Digital cross-border constraints are a threat to a business’ growth, so it’s time to act

PUBLISHED : Friday, 27 October, 2017, 9:22am
UPDATED : Friday, 27 October, 2017, 8:34pm

Many companies are preparing to adapt to a world that will be constrained by national boundaries, as policies and legislation tighten national control over cross-border flows of IT products and services, talent and data. This digital fragmentation represents a threat to growth and digital progress as it constrains the way companies operate – and is already forcing some businesses to revise plans for international expansion.

The issue is firmly recognised at board level, with 88 per cent of CIOs (chief information officers) and CTOs (chief technical officers) that we have spoken to confirming that they believe this disruption will have a negative impact on the way they do business in the next three years. Nearly three quarters of 402 executives surveyed admit that over the same time period, it is likely that their companies will exit a market, delay market-entry plans, or abandon such plans as a result of this fragmentation.

Digital fragmentation is already forcing some businesses to revise plans for international expansion

This will force companies to make fundamental structural changes in key strategic and operational plans across a broad range of activities including global IT architectures; recruiting IT talent; physical IT location strategy; and cybersecurity. If, as predicted, national governments increase their control not only of data within their borders but of the flow across frontiers, companies will have to reconsider global business processes that rely on the free flow of data and technology, further increasing digital fragmentation.

The threat from digital fragmentation is also expected to affect growth and innovation. Sales, marketing, and research and development are business functions vulnerable to constraints on the free flow of data. Customer analysis and tracking systems, central to digital growth and innovation, are also under threat. With such a wide-ranging impact predicted, executives are beginning to seek ways to mitigate the impact of digital fragmentation.

One consequence of their actions means we are likely to see a rise in the adoption of robotics technologies and artificial intelligence, as investments in automation increase to overcome labour restrictions. Companies are also reorganising global IT architectures and governance structures, while we are seeing some organisations localise their IT strategies, processes and infrastructure – and even more considering it.

The actions of executives in the short term will determine how well they ride out the challenges they are beginning to recognise

The actions of executives in the short term will determine how well they ride out the challenges they are beginning to recognise. Many have started scenario planning as they attempt to understand possible outcomes, but they need to go further. They must review and reassess all relevant issues including the company’s geographic footprint, its allocation of investments across markets, the distribution of key global functions and IT activities, cybersecurity strategy and capabilities, as well as the organisation’s preparedness to respond to new legislation. This can help mitigate the impact that fragmentation may have on their business.

Technology can also be mobilised as part of the solution, but this may demand major changes. For example, 3D printing can allow new, more flexible, global manufacturing options. As mentioned previously, new technologies like artificial intelligence could help address restrictions on talent migration, but they can also help navigate increasingly complex regulatory regimes. In addition, blockchain may offer solutions to a technology environment that is forced to become siloed on a national basis, by offering more secure, decentralised and distributed systems for data protection and cybersecurity risks.

Finally, the flows of information needed for key management decisions and business operations – particularly where digital technology is at the core of the business offering – need to be protected from disruption. Firms must assess how new data regulations will affect them, while from a data storage perspective, they need to re-evaluate where and how different types of data are maintained.

Digital fragmentation is firmly on the boardroom agenda. In fact, 80 per cent of companies surveyed have already made it part of their strategic planning, and we believe it will be a permanent feature of the global IT landscape for several years. The good news is that almost a quarter of companies have dedicated planning activities exclusively directed at this challenge. But companies need to move from planning to concrete action now if they are to achieve their digital aspirations in this new business environment.

Omar Abbosh is Accenture’s chief strategy officer