What does Brexit mean for Quality Management and Risk Management?

19 July 2016

The United Kingdom's recent vote to leave the European Union is likely to have some very strong implications for quality and risk management. This article will explore some of the key areas that may be impacted by the referendum result and how business process management can help to mitigate any risks that might surface.

What Could Brexit Mean for The Single Market?

Potential British withdrawal from the Single Market is now a key focus area for British businesses given the growing political momentum to leave the EU. This blog is specifically focused on the quality related challenges this creates, and very specifically with some of the Risk Management implications.

By way of background, the Single Market enables goods and services produced in one EU country to be sold in all the other ones. A manufacturer of say, electrical components, is able to produce their products according to the local laws and standards of the country of production, and automatically comply with the local laws and standards of all the other 27 EU countries. Prior to the Single Market, such a manufacturer would have to comply with the local laws and standards of each country they wanted to sell to.

For example, suppose a country within the EU is particularly keen to pursue a low energy policy. They may therefore legislate in their national parliaments that in their country, air conditioning units have a maximum power consumption. Another country in the EU however, may have no such wish, but rather, they need to have more lower cost air conditioning units in their poorer neighbourhoods, and they are willing to accept poorer energy efficiency. The EU legislates across the EU and creates a common standard, a maximum level of power consumption across the EU.

The Single Market does not prevent a country requiring manufacturers in their own country to produce the air conditioning units to a higher standard of performance; each country is free to set whatever standards it wishes on its own industry. It is just that other countries that do not manufacture to these standards are not blocked from selling their products into other EU countries because compliance with the EU standard is all that is necessary to do so.

We don’t yet know what the UK’s relationship with the Single Market will be once it leaves the EU.

At one extreme, in terms of trading freedoms, nothing might alter. The UK might somehow remain a full trading partner within the Single Market identical to the other EU member states.

At the other extreme, it could become entirely separate from the Single Market in the same way as, say, Peru is. In all likelihood, there will be some point in-between, such as we can see in the European Free Trade Area, where countries like Switzerland, Norway and Iceland currently sit.

Risk Management led by Uncertainty

The uncertainty of what the eventual outcome will be is the key driver for active Risk Management. Any organisation operating within the 9001:2015 standard will already be well aware of the need to approach this situation from a Risk Management perspective, not just in terms of product compliance, but also from a corporate Risk Management perspective too.

There follows my personal understanding of just a few of the risks this situation creates.

Labour Relations

Some manufacturing organisations that are outside of the EU have established manufacturing plants in the UK in order to be able to trade in the Single Market. Clearly, there is now a risk they will not be able to do so, and therefore may relocate the plants. As soon as the reality of this starts to hit home, there is a risk labour relations will deteriorate.

Many employers, the NHS for example, rely on a labour force that may no longer have the right to work or live in the UK following a Brexit. What will they do? What conversations are they having in their homes this evening about their future careers? The economic impact of Brexit may lead to workforce reductions in businesses that rely on their EU trading relationships. Workforce mobility might be affected by a lack of recognition of EU qualifications. Racists are making life horrendous for migrant workers and this has all kinds of negative impacts on the individuals, communities and workforces who are unfortunate enough to be touched by it.

All in all, the Risk of strikes, labour disputes, poor motivation and workforce volatility have increased.

For one example of this, read the Financial Times story relating to the Nissan Plant in Sunderland, and note the repeated focus on staff ‘worry’.

http://www.ft.com/cms/s/0/900d015a-3ba2-11e6-9f2c-36b487ebd80a.html#axzz4ENlwVjUx

Cash Flow

Every organisation depends on cash flow. If cash flow is disrupted, organisations can cease to trade.

Investment decision making slows down in the face of uncertainty, sales cycles lengthen. The exchange rate is likely to be volatile. EU funding into the UK, in the form of grants and subsidies, will most likely be reduced or withdrawn. Import duties may be reinstated as the UK detaches from EU VAT. Market volatility and macro finance issues such as bank capitalisation may lead to reduced lending.

There is a Risk any or all of these things might affect monetary circulation in the economy at large, and cash receipts in businesses. Immediately post-referendum, currency fluctuations led to changes of 10% - this can impact cash massively. What can you do to protect against this?

Intellectual Property

What will happen to EU registered design rights? There is a risk of loss of IP. What do you need to do to protect it?

Compliance with Health and Safety, Product Packaging, Environmental Protection, European Working Directive, Data Protection ….

Although much of the UK law in these areas is derived from the EU law, and therefore probably will not change very much, there is a risk that change could adversely impact your organisation.

For example, what will happen with Data Protection legislation? There is a risk your organisation is compliant within the EU, but not so outside it. Are you moving or storing personal data in an EU member state other than the UK? Do you access, use or store the personal data of non-UK EU citizens?

Risk Management Practicalities

If you do not yet know where the risks in your business are, what processes they might impact, or what mitigation is appropriate, then it is vital to start your Risk Management activities soon.

Clearly, for any individual organisation, the specific risks need to be workshopped and documented. SWOT’s need to be done. Mitigation plans need to be tabled and discussed. Processes need to be reviewed in terms of the likelihood of risks occurring.

How Business Process Management Can Help

All organisations can be modelled as a set of end-to-end business processes. Business Process Management is the discipline of documenting, sharing, communicating and improving these end-to-end processes. Risk Management can be executed by recording risks alongside processes, and then improving those processes to reduce the likelihood or impact of an adverse risk happening (such as a Brexit).

It is universally acknowledged that Risks on British business have increased since the referendum. There may or may not be an actual negative impact on business, but Risk of a negative impact has certainly increased. The potential sources of negative impact are highly threatening at one extreme and mere minor technicalities at the other. Business Process Management is a tool that can help you understand how the Risks might impact your business, and how to mitigate should they do so.

I hope that this article has been useful and won’t keep you awake at night worrying! My company Triaster delivers a Business Process Management system that sits firmly at the heart of our customer organisations’ enabling risk to be understood and mitigated against.

We know that the Triaster systems won’t suit all organisations but if you are interested in learning more about what Triaster offers, please have a look at our approach and/or sign up for a webinar.