What Does Brexit Mean for Global Digital Transformation?

Aug 17, 2016
13 Min Read
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What Does Brexit Mean for Global Digital Transformation?

For the last few months, Brexit – or the departure of the United Kingdom from the European Union – has dominated global news coverage. But for those of us concerned with digital transformation, are there practical implications? Here, digital transformation expert Mark Skilton from Warwick Business School sounds off on the challenges and opportunities in a disrupted world.

Digital transformation + Brexit = what, exactly?  This was the question that last month, I set out to answer for our readers.

Mark Skilton is a Professor of Practice in Warwick Business School’s Information Systems and Management Group. Also a private consultant with an incredible website and two very informative books, (Building Digital Ecosystem Architectures: A Guide to Enterprise Architecting Digital Technologies in the Digital Enterprise, 2016) and Building the Digital Enterprise: A Guide to Constructing Monetization Models Using Digital Technologies (2015)), Skilton could very well be THE global expert on this topic.

London was known as the digital capital of Europe. What was the state of digital transformation in the UK prior to Brexit?

The UK has a long history of being a leader in digital creativity and innovation. Several of the leading global creative agencies are based in the UK, and new entrepreneurial initiatives are attracted all the time – as witnessed by the Silicon Roundabout in London’s Shoreditch district and the Cambridge hub Silicon Fen. We also have huge international companies, including Unilever, Proctor & Gamble, and MasterCard, expanding their digital footprints.

Digital technology has transformed the way the private sector functions in UK companies of all sizes. Always-connected, socially engaged, multi-channel markets have influenced the local, regional, country, and international supply chains, as well as sector automation, job creation, employment productivity and GVA (gross value-added, or the measure of the value of goods and services produced in an area, industry or sector of an economy).

Overall, how do you think Brexit will affect digital transformation efforts, both within the UK and the global economy?

The UK relationship to the EU and to global digital transformation will evolve in several areas, including relationships, cybersecurity, and competitive innovation.  EU legislation such as the General Data Protection Regulation (to be introduced by May 2018) will still need to be honored from the standpoint of privacy and consensus rights if this becomes a mandatory trade position. The new UK surveillance bill seeking mandatory access to company and consumer data through “back door” methods will be a legal issue for other countries. National security and corporate cyber protection will still need cross border collaboration in governments and industry, and the UK will continue to be a leader in this field.

Digital transformation will enable greater online trading access. One Brexit-related issue is whether barriers to stock trading to the EU will result in a flight of both skilled talent and corporate headquarters to mainland Europe. This remains difficult to predict. But Brexit may also present a huge opportunity for the UK to seek digital transformation investment and competitive new models within the EU and other countries not defined by EU conditions.

We will still require the right human skills to create knowledge capital and financial investment to fund digital transformation. Aleksi Aaltonen, Assistant Professor in Information Systems Management at Warwick Business School, recently wrote about Brexit’s impact on startup entrepreneurship. He discussed the critical need for technology skills possessed by the migrant workforce and the problem of the proposed £35,000 earnings threshold for migrants living in the UK.

Access to EU innovation investments, including the H2020 fund of 80 billion euros, may be a casualty of the Brexit. If the UK cannot participate in these programs, we may not attract high-caliber members of the academic and scientific communities to work here. However, the EU’s efforts to form public/private partnerships that can effectively compete against Asia and the U.S. have not really come to fruition. Ironically, a UK outside the EU block may be a better way for this country to build global digital scale and to help the EU move toward a better integrated market.

How will currency devaluation affect IT spend?

Many recent events have caused currency valuation to shift wildly. UK offerings may be cheaper in the short-term but this may rebalance medium-term. UK products may be cheaper but gross income from UK companies could also be reduced – so both a benefit and a loss.

What industries are most likely to be negatively impacted by Brexit?

We’ve been hearing the most concerns from the financial services, education, and research sectors. They are worried about loss of partnerships and access to funds and skills. My view is that the UK government may need to make some changes to retain skilled workers in these industries.

If companies start to move IT operations out of the UK, what will happen to their digital transformation initiatives?

The movement of skilled workers will change the physical location of people, but not the need for digital transformation. It may become more of an issue if the loss of skills means the drift of global centers from the UK to other shores. However, this can also be reframed as a way for the UK to retain an investment in strong industries and a free and open market economy, attracting preferential investment to the UK and reversing the trend.

Do you think there will be a tech skills shortage in the UK if EU citizens are no longer allowed to freely work there?

My experience of technology teams and leadership can be summed up as: “My kingdom for a good technical architect!” Tech companies will pay for the best people: the cost of visas and applications and living will be part of this. However, if lower ranks of skills are not available from the local UK employment base and have to be sourced overseas, that could present a problem. We may see shifts in government policy to stimulate strong regional and local industry and workforce development incentives. It’s also logical to assume that an open-access workforce will be part of the negotiations between the UK and the EU, since a great deal of trade will still exist on the table.

With so much new legislation, how will global organizations navigate data protection, contractual, and regulation issues? Are there intellectual property concerns?

There are 40 years of integrated regulations that need to be “unpicked” and it will be a gradual process. Alexis Aaltonen had this to say about intellectual property specifically:  “The intellectual property regime is relatively similar in developed countries, so in principle, there are probably not going to be massive changes due to Brexit. The difference may come from how companies manage and administer their IPR portfolios in the international arena. In the worst case, UK companies have to file their patents again, maybe in multiple countries. Large companies can deal with the extra workload, but for smaller companies, it will be a headache they could very well live without.”

If you were the CIO of a global company with extensive IT operations in the UK, what would you do right now?

The CIO, as the commercial “eyes and ears” of the technology portfolio and enabler of digital transformation, needs to do several things. First, conduct risk audits to assess the impact of Brexit on their business. Second, refresh your digital strategy to include an economic model as well as an operating model and technology roadmap of solutions for the project pipeline. In this, examine how the company’s products and services can be delivered in the UK, and if working in the EU or elsewhere, what changes in the infrastructure, digital workforce collaboration, and knowledge tools need to be emphasized.

Third, plan for new digital transformation partnerships and plan to scale into the non-EU markets as an option. Seek investment strategies for co-funding and partner deals to drive this. Fourth, keep digital innovation center of mind in terms of customer experiences and expectations. Strong IT leaders are essential as we witness the combined effects of Brexit and ongoing digital transformation. We are certainly in a period of disruption now, but it may develop into a driver for open commercial and competitive UK partnerships that scale beyond the UK domain. In other words, an opportunity!

It’s such a treat to hear from someone with a truly international viewpoint! Any final thoughts on Brexit and global digital transformation?

Digital transformation is central to the global connected economy. It impacts a variety of megatrends, including job creation and automation, global warming and sustainability efficiencies, privacy, security, and ethics. It’s crossing the traditional divide between the most digitally savvy, professional millennials and the disenfranchised and/or jobless, but there’s still work to be done in leveraging digital transformation efforts in a way that makes these technologies available for everyone, not just the privileged 1 percent.

By its very nature, digital is disruptive, and Brexit obviously is as well. But the UK continues to be a strong player in high value technology insights and capabilities that will help markets innovate on a global scale. Whether that’s because of the English language advantage or the historical precedence I’m not sure, but with responsible actions and a little luck we can use this evolution to drive toward the goal of a sustainable global society powered by digital technology.

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