Digital transformation, built on IT cornerstones of cloud, mobile, social and big data, is affecting all industries.
Going digital is not just about making sales via mobile devices, or using Twitter to communicate with customers. Digital adopters are making transformational shifts in the way they: use data all across their businesses; carry out back-office functions; manufacture, store and transport their goods (including money); and approach and communicate with their stakeholders (from suppliers, to customers, shareholders, employees and even regulators).
Some industries are seeing their businesses profoundly disrupted by new digital entrants (think what Uber has done to transport, or Amazon to retail), while for others, the imperative is to incorporate digital opportunities into their businesses to become more competitive within their existing markets.
No industry is being left untouched by digital, although some (eg financial services, healthcare, hospitality, retail, automotive) are moving forward faster than others. Agility and flexibility characterise successful digital businesses and many companies are struggling to keep pace with innovation and to engage the right teams within their organisations. However, the C-suite increasingly recognises the strategic necessity of embracing digitalisation, and digital strategy is a boardroom issue.
Setting and implementing a digital strategy requires a host of interdisciplinary skills. Equally importantly, going digital requires a significant cultural shift in many organisations, particularly in the way they engage with third parties to deliver elements of that strategy.
Bringing new technology into a business frequently involves finding new partners. Established market participants may work with new-generation companies to short cut the R&D cycle for new technologies; they may buy or collaborate to bring new skills into the business; or they may use their partners to provide access to new markets or distribution channels. A fundamental question is what form that collaboration might take. Digital transformation is certainly driving M&A as companies buy in technology and skills or combine with peers to build scale, but commercial collaborations are also a popular route to achieving these goals. Equally, corporate venturing may offer a way to connect with early-stage companies to assess potential technologies, exert a degree of influence on the future direction of the emerging company and be in a good position to acquire or license technology if it looks to be shaping up well. It is important to understand the pros and cons of M&A over other forms of involvement such as investment or collaboration.
Culture clash can be a particularly corrosive dynamic when emerging and established companies come together in investments, M&A or commercial partnerships. It is often lamented that while established players may look to start-ups precisely because they are agile and nimble, trying to scale that culture into a large organisation is hard to do. Meanwhile, the bureaucracy of the big company may frustrate the start-up. This culture clash doesn’t start after the deal is signed, it can be a barrier while the deal is being negotiated. To work through this, both sides need to understand the goals of the transaction and how they might differ for each party. They also need to understand what contributions each partner might make. These contributions are not only financial, for an emerging company “softer” areas like the introduction the established player can make to other market participants, or the mentoring that might be available to team members, could all be valuable considerations. Due diligence is also likely to be different, emerging companies simply don’t have the track record of established players. Diligence will need to focus more on the strength of the team, the company’s references from partners, investors and customers, and a solid understanding of the market in which the start-up operates
Use of data
The ability to manipulate large sets of structured and unstructured data (“big data”) is one of the key characteristics of the digital revolution. For many businesses, there are two types of big data opportunities. One relates to how they can take advantage of the data available to them to improve the way in which they run their business, the second relates to whether they can monetise the data they collect through business-asnormal activities. There are however a number of legal and regulatory considerations that need to be considered before working with big data.The first is a clear understanding of relevant privacy and data protection frameworks. Where data includes personal information (of customers or staff, for example), many data protection laws impose data minimisation requirements, purpose limitation requirements and cross-border data transfer restrictions. Data security will also be an important concern. How should you protect data against a possible breach? It is important to understand what technical and organisational measures may be required under relevant legislation in order to protect the data that is held. There will also be intellectual property considerations associated with the use of big data. For example, who owns the input data that companies are using to conduct data analytics? Who owns the output data?
The more we put online, the more we expose ourselves to the risks of cyberattack. Cyberattackers are quick to spot the potential vulnerabilities of new technologies and exploit them to commit civil and criminal offences (and to frustrate detection of those activities). Risks to business are significant and include damage to reputation, business interruption, financial loss, litigation, loss of IP and confidential information, and regulatory sanctions. Cybersecurity is about prevention of (and/or preparation for) cyberattacks, but also about reaction once the risk has been realised. It requires an integrated approach across traditional security disciplines proactively to understand, detect and respond to advanced and evolving threats.
Open innovation/ Protecting IP
Intellectual property frameworks have a clear role to play in protecting and promoting innovation. However, digital technologies also make it increasingly technically possible to easily share ideas and content, whether or not this material has IP rights attached. Equally, in today’s “smart economy”, a new IP paradigm of open innovation has emerged where companies may bring in innovation from a wide range of external sources, including for example crowdsourcing ideas using open digital platforms or working with open source software. The current IP protection framework can be difficult to apply effectively to the digital world and there can be challenges for IP rights management when ideas or technology born in an open source environment are commercialised at a later date.
New business models and working processes also run the risk of creating grey areas around liability. For example, who assumes liability if a driverless car has a crash? Current regulations mean that car owners are generally liable for accidents caused by their vehicles (and are consequently required to hold insurance against this risk). In the connected car world, what interplay will there be with product liability regimes? Will manufacturers be held liable? Or imagine the case of a healthcare app which provides monitoring of symptoms or a reminder to take medication – could the producer of the app be held liable for healthcare issues that arise as a consequence of an issue with the app? What if the issue with the app was in fact triggered by a communications network outage? In some countries, product liability legislation is strictly limited to “products” and not “services” – in a digital environment such a distinction may be very difficult to make, as may questions of relevant jurisdiction. Clearly identifying such risks and planning for them will be essential, as will expertise in dispute resolution in the event of such a problem.