The 5 biggest business risks of 2019

Focus on the fundamentals to turn them into opportunities, says management accountant Andrew Harding.

by Andrew Harding
Last Updated: 03 Jan 2019

This year looks to be especially complicated for business leaders, with unprecedented political and regulatory changes taking place, likely global disturbances to trade and supply chains, and an accelerating digital transformation across all sectors. Ambitious business leaders will need to put their skills to the test and turn these conditions to their advantage.

1. Trade friction and slowing global growth

Trade friction has recently been at the forefront of the global economy since the US imposed sanctions on Chinese steel. This year will see a continuation of this abrasive trade environment, but it is unlikely to upset all sectors in the near term. What matters more for businesses is that global growth is set to be slower, with the IMF downgrading its 2019 forecast from 3.9 per cent to 3.7 per cent. Slowing global growth will lead to consumers spending less, meaning businesses will need to drive efficiencies in their operations and focus on their business model and performance.

2. The "B" word

Closer to home we are seeing the grand drama of Brexit continue to play out. The biggest threat from Brexit right now is the disruption to normal business operations. Our own research in October found that over a third (35%) of UK finance professionals forecast a decline in profit in 2019 as a result of Brexit.

Finance leaders will be investing time and putting resources into scenario planning, assessing the risks and making sure that all the business functions are feeding information back to the board, so it can make the right decisions for the future.                             

3. Rule books

It can be difficult for companies to comply with the unilateral rules and regulations imposed in different parts of the world, particularly when they have global operations. Senior managers can bring clarity by setting out responsibilities for monitoring, managing and feeding back implementation progress to the board.

Business leaders should look out for changes to the Corporate Governance Code, regulation on late payments, the outcome of the Competition and Markets Authority (CMA) audit market review and the OECD’s Base Erosion Profit Shifting (BEPS) project on tax avoidance schemes – all of which could have a profound impact on business practice this year.

In the UK, we have already seen this happening with new digital tax proposals announced in the Chancellor’s budget in October. Expect more of this activity this year.

4. Reinventing for the digital age

Digital transformation is already in full swing: the most valuable companies in the world are giants of cyberspace rather than mass producers of goods. Digital technologies are accelerating the pace of change and transforming business operations, big and small. This year will be no different and businesses that lag behind competitors in digital innovation could risk being left behind.

Automation is already happening apace, but now smaller organisations could benefit from cheaper and scalable technology. Similarly, whilst there is a great deal of hype about AI, for most businesses it is specifically machine learning which carries the real commercial weight. The ability to code algorithms that improve statistical analysis continues to transform small organisations into giant killers. For example, AO, Zoopla and ASOS have used techniques like these to scale quickly in their sectors and take on rivals that had already adopted digital technologies to reach customers. This activity can range from analysing and understanding customer journeys and behaviour online to improving services.

This year will see a continuation of the flattening out of the technology landscape, as smaller businesses with strong business models and canny use of technology continue to challenge larger rivals.

5. Changes will happen with or without you

Taking all these trends together, it is clear that 2019 will not be plain sailing. However, businesses have always been affected by distant events, regulations and changes in the economic landscape. Businesses that scan the horizon, plan, prepare, use data and join the dots across their organisation will be resilient and turn adversity into opportunity. As in any year, it will be challenging but there will be circumstances when it is right to take the risk and seize the moment.

Andrew Harding is chief executive of Management Accounting, AICPA-CIMA.

Image credit: Andre Furtado/Pexels

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