In the second article of our digital transformation series, RSM experts explore the risks European businesses face when turning to external providers for assistance in their digital journeys. If you missed the first article, you can find it here.
If you want something done properly, it is not always wise to do it yourself.
The adoption of digital technologies to harness data, automate processes, augment decision-making and drive improvements in efficiency, productivity and service has been a boon to many businesses.
According to research commissioned by Amazon Web Services, in the UK alone, digital technology could create over £413 billion in additional value for the country’s economy by the end of this decade.
As the ministerial forward to the UK Digital Strategy put it: “The UK’s economic future, jobs, wage levels, prosperity, national security, cost of living, productivity, ability to compete globally and our geo-political standing in the world are all reliant on continued and growing success in digital technology.”
There is, however, no such thing as a free lunch.
Digital transformation: the benefits and risks
Looking to the Cloud brings both benefits and increased risks
The benefits of digital transformation are underpinned by connectivity and data collection that bring risks as well as rewards.
As Simone Segnalini, partner for Digital, Risk & Transformation at RSM Italy, says: “With the increased reliance on digital technologies, the volume of data being collected and processed also rises. Ensuring robust cybersecurity measures and compliance with data protection regulations become critical to mitigate the risk of data breaches and potential legal consequences.”
Worldwide, 71% of businesses collect the personal data of EU citizens, according to one poll. The volume and range of sources from which data can be captured and analysed has grown massively in recent years. Keeping track of this data and keeping it secure poses a significant challenge to many organisations.
With skilled personnel in high demand and short supply, many have come to rely on outside help to ease the burden and provide efficient access to more powerful technology. In many cases, this has helped to manage the risks. Access to cloud-based services for connectivity and processing and storing data, in particular, can enable mid-market and small businesses to benefit from the robust security of the major suppliers, which is far more sophisticated than anything they could hope to put in place.
As IT manager Daniel Hasslund at RSM Sweden says: “The transformation to public cloud platforms such as Azure and Amazon Web Services (AWS) has made significant progress for many companies.” "Embracing ‘the Cloud’ within IT departments also presents opportunities to optimise the sourcing model, reducing the need for in-house data centre maintenance and enabling the reallocation of resources to expertise that aligns with business goals,” he adds.
Digital Transformation: navigating the complex landscape
The battle is far from being won, however.
For a start, it is not simply a question of security. Privacy and compliance are also major issues. According to Gartner, by 2024, privacy laws will cover the personal information of about three-quarters of the global population.
ChatGPT is just one example where the adoption of new technology creates new issues to consider.
“It’s a powerful tool but cannot be readily deployed without considering data privacy regulations,” says Hasslund. “Companies need to build integrations and use their own AI model, ensuring compliance with privacy standards.”
“Closely related to these risks are issues of ethical AI use,” adds Lilian Boyer, IT and Risk Advisory manager at RSM France. “Questions around algorithmic biases (potentially leading to claims of discriminatory practices), appropriate uses for AI and ownership of intellectual property abound. Businesses cannot simply outsource these issues, for which the industry often has yet to find satisfactory answers.”
“More broadly, investments in digital transformation often supplement rather than replace existing solutions,” according to Hasslund. “Organisations have adopted cloud-based solutions and new technology for some aspects but retain legacy systems. That leads to a ‘hybrid’ model and hampers the embrace of modern thinking regarding the network and security,” he says.
This risk must be carefully managed, but practice varies. As Phil Crosby, Director at RSM Channel Islands says, there’s little consistency. “Larger and non-locally owned businesses can have sophisticated infrastructures and digital paths, but others may not have any clear plan.”
What is clear for all, though, is that the reliance on different third-party providers can create issues of its own.
“One of the key risks is the complexity of multivendor management. As businesses adopt various digital tools and solutions from different vendors, integrating and managing these technologies cohesively can be challenging,” says Segnalini. The use of multiple vendors can lead to compatibility issues, data silos, and difficulties in implementing a unified digital strategy.
“Moreover, businesses need to consider the scalability of their digital infrastructure to accommodate future growth and technology advancements,” he adds. “Failure to plan for scalability may result in system inefficiencies and a need for costly reconfigurations.”
José Pedro Gonçalves, partner at RSM Portugal, agrees: “Many organisations have invested in new technologies, creating extremely complex and differentiated computer architectures. This fact has increased business risks at various levels,” he says.
Digital Transformation: skills shortage, implementation delays, and risk management
Taking time to get digital transformation right
It is important to take time to make the right decisions which is made more difficult by a lack of skills within a business, which is the very reason many look to outside providers for technology support.
“The personnel assigned to digital transformation are often very scarce due to the general shortage of staff and the high demand for experience in digital transformation,” says Alexander Sobanski, partner at RSM Germany. “This can sometimes lead to delays in implementation of projects.”
Better a delay in implementation than facing the risk of getting it wrong. To manage these risks effectively requires a clear strategy and supporting infrastructure of the right processes, oversight and personnel. Companies can outsource the technology, but not the responsibility and need to understand the business, its processes and risk management. The danger is that in the rush to transform and capture the benefits of the technology, businesses can often forget this.
As Gonçalves says: “In some cases, we’ve seen the proper mapping of business processes has been less thorough than in the past. That’s a dangerous development.”
If businesses are to secure the benefits of the technology without coming undone with the risks, they should bear this in mind. For some, that may mean learning to walk before they can run.
If you are embarking on digital transformation and would like more information, please contact us.