On Friday, 24 June 2016, Britain faced a decisive moment when the majority of its population (51.9%) voted in favour of moving out of the European Union (EU).
In words of the exiting Prime Minister David Cameron, Britain went through a giant democratic exercise, perhaps the biggest in their history. While in his exit speech he assured people of both Britain and EU of no immediate changes, the specifics will only be known as Article 50 is fleshed out once the new Prime Minister assumes office in October 2016.
Irrespective of which side of the debate you were on, Brexit is the new-world equilibrium for all in Britain and EU. On day one itself, the news played havoc on global markets wiping out USD 2.1 trillion from the equity markets. The day also witnessed a 10% crash in the GBP that hit a 31-year low at one point before settling at a 9.1% loss. Even the Euro wasn’t spared – it dropped 2.6% on the Dollar.
Greyhound Research believes despite the proposed outcomes of political and economic liberty arising out of Brexit, Britain’s reliance on the EU (and vice versa) will continue to be pivotal for their respective success. More importantly, we believe there exists a dense underlying fabric between Britain and EU, woven of political, economic and social threads. Below is a snapshot of why each of these threads in the fabric matter:
The Political Thread – Per European Parliament Information Office in the United Kingdom (UK), there are 73 UK MEPs (Members of the European Parliament). It’s interesting to note that Britain until now enjoyed the 3rd largest representation (MEPs per member state) only behind Germany and France.
The Economic Thread – The latest trade statistics from HM Revenue & Customs tells this tale eloquently. Imports into Britain from EU countries has grown by more than 24% between 2008 and 2014, i.e. from GBP 178 Billion in 2008 to GBP 221 Billion in 2014. Further, of the top 10 countries which Britain exports to (by dollar value), 7 are EU countries. In other words, 38.3% of Britain’s total global exports in 2015 were made to these 7 countries. However, not all EU countries carry the same weightage. From its total exports to EU, Britain exports nearly 50% to Germany, France and Netherlands, and imports 53% from the same countries.
The Social Thread – Migrant Watch UK cites the number of British people living in the EU in 2015 as 1.2 Million. At the same time, they note that there are 3.3 Million EU citizens in Britain. This easy cross-border migration across the two parties is likely to come under close scrutiny post Brexit.
Albeit the points above do great justice to magnify the density of the fabric between Britain and EU, Greyhound Research believes there also exists a close-knit science & technology thread.
The Science & Technology Thread – Per a statement by House of Lords Science & Technology Committee, approximately 18.3% of Britain’s funding from the EU goes to scientific research and development. Separately, the committee report states, ‘Based on the proportional contribution to overall EU finances, Britain contributes around 11% of the EU research budget and receives around 16% of the allocated funding, making it a substantial net beneficiary under Framework Programme 7 (FP7). This data suggests Britain received approximately EUR 7 Billion of research income under FP7, marginally behind the top recipient, Germany.’
Hence, we at Greyhound Research believe Brexit’s impact on this science & technology thread will be decisive in nature.
While it is certain that business exchange between Britain and EU will continue despite Brexit, all stakeholders can expect a fresh set of monumental challenges. Beyond those in common, stakeholders can well expect issues specific to them. Below are key highlights of why Brexit matters for Large Enterprises and their IT Decision Makers across both Britain and EU.
Why This Matters for Large Enterprises and IT Decision Makers
CEOs and Boards are now faced with a new-world equilibrium. Brexit has given rise to a fresh set of stability and growth concerns and next steps from the Chief Executive Officers (CEOs) and Boards have come under scrutiny. Large enterprises like British Telecom, Vodafone, BMW, Mercedes, Tata Group among others are being forced to relook and redefine their business strategy.
Expect backlash from local and regional competition. With free trade getting impacted, enterprises headquartered in Britain but operating in EU (and vice versa) can expect a backlash from local and regional competition, thereby resulting in pesky demand for their products and services. This will also mean slowing down of the overall economy.
Budget for significant increase in cost of doing business. Reasons may include the need to separate Britain and EU Headquarters, establish local support teams due to restricted workforce movement, rework employee and vendor contracts, conduct fresh regulatory and compliance audits among others. To cite some examples, Tata group, BMW among others have stated concerns regarding trade conditions, operating costs and possible operational changes because of Brexit.
Plan for technology to be an area of major budget and resource spend. Large enterprises will be forced to renegotiate their IT outsourcing and software licensing contracts and procure new IT infrastructure to adhere to local data privacy laws of today and tomorrow. The existing UK Data Protection Act is based on old EU rules and the new government can be expected to reform these laws in light of the proposed EU Privacy Reform. This will definitely attract fresh investments in technology to ensure enterprises from both sides can exchange data while ensuring compliance. Furthermore, restricted movement of workforce might deem Chief Information Officers (CIOs) to establish new local IT support teams.
Anticipate additional competition from newer technology-led incumbents. To make matters more complex, CEOs and Boards can expect to grapple pressure from newer technology-led incumbents. It’s critical to remember that these young enterprises who are also grappling with Brexit are better equipped with latest technology, enjoy leaner operations with lower cost bases and are more desperate to eat into the market share.
As market forces evolve post Brexit, CEOs and Boards can expect to fight an uphill battle to adapt to this new-world equilibrium. The uncertainty of the stand that the new Prime Minister of Britain will take with EU to discuss terms of split under Article 50 will undoubtedly delay (and in some cases derail) investments and deals on both sides. Furthermore, the already envisaged outcomes of the need to revisit enterprise strategy and increase in cost of doing business will hurt the competitiveness of the unified Europe story in global markets. Greyhound Research believes forward-looking CEOs and Boards can use the following suggestions to reboot for growth in this new-world equilibrium.
Be Agile And Lead With Digital Transformation. Greyhound Research believes winning in the post Brexit era will require CEOs and Boards to be agile and lead their enterprises on the back of Digital Transformation. We believe this approach can help CEOs future-proof their enterprises, make them leaner, improve customer engagement and thereby gain competitive advantage. Having said that, CEOs must personally lead this journey of Digital Transformation and work in conjunction with CIOs and other IT Decision Makers to make it a success.
Embrace Co-opetition and Collaborate With New Partners. With Brexit mounting fresh strategic and tactical pressures, CEOs and Boards will find it increasingly difficult to cover the scale and complexity involved in serving both Britain and EU separately. Greyhound Research is of the opinion that forward-looking CEOs should proactively develop internal capabilities that allow business leaders and R&D teams to collaborate with new partners (including local and regional competitors) to cater to existing demand and strategise new product/service categories.
Build Communication Fast-Lanes For Stakeholders. Many enterprises continue to work with passive methods of communication like email which cause breakdown in communication. Such events in the wake of Brexit can potentially hurt the enterprises’ ability to launch combat strategies. Greyhound Research believes CEOs need to invest in technology that enables stakeholders to always be wired to the business, improve communication and avoid breakdowns.
Use Real-Time Data Analysis To Aid Decision-Making. Post Brexit, the need of the hour is developing agile and adaptive models that can brace the change. Greyhound Research believes CEOs must implement Systems of Insights that allow for accurate and faster decision-making based on real-time data.
Make Security A Prerequisite For Every Digital-Centric Business Decision. While we urge CEOs to use Digital Transformation to fight back the pressures arising out of Brexit, it is critical they make security of enterprise and customer data core to this journey. CEOs must remember when migrating workloads and business functions to digital, enterprises open themselves to complex security threats and need to weigh every business decision with respect to security and privacy protocols.
In the coming weeks, we at Greyhound Research will be releasing a series of research notes on the likely impact of Brexit for other stakeholders in the technology ecosystem. While Brexit means no immediate change for enterprises, we urge CEOs, Boards and other IT Decision Makers to use our guidance from above and plan for next steps in the remainder of 2016.
Sanchit Vir Gogia: Sanchit is the Chief Analyst & CEO of Greyhound Research, an Award-Winning, Global, Independent IT & Telecom Research & Advisory firm. He also serves as Chief Futurist, Founder & CEO of Greyhound Knowledge Group, a Global, Multi-Disciplinary Research & Advisory firm. Given his expertise and passion for Technology, Sanchit also doubles up as the CIO for Greyhound Knowledge Group companies and is building a technology-led Research & Advisory business. In his another avatar, Sanchit is an Advisor To The Board (for IT & Business decisions) of a US$100 Million+ organisation in the Metal Industry. To read more about him, click here.
Anshoo Nandwaani: Anshoo serves as a Vice President and Principal Analyst with Greyhound Research, an Award-Winning, Global, Independent IT & Telecom Research & Advisory firm. She also serves as Chief Human Resources Officer (CHRO) of Greyhound Knowledge Group, a Global, Multi-Disciplinary Research & Advisory firm. In her current role, Anshoo leads the research agenda for The Empowered Workforce theme. As part of this theme, she studies the impact of vertical-specific processes and workforce-centric technologies on workforce lifecycle and overall business alignment. At Greyhound Research, we refer to this as the Workforce Empowerment Systems (WES). To read more about her, click here.
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