth and Political Uncertainty

Ben Gutteridge, Head of Fund Research at Brewin Dolphin, is bullish about the global economy but reflects that Brexit has prevented the UK optimising its position

Whilst the US has been a long-term contributor to global economic performance, and continues to be, we are now seeing a much more impressive contribution from the Eurozone. 

The key driver for growth in the US is the labour market. Strong jobs growth, benign inflationary pressures and scant evidence the US central bank [Federal Reserve] is about to start moving aggressively higher on interest rates, all combine to provide a helpful tailwind for disposable incomes. This offers a great platform for the US economy to continue to strengthen.

In China, the markets are not as worried about a hard landing as they were 12 to 18 months ago. While the economy has not reaccelerated, stimulative efforts have enabled the region to stabilise, rendering it less of an albatross around the neck of global growth.

Recent leadership adjustments, however, have seen President Xi Jinping consolidate power, creating greater scope for more radical policy. President Xi has talked passionately about an anticorruption drive, environmental challenges, a clampdown on shadow banking, and more efficient state-owned enterprises. All of these things are fantastic news for the long-term sustainability of China’s growth, but in the short term they could create some uncertainty for demand. 

As for the UK, inflationary pressures should subside and the labour market remain robust, which means recessionary risks are not as elevated as one might have expected. 

The timing of Brexit has meant that while the global economy is in great shape, arguably the UK hasn’t quite been able to optimise its position. While 1.5 percent growth isn’t bad, it’s a shame that we’re not running a little hotter.  
 

Tech Disruption will be Business as Usual

Richard Shoylekov, Group General Counsel at Ferguson plc, believes that over the next 12 months management teams will need to show they understand how to utilise technology 

When considering the outlook for 2018, it would be difficult to avoid the word disruption. Disruption is a very fashionable term at the moment, but it is not that different from the dynamic and competitive environment that we have been experiencing on and off for decades. 

Western Capitalism is based on the premise of continually trying to improve your business model and disruption is just a different manifestation of this.

In 2018, the issues surrounding disruption are going to be less about the technology and more about the abilities of management to understand what tech a company fundamentally requires. This will not be easy as one of the reasons this country is suffering from weak productivity at the moment is poor management, due to the fact that we have underinvested in it for decades.  

Leaders are going to have to develop the skills necessary to be able to assimilate good information and learn to ask the right questions. The quality of information available and the strength of the decision-making process is going to be key when it comes to dealing with the threats and opportunities posed by disruption. 

People need to be informed if we are to make the best use of new technology.
 

Leadership is about Alignment, Challenge and Trust

Matthew Blagg, CEO of Criticaleye, argues that business success in 2018 will depend on the ability of senior leadership teams to be strategic, rather than mired in the day to day 

Leadership capability is going to be heavily tested in 2018 as executive and non-executive directors face up to the realities of business model disruption. Our research bears this out. We have found that while CEOs, CFOs, HRDs and NEDs all confirm that disruption is affecting their organisations, they question whether they have the right teams in place to respond.

One of the biggest hurdles to overcome is for those in senior leadership teams to be less tactical and more strategic in their thinking. They have to find the time to reflect and understand where disruption is coming from, what it means for their businesses, and how to devise a plan to gain competitive advantage over the medium to long term, even if they know it’s destined to change.
 
It’s why CEOs must ensure their executives, as well as NEDs and chairmen, are not retreating into comfort zones. For example, in too many boardrooms there is an unmistakable disconnect between executives who want to drive transformation and NEDs who, frankly, prefer to play it safe by carrying on like it’s business as usual.  
 
For me, the key words for boards and senior leadership teams are alignment, challenge and trust. Regardless of how companies invest in technology, innovation or M&A, they will fail unless people have the freedom to express and discuss their opinions and ideas without fear. It's that openness which allows them to present a united front on how to execute strategy.
 
And that’s the foundation on which every great business is built. 
 

Continuing Margin Pressure in Retail

Naomi Gillies, Director of Retail Change at Waitrose, predicts that retailers will ‘double-down’ on efficiency while seeking to enhance the customer experience 

In retail, 2017 proved to be very tricky. We saw green shoots at the start of the year, but the impact of Brexit on consumer confidence, combined with exchange rate changes, have put pressure back on the sector. 
 
Margin is a challenge, with consumers remaining very price conscious, which is causing retailers to double-down on efficiency. There is a real focus on existing estate, so you continue to see a slowdown of new shops opening and increased store closures, across retail. 
 
A big question for retailers is: how do you create spaces that are more experiential for the customer? We have tested evening supper clubs, which have been hugely successful. If you take the newly opened John Lewis in Oxford, 20 percent of the space is about experience. What happens with retail parks in 2018 will also be interesting as they will be thinking about how to transform into places that consumers want to visit.
 
During the year Amazon entered the grocery market and I think this will be a game changer. Everyone is watching to see what they will do – when they bought Wholefoods, they immediately reduced prices.
 
In 2018, growth is not predicted for the retail sector as there simply isn’t much headroom. It will be more about consumers switching between retailers, and it will continue to be competitive. 
 

Deals Aplenty in 2018 

Jonny Jones, Director at Jamieson Corporate Finance, expects the volume of corporate transactions to continue over the next 12 months  

From a headline perspective in 2017, deal volumes look to be up, but values were down. The expectation for 2018 is a continuation of this deal volume, based on global GDP growth and low interest rates.

We’ve definitely seen a recovery in Europe in terms of M&A. Confidence has increased as political risk has died down in the Eurozone. Germany has really been on people’s radar, and this might be the country where we see growth over the next year or two.

We’ve seen a big reduction in outbound Chinese M&A, but US buyers have been very strong in 2017 – where the dollar to sterling rate has really given US buyers a competitive advantage – and I think this will continue in 2018. 

People seem to be less worried about Brexit and are pushing on with deals. We’re also seeing lots of UK companies exploring abroad, looking to plan for Brexit by expanding their footprint.

Tech-enabled businesses with strong cash flows and high growth are highly attractive targets. For 2018, insurance technology is something I’ve heard lots of talk about as it seems to be very paper based. 

2017 was really busy, and I think there’s every reason to think it’s going to get even busier in 2018.
 

Business Certainty Reliant on Brexit Package

Brian Stevenson, Criticaleye Board Mentor and Senior Independent NED of Investec, wants to see the UK Government focus on creating a stable trading environment for British businesses

Assuming trade talks between the Government and the EU stay on track, I think businesses will at least have a degree of certainty in 2018.

By contrast, a failed Brexit strategy and another General Election would be a double whammy of uncertainty for British business. In some cases, companies are much more concerned about the risk of a hard left Corbyn Government [Opposition, Labour Party Leader, Jeremy Corbyn] than they are about Brexit.

Since 2008, there has been a huge re-regulation of the banking industry, which has not helped economic development in this country. It has been difficult for banks to lend because of the re-building of their capital base and the attention that they have had to pay to the re-regulation process.

There has to come a point when the banks have got most of that re-regulation behind them and they are once again in a position to fully support the growth and development of the British economy. 

I think that this might come at the latter end of 2018. Then the banks will start to get back to spending most of their time dealing with customers and doing business, as opposed to contending with internal matters such as regulation and control.


By Emma Riddell, Senior Editor, Criticaleye and Robert Leeming, Editor, Criticaleye