Brexit and the impact on Digital Transformation

A changing commercial relationship but Digital is still the king of power play

The term digital transformation is used to describe the transition of several areas of corporate, personal and market business models and user experience from new age technology seen in social media, smart phones, big data to connected wearables to augmented reality and artificial intelligence. It’s a shift from what may be described as a 20th Century information technology era of activities connected through web pages to an early stage 21st Century explosion of mass data collection, social networking and technology enabled insight and intelligence.

The UK has a long history of being a leader in digital creativity and innovation attracting entrepreneurs, several of the leading global creative agencies are based in the UK. Silicon Round-about in London Shoreditch district to the Cambridge Hub Silicon Fen; several cities across the UK have sought to foster innovation for startups as well as huge international companies such as Proctor & Gamble, Unilever in open innovation to MasterCard, Visa in developing Fintech digital labs. Digital technology is transforming business strategy in the small and the large, both in terms of how the private sector functions in a 247 always connected socially engaged digital multi-channel market as well at local , regional cities to country and international supply chains and public sector automation, job creation, employment productivity and impact on gross value-added GVA the measure of the value of goods and services produced in an area, industry or sector of an economy and ultimately after taxes and subsidies taken into account the impact on National Gross Domestic Product GDP.

If digital transformation represents the new digital economy then being able to succeed in this new connected market is absolutely critical. Even if ecommerce reports of 15 to 17% of total GDP is from digital activities, it is growing in many market categories at 20% CAGR or more and online transactions and the “knowledge economy” is impact in virtually all sectors by digital disruption.

Brexit as it is termed from the political classes changes practical conditions of legislation for law and trade, access skilled workforce, access to markets including the managed single European market. It changes the basis of how geographic location and access to investment critical to both new value and competitiveness from new product and service innovation as well as improvement in reducing costs of supply and operations.

Digital transformation impacts the megatrends that analysts speak of in terms of productivity replacing humans with robots, global warming and sustainability efficiencies, to privacy, ethics and cyber security and surveillance society; it crosses the digital divide from the digitally savvy millennials to the disenfranchised or jobless from globalization either perceived or real through migration and internationalism of business supply chains.

The UK relationship to the EU and to the wider Global Digital Transformation will evolve in several areas because of the need for trading, cyber security and competitive innovation. Even with Brexit being a temporary issue, the continued rise of digital markets, online trading and digital products and services will not stop.

EU legislation such as the General Data Protection Regulation GDPR planned 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 irrespective of digital transformation as it challenges governmental controls.

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, the UK has a leading positions in the Financial Services market for example and the issues currently under discussion is whether barriers to stock trading to the EU will now be introduce seeing a flight of both skilled talent and Head quarters to main land Europe. This remains difficult to predict because of the negotiations before and after article 50 and the positions that the EU and other countries may take in making it more difficult for the UK to trade with them. On the UK side is its large open market economy and ironically the high level of market trading already with the EU. Dr Daniele Bianchi, Assistant Professor of Finance at Warwick Business School, UK empathized that 55% of the UK's trade is with EU countries and 30% with countries that have agreements with the EU, agreements which should be re-visited in case of a Brexit. Arguably, leaving the single market would place the UK in a worse situation in discussing trade agreements (4).

Brexit changes the trade commercial agreements and access to markets and skills movement and its costs of sourcing and operation. But it also can be a huge opportunity for the UK to seek investment and competitive new models with EU and other countries on the UK terms not defined by EU conditions. This is the grey area at present and depends on negotiations in how the UK may become more outwardly aggressive in its stance and leverage of its existing trade quid-quo-pro.

A different digital game but potentially bigger.

The pillars of digital markets are driven across these intersecting issues, how to get the right human skills to create knowledge capital and financial investment to fund digital transformation. Dr Aleksi Aaltonen, Assistant Professor in Information Systems Management and an Expert in Startup Innovation had and article on Brexit impact on startup entrepreneurship (1) raised the double edge issue of the critical need for access to high skills that include a migrant workforce, this point is also strongly supported in the recent open letter in the United States on the need for an open inclusive workforce (2). But legislation changes by the UK government being currently considered may set a £35,000 earnings threshold for non-EU migrants living for over five years may face deportation (3). The early comments from the new Conservative government have suggested that EU residents will become part of the negotiation process with the trade block. Central to this will be the control of access to the single market yet being able to attract and retain a skilled workforce that is critical to its success.

Access to EU innovation Investment such as the EU program H2020 fund of Euros 80 Billion may be a casualty of the Brexit. Other concerns have been raised by the Academic and Science community not being able to participate on these programs or attract academics of caliber to the UK. Yet the UK is a world leader in these markets and so the negotiation and transformation may be to seek ways to lever this more.

Its important to note that EU desire to create a Private-Public partnership deals to build larger stronger EU companies to compete against the USA and Asia has not been great. Its difficulties trying to use subsidiarity and standards to get countries in the 28 or 27 block is a logistical and organizational challenge. Ironically the UK outside this block may be a better way for the UK be build global digital scale and to help the EU move towards a better integrated market.

Digital Transformation on the global scale has disrupted the big players like Microsoft and IBM, as seen in their recent changes in market performance (6) with falls but also high growth gains in the “digital products and services” area notably in cloud computing and big data analytics. It is this shift to the on-demand annuity model of income plus the push into new virtual reality and smart home, connected car and lifestyles that define the future.

Navigating the impact of the value of Digital and currency swings

The shift in currencies are highly volatile at the moment from the Brexit, US elections, south china seas and Turkey and Russia events. The recent Softbank purchase of ARM Holdings a leading British chip designer has been criticized for its timing when the Yen was 11% stronger and the purchase of the company at a lower rate due to exchange value in the Japanese favor (5). Yet I argue that this sort of acquisition that is not asset stripping or seeing to create competition monopolies is necessary for a progressive digital economy. ARM Holdings get access to more investment to scale in the next digital transformation era called the “ Internet of Things” that is orders of magnitude bigger that the PC and Mobile eras before. Even if the stock analyst reduced their valuation of Softbank because they saw it as a “long bet” by the CEO Masayoshi Son and the nacient IoT market yet to grow. The reported 55% fall in Apple watches and Samsung doubles it market share (7) suggest a tiring consumer market in wearables but also the fact that in Digital Transformation it is all to play for. It may make UK companies cheaper in the short term but this may rebalance medium term. This may make UK products cheaper while reducing gross income from UK companies so it could be a benefit and a loss.

The market sectors that are have been commenting most have been the Financial services and Education and Research sectors. Their concerns have been in the loss of partnerships and access to funds and skills. My view is that some arrangements for skilled workers may be changes by the UK government to retain the best features to preserve these industries.

The movement of skilled workers will change the physical location of people but will not change the need for the digital transformation that is still the imperative. Whether it’s a connected car design , a new online market design service to the ability to financially trade, the shareholders and management boards will seek the best place. the movement of offices is for access to markets and commercial legal reasons. The transformation It gets more of an issue if the loss of skills means the drift of globalization moves centers from the UK to other shores, yet this can also be reframed as a way for the UK to retain and investment in strong industries and a open free market economy that attracts investment preferentially to the UK, reversing this trend.

New Private-Public Partner UK initiatives and legislation

My experience of technology teams and leadership can be summed up as “my kingdom for a good technical architect!”. Having good quality tech skills is a vital necessity be it in digital or any other knowledge based industry. Just look a Silicon Valley and the famous or infamous alleged agreements of Steve Jobs with not poaching good employees from companies. Whether its true or not the point is that tech companies will pay for the best people anyway. The cost of visas and applications and living will be part of this in the senior ranks and critical skills. What is more of an issue is if the lower ranks of skills are also not available from the local UK employment base if these have to be sourced overseas currently. One can see shifts in government policy here again to stimulate strong regional and local industry and workforce development incentives. Again it is logical to assume that incentives to continue in open access to work force movement in EU will be part of the negotiations from both sides since approximately 50% trade between EU and UK exists on the table.

There is a lot of regulation between the UK and EU from 40 years on integration that will need to be “unpicked”. With recent political reports of the UK having “no trade negotiators” because they are in the EU (8) to commercial lawyers saying the UK does not have the number of people to administer the deals suggests this will be a gradual process. In terms of Intellectual Property Dr Alexis Aaltonen says “The intellectual property regime is relatively similar in developed countries so in principle there is 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, the UK companies have to file their patents again, maybe in multiple countries. Again, large companies can deal with the extra workload but for smaller companies it will be yet another headache they could very well live without” (1).

The CIO and the Bretix opportunity knocks

The role of the CIO as the commercial “eyes and ears” of the technology portfolio and enabler or collaborator of digital trans formation will need to do several things.

Firstly, conduct risk audits for establish commercial, staff skills and service exposure to market and legal changes from Brexit on their business.

Secondly, establish a new Digital strategy refresh that includes now an economic model as well as the operating model and technology roadmap of solutions for the project pipeline. In this examine how the company 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.

Thirdly, plan ahead now with a new digital transformation partnerships and strategic plan to scale into the non-EU markets as an option. See investment strategies for co-funding and partner deals to drive this. Consider how these may be

Fourthly, keep digital innovation center of mind in terms of customers and customer-customers experiences and expectations. These may change in some behaviors because of Brexit but in others it will only become more digital.

The need for Leadership will be critical

Reframing Brexit and Digital Transformation can be seen as a disruption trend that may be developed into a stronger driver for open commercial and competitive UK companies and partnerships that scale out beyond the EU domain.

How industries that have been heavily integrated with EU skills or funding will have post-trauma to be navigated as the new pathways are established.

Digital transformation is central to the global connected economy as well as job creation. As shown in the USA elections and UK Brexit the impact on employment and popularism has to see ways that make digital inclusion for everyone, not the 1%. By its very nature digital is disruptive, the UK has and continues to be a strong player in high value technology insight and capabilities for markets to leverage innovation startup, entrepreneurship and work at a global scale. Whether the natural English speaking language advantage or the wealth of historical precedence, it is an evolving situation that with responsible actions and a little luck can push to new heights and enable the real issues of global sustainable society to be realized for all.

References

1. Brexit is not a disaster for uk startups, Dr Aleksi Aaltonen Assistant Professor, ISM, Warwick Business School UK https://medium.com/@aleksiaaltonen/brexit-is-not-a-disaster-for-uk-startups-2e32e5b0b180#.x044oj5fx

2. Theresa May urged to rethink new £35,000 earnings threshold for non-EU migrants as teachers face deportation.. http://www.independent.co.uk/news/uk/politics/theresa-may-urged-to-rethink-new-35000-earnings-threshold-for-non-eu-migrants-as-teachers-face-a6814841.html

3. An open letter from technology sector leaders on Donald Trump’s candidacy for President https://shift.newco.co/an-open-letter-from-technology-sector-leaders-on-donald-trumps-candidacy-for-president-5bf734c159e4#.s6th0s9aw

4. Dr Daniele Bianchi, Assistant Professor of Finance and researches financial econometrics, asset pricing and commodity markets

5. Surviving the Internet of Things - Softbank Buy ARM For $32Billion July 2016 http://www.huffingtonpost.com/professor-mark-skilton/surviving-the-internet-of_b_11048906.html

6. Comparing Microsoft And IB Business Performance — Navigating The In Cloud Rubicon http://www.huffingtonpost.com/professor-mark-skilton/comparing-microsoft-and-i_b_11080496.html

7. Apple Watch Sales Plunge 55% As Samsung Doubles Market Share: Report http://www.forbes.com/sites/jeanbaptiste/2016/07/22/apple-watch-sales-plunge-55-as-samsung-doubles-market-share/#7593fd2d6790

8. The UK has no trade negotiators, says former Brexit minister http://www.ft.com/cms/s/0/bbbdf998-4a6c-11e6-8d68-72e9211e86ab.html#axzz4F8sI2hdh

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