The FINANCIAL -- A new report from Accenture warns that ‘digital fragmentation’ – the rise in restrictions on the free flow of data, IT products, IT services and IT talent across country borders – is disrupting the global business environment and could inhibit companies’ strategies for growth and innovation.
The report, “Digital Fragmentation: Adapt to Succeed in a Fragmented World,” argues that national policies causing ‘digital fragmentation’ are often created with good intentions, such as improving data privacy and cyber security. It maintains that greater collaboration between companies and governments can help such policies meet their objectives while stimulating, rather than inhibiting, innovation and the use of new technologies.
The report reveals that 74 percent of more than 400 chief information officers (CIOs) and chief technology officers (CTOs) surveyed expect to exit a geographic market, delay their market-entry plans or abandon market-entry plans in the next three years as a result of increased barriers to globalization. It shows that the number of restrictive trade measures adopted by G20 members has quadrupled from 324 in 2010 to 1,263 in 2016; and the number of countries with data privacy laws has tripled from 34 in 1995 to more than 100 in 2015.
As a result of such developments, the trend of ‘digital globalization,’ powered by the free flow of data, is giving way to ‘digital fragmentation.’ More than half of the business leaders surveyed believe that the increasing barriers to globalization will compromise their ability to: use or provide cloud-based services (cited by 54 percent of respondents, versus 14 percent that disagree); use or provide data and analytics services across national markets (54 percent versus 15 percent); and operate effectively across different national IT standards (58 percent versus 18 percent).
“Moves against globalization are forcing companies to make fundamental changes to key strategic and operational plans across global IT architectures, the recruitment of IT talent, the physical location of IT and cybersecurity,” said Omar Abbosh, Accenture’s chief strategy officer. “Regulation can provide critical safeguards in the digital economy. But it should be designed to stimulate, rather than inhibit, growth and innovation. Stronger dialogue between business and government is required.”
According to the report, more than half of business leaders surveyed believe that these increasing barriers to globalization will force their companies to rethink their: global IT architectures (cited by 60 percent of respondents); physical IT location strategy (52 percent); cybersecurity strategy and capabilities (51 percent); relationship with local and global IT suppliers (50 percent); and geographic strategy for IT talent (50 percent).
Ninety one percent of survey respondents also expect increasing barriers to globalization to raise IT costs over the next three years. Areas most affected will be sourcing inputs such as IT talent; the need to multiply IT infrastructure, such as data centers; and compliance with multiple national IT standards.
“Contrary to the rhetoric of many digital evangelists, national borders do matter,” said Armen Ovanessoff, principal director at Accenture Research. “Business leaders are waking up to their responsibility in helping shape the rules of our digital future. Given the transformations taking place in artificial intelligence, bio-technology and the Internet of Things, it’s clear that this is just the beginning of a complex journey that demands cross-border and cross-sectoral cooperation.”
Many companies are beginning to plan their response to increasing fragmentation, according to the report. Four in five (80 percent) of the companies surveyed said they are already factoring obstacles to globalization in their strategic planning. About half (51 percent) are already reorganizing their global IT architectures and governance structures in response. Two thirds (67 percent) are now investing in automation to offset labor restrictions.
The report makes four recommendations to help business leaders recalibrate their digital transformation:
Add a new lens to the strategic process. Dedicate greater resources to reviewing the business impact and responses. For instance, should the company reallocate investments and global functions differently across markets and jurisdictions?
Map and de-risk data flows. Protect flows of information critical to management decisions and business operations. Assess how data regulations such as national cross-border restrictions and requirements will affect business models. Re-evaluate where and how to maintain different types of data – which could mean trade-offs between security and ease of accessibility.
Build local advantage. Striking the right balance between centralization and local investment is vital. Organizations must become part of the fabric in the local economy within their key markets; this includes the development of local talent and the cultivation of relationships with local technology partners and policy makers. The right degree of centralization of IT strategies, processes and infrastructure across markets must also be assessed.
Use technology as part of the solution. Technologies offer solutions. For example, 3D printing can help manage global manufacturing activity more flexibly. Artificial intelligence can help address restrictions on talent migration. And blockchain technology can provide more secure, decentralized and distributed systems for data protection and cybersecurity risks.