How to Survive the Digital Disorder

It goes without saying that digital technologies are now prevalent in all aspects of business operations. You would be hard-pressed to find a company, from large multinational manufacturers to traditional mom-and-pop retailers, that does not leverage digital technologies in some way. And it is well understood that current digital technologies continue to evolve even as new technologies emerge—all of which are reshaping production processes and redefining global value chains.

What is less widely acknowledged is that the global operating environment for digital is also shifting dramatically—what my colleagues and I call "digital disorder" (see figure below). These shifts are the result of governments becoming more active in the digital environment, through both intensifying regulatory activity and escalating global competition. These political risks are arguably even more important than technological innovation in determining how companies will be able to leverage digital technologies in the years ahead. 

How is digital disorder affecting business today?

Skimming the daily headlines highlights how governments are intensifying their regulation of digital activity. In many cases, this involves seeking to mitigate the downsides of digital technologies and generate additional government revenue. France’s new digital services tax, the US Federal Trade Commission’s $5 billion fine on Facebook, and India’s proposed data localization rules are just some of the recent examples of how digital disorder is affecting the cost of doing business in markets around the world. 

Digital disorder is not only about new business regulations and costs. Governments are simultaneously trying to promote investments in digital technologies to ensure their economies remain competitive. It is therefore no surprise that global R&D spending has steadily risen as a share of GDP in the digital era. The countries that successfully leverage their R&D, human capital, infrastructure, and regulatory environment to promote digital will offer the most competitive markets for business growth in the coming years.

But perhaps the most significant force shaping the global digital environment is the escalating geopolitical competition to dominate key digital technologies. Two in particular stand out: 5G wireless networks and AI. The United States and China have emerged as the two leading players in this competition. Associated geopolitical tensions raise the risk that the digital economy will continue to fragment, complicating global supply chains and the operations of international companies. 

What is next?

Digital disorder will not last forever. A new equilibrium will be reached in the next decade. But the rate of change among the forces of digital disorder varies across markets, industries, and consumer segments. And all of these forces are driven by political risks. As a result, there is a high level of uncertainty about the digital order that will emerge from the current disorder. We therefore engaged in a scenario planning exercise to envision several possible future operating environments for digital technologies (see figure below).

Our four scenarios are:

? Techlash to Renaissance: Millennials push for a relaxation in US-China tensions, while anti-trust actions break up the technology giants and usher in a new wave of competition and innovation.

? Digital Crackdown: High levels of nationalism and state capitalism enable governments to tightly control digital information flows, leading to divergent digital standards and fragmented markets.

? Fake News Devolution: Rampant fake news undermines public trust in government and other institutions, particularly foreign ones, so digital platforms stick to their home markets.

? Surveillance Capitalism: The US and Chinese technology giants cooperate on a global scale, amassing vast amounts of personal data and becoming more powerful than governments.

These divergent scenarios demonstrate that the exact shape that the future digital order will take remains unclear. Two things are clear about the future digital order, however. First, digital technologies will continue to proliferate and play a central role in the global economy. Second, we are on the cusp of radical change in the operation of the digital economy.

How can companies remain resilient?

Companies cannot be passive observers of the ongoing digital revolution. Even as the digital disorder evolves, executives will need to guide their organizations through strategic digital transformations across a variety of business functions. Specifically, companies must adapt to the emerging digital order across strategy, customer experience, operations, risk management and compliance, and employees and culture—our SCORE framework. 

Of course, different aspects of SCORE will be more relevant in some potential future digital environments than others. In the short term, executives should therefore prioritize the SCORE actions that are highly relevant across all four scenarios (see figure below). And in the medium term, executives should monitor the evolution of digital disorder toward one of these scenarios—and adjust their digital transformation actions accordingly. 

This article has been adapted from “Competing in an Age of Digital Disorder,” which was originally published by A.T. Kearney and is available here.