Most companies want to stay away from politics since whichever side they appear to be supporting will make the other side distrustful. In an election year, politics and politicians are everywhere and avoiding the subject gets harder each day. In 2022, the standard saying, “All politics is local,” can be a bit deceiving as world politics, from tariffs to war, are making the news daily and impacting the lives of everyone from workers on the line to C-level executives.
According to Gartner, technology governance issues, emanating from cross-country politics, have led to “digital geopolitics” rapidly becoming an issue that multinational CIOs must step up to lead. Some 41% of boards of directors view geopolitical power shifts and turbulence as one of the biggest risks to performance.
Digital geopolitics is now one of the most disruptive trends that CIOs must address, with many dealing with trade disputes, legislation coming from one country that impacts global operations, and government-imposed restrictions on the acquisition and use of digital technology. Gartner predicts by 2026, 70% of multinational enterprises will adjust the countries in which they operate by hedging to reduce their geopolitical exposure.
Coming to Terms with Terms
Geopolitics describes the geographic influences on power relationships in international relations. The resulting competition between nations plays out in many areas, including economic, military, and societal. Due to the increasing importance that digital technology plays in each of these areas, digital geopolitics is emerging as its own unique impact category.
Gartner says CIOs must play a pivotal role in assessing corporate risk and, if required, rearchitecting digital systems. They will need to manage or exploit four distinct facets of digital geopolitics to keep their company’s independence. These are areas where nations are competing against one-another and where companies, especially those with technology to offer, can benefit—or be restricted.
1. Protect digital sovereignty
Digital sovereignty will be a primary source of complex, dynamic, and expanding compliance obligations for multinational enterprises. Governments are primarily addressing it through their legislative and regulatory powers, such as privacy laws like the European GDPR (General Data Protection Regulation) and are increasingly turning to extraterritorial legislation. Although primarily focused on ecommerce companies like Amazon, all companies that deal with citizens of a jurisdiction may be required to comply with its laws, regardless of where the company operates or where the citizens reside.
As the internet is accessed from nations with privacy and commercial laws different than those in the U.S., major companies often have a dedicated person or department to determine the company’s response. CIOs must be proactively engaged in ensuring that the IT organization’s operating model and practices reflect current laws and regulations in place. Their role is to be aware of the legal environment and articulate to other executives how the IT organization supports compliance across the enterprise.
2. Build a local technology industry
The technology industry is of great interest to public policymakers around the world due to its size, fast growth, strategic importance, tax revenue, employment possibilities, and lack of requirement for a specific national resource advantage. Many national governments are investing in developing a home-grown tech sector. The U.S., for example, wants to address regional imbalance in global chip production through the CHIPS (Creating Helpful Incentives to Produce Semiconductors) for America Act.
Efforts to establish a domestic technology industry provide CIOs with an opportunity for proactive engagement with governments. They must localize specific initiatives into countries that have the best integration between local expertise and access to government co-innovation support.
3. Achieve necessary military capability
The growing digitalization of national military and security operations will limit the availability of some technologies within various countries. Enterprises and CIOs are impacted by the emerging sphere of cyberwarfare, as well as the digitalization of existing warfighting and security technologies.
CIOs can no longer count on the availability of technology used by the enterprise for its operations in any country in which it operates and will be faced with restricted and mandated suppliers. To minimize disruptions, they must establish a vendor and technology risk center of excellence, chartered with a regular assessment of the exposure of key suppliers to evolving government restrictions.
4. Exert direct control over the governance of cyberspace
National competition for control over the governance of cyberspace will impact the operations of multinational enterprises. As digital technology weaves itself through all aspects of society, nations are seeking to ensure that their own technologies reflect and support their core values and their citizens. Governments are concluding they need a protected national digital infrastructure.
The machinations by governments for control over cyberspace governance are beyond the influence of CIOs, but they will have profound impacts on a business’ ability to operate internationally. CIOs can advance the executive team’s understanding of cross-national competition for control over cyberspace and the impacts to their enterprise’s operations by leading an annual cyberspace environmental update briefing.
International geopolitics are diverse and complicated, usually outside the control or influence of even large multinational companies. The days of the corporate client state are over, each nation wants to be both independent and sovereign. The era when a company, like Dole, could run the government of a small nation based on its investments there—hence the Banana Republic slur—is no longer feasible.
Bringing Automation Online
While the CIO, the IT executives, and the CEO plan for the changes being made in the various countries where they operate, the CFO and financial executives have other goals and priorities. CFOs plan to protect their digital investments as they cut costs elsewhere in the business, according to recent surveys by Gartner. Among technology priorities, CFOs have particularly prioritized back-office automation as a key to driving down costs in the face of ongoing inflation.
A July 2022 survey of 226 CFOs found digital acceleration was the top spending priority for CFOs throughout the next 12 months, with 98% of respondents saying they will protect digital investments—and of those, 66% stating they plan to increase their investments in the category.
A separate survey of 128 CFOs and CEOs in June highlighted the areas within technology that are set to receive the most investment: one third of respondents said they will prioritize back-office automation technologies, the most popular choice among 13 distinct categories of potential technology investment.
Gartner’s survey on CFOs’ investment priorities also revealed the area’s most vulnerable to cost cuts during the next 12 months. Forty-six percent of respondents indicated they will cut spending on consultants, while 45% said they will decrease spending on real estate. Contractor spending was also targeted by 39% of respondents.
Automating workflows is a key to achieving efficiency gains across a number of areas including accounts payable, accounts receivable, and internal IT services, such as helpdesk support. Survey respondents also indicated their plans to increase investments in pricing optimization analytics, with 32% of respondents listing this area among their top three priorities.
With CFOs recognizing limitations to price hikes over the long-term, pricing optimization analytics is a way for organizations to improve pricing precision while also pursuing other strategies to mitigate inflation’s impact on margins, such as cutting costs.
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