The dangers of digital fragmentation

Accenture’s Omar Abbosh delves into the potential impact of digital fragmentation on forward progress

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The dangers of digital fragmentation Omar Abbosh, chief strategy officer, Accenture.
By  Omar Abbosh Published  December 18, 2017

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 products, services, capital, people and data. This digital fragmentation represents a threat to expansion and digital progress as it constrains the way companies operate - and is already forcing some businesses to revise plans for international expansion.

This issue is firmly recognised at board level, with 90% of CIOs and CTOs that we have spoken to confirming that they believe this disruption will begin to have a negative impact on the way they do business in the next three years. Nearly three quarters of 400 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.

Accenture believes 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 impact the ability to generate growth and innovation. Sales, marketing, and research and development are business functions equally 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 that 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 IT strategies, processes and infrastructure — and even more considering this activity.

The actions of executives in the short term will determine how well they ride out this set of 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 the economic fragmentation may have on their business.

The potential impact on technology also needs to be mitigated. Data-flow constraints could impact optimal cloud structure for public, private and hybrid cloud models. As mentioned previously, new technologies like artificial intelligence could help address restrictions on talent migration, but Accenture believes 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 — needs 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% 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 a number of 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, chief strategy officer, Accenture

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