Businesses Must Prepare for Global 'Digital Disorder'

New technology regulations, escalating geopolitical competition and other factors are ushering in what is likely to be a period of grinding "digital disorder" for organizations around the world, a new report from management consultancy A.T. Kearney warns.

Over the next decade or so, businesses should prepare for disruption to their global supply chain, procurement and customer engagement models as the Internet becomes increasingly balkanized.

Much of the disruption will result from the battle among governments to remain technologically competitive in the 21st century digital economy. One immediate manifestation of that trend is the battle for dominance in the artificial intelligence and 5G wireless networks space among several countries, but particularly between the U.S. and China.

"A balkanized Internet is, in many ways, already starting to emerge," said Terry Toland, an associate with A.T. Kearney’s Global Business Policy Council, in an interview when the report was released this week.

Russia's newly passed "Russian Internet Law", for instance, has set the stage for the country to have its own Internet, one that is disconnected from the rest of the Worldwide Web.

China for some time has been blocking access to foreign websites and slowing down cross-border Internet traffic with its "Great Firewall". Over the next few years, expect other countries to erect similar digital walls in response to growing levels of nationalism, protectionism and parochialism, Toland said.

"The global environment for digital is shifting dramatically for technology companies, as well as for the individuals and companies that rely on their services" as governments become more active in the digital environment, he notes.

Growing localization pressures

Geopolitical rivalries are not the only issue. Differences in approaches between countries on how to regulate the digital space will, over the next few years, require companies to manage a conflicting set of rules in key international markets.

Data privacy is one area where this has become already apparent. The EU's General Data Protection Regulation (GDPR) has put in place new requirements for user consent, data privacy protection, data transfers, and breach notifications. Similar laws, including Australia's mandatory breach disclosure law and a recent China standard for protecting personal data, are all adding to the patchwork of laws that companies around the world will need to deal with over the next few years.

Data localization statutes -- like ones in India, Australia and Russia -- that require companies to store certain data within a country's geographic borders are another issue. So, too, are emerging restrictions on businesses in several countries regarding whom they can do business with or from whom they can procure hardware and software. The U.S. government's ban on federal agencies and others buying certain items from China's Huawei is one example.

Such trends will have an impact on companies that have suppliers and customers around the world and introduce new compliance challenges, Toland said. Increasingly, such companies will need to deal with the nationality of their customers and suppliers and the origins of their hardware, software and data.

"Global supply chains and procurement will likely be most impacted," by the localization measures, Toland said. "But we are also seeing shifts in consumer preferences to localized goods and services," he said.

Consumers around the world appear to be shifting away from traditional globalization toward a more regional and "islandized" model, he said. As a result, over the next few years it's possible that some regions of the world will coalesce around companies like Facebook, Apple, Amazon, Netflix and Google, while other regions will increasingly adopt technologies from Chinese technology giants like Baidu, Alibaba and Tencent. "An array of government policies, from data localization and data privacy, to increased responsibility for platform content requirements, and the potential for antitrust measures against the tech giants may impact the ability of organizations to use digital technology effectively," he said.

Getting ahead of the change

The A.T. Kearney report recommends that organizations not be passive observers of the change but instead get out ahead of it by knowing what's going and preparing for it. Actions that organizations take will vary based on their environment but at a high level. The transformation will need to happen around strategy, customer experience, operations, risk management and employees and culture.

On the strategy front, the consulting firm suggests that organizations take action to identify digital technologies that can serve as enablers of new efficiencies, opportunities and customer engagement models and those that could potentially disrupt current business models.

Executives should be keeping an eye out for emerging technologies to determine whether to apply them as enablers or disruptors, the report noted. Also key is the need for companies to reassess their value proposition in the emerging digital world, to do scenario planning, and to understand the implications of technological localization and fragmentation.

Businesses will also need to respond to the shifting consumer landscape by offering more personalization and customization where possible and focusing on enabling greater trust and transparency.

Data will be key to operational success, so businesses need to be focusing on a purposeful big data strategy to generate, analyze and act of data quickly. Also critical is the need for an enterprise risk management and compliance strategy that considers new responsibilities, liabilities and cybersecurity risks. Companies will need to monitor emerging data privacy and localization mandates to ensure they remain compliant with existing and emerging requirements.

"Organizations that thoughtfully assess each of these dimensions as they move forward will have a competitive advantage," Toland said.