The kneejerk reaction from the financial markets following the UK’s decision to leave the European Union (EU) was predictable. However, the implications for CIOs and other business leaders when markets settle down are not yet clear.
Ensure your teams are not distracted by the current uncertainty, understand the implications for IT projects and budgets, and understand what impact Brexit will have on IT's organisational structure, policies, and strategy in the long term.
Article 50 of the Lisbon Treaty lays out the rules for leaving the EU and specifies that a member country may give notice of withdrawal, after which the EU must attempt to negotiate a withdrawal agreement.
With the resignation of David Cameron as UK Prime Minister, it now looks like the treaty won’t be invoked until a new Prime Minister is elected, which could take several months. Thereafter the negotiations could last for up to two years with the option to extend, during which time the UK remains subject to EU laws.
The end result could be anything from arrangements that are similar to full EU membership, to something that significantly changes the way business is conducted between the UK and the rest of Europe.
With so much up in the air, it’s hard to make firm plans, and so uncertainty is perhaps the greatest problem. In this environment, IT leaders should assess the consequences on three time horizons — immediate, near term, and long term.
There will continue to be great uncertainty and doubt among IT employees, internal stakeholders, and customers alike. Leaders should give reassurance where they can, and work to avoid the issue becoming a distraction or a driver of disengagement. The key questions to answer quickly, include:
1. Has our internal communications plan kicked into action? Are we maintaining consistent messages during the UK and EU negotiation period?
2. What external issues should IT communications address and what information should we provide?
3. How will the communications help IT and other employees do their jobs more effectively? Are there specific concerns that we can give reassurance on now?
Decisions for the coming months
The mid-point of the year is typically when many companies reassess their current projects and spending plans, and start developing strategies and budgets for 2017.
Faced with market uncertainty and the possibility of a recession, combined with lack of clarity on the eventual shape and impact of Brexit, companies may decide to adopt a defensive approach by reducing spending, or take a wait-and-see attitude by delaying or scaling back projects. As such, it may take longer for 2017 plans and budgets to be firmed up.
Of course, given the economic volatility of the last few years, frequent budget revisions are not a new experience for seasoned IT leaders. Some questions to ask during this time are:
1. What effects will uncertainty about Brexit have on revenue and sales, and by extension, what does this mean for the IT budget? What effect will it have on costs, particularly if currencies remain volatile?
2. Are there projects underway now or planned for 2017 that may be affected by decisions related to Brexit? If so, should these projects be changed or reconsidered?
3. Which of the assumptions in the current business or IT strategy are called into question by Brexit? Does this mean that the strategy needs to be revisited?
Long term considerations to track over time
Depending on how the negotiations between the UK and EU pan out, there are many other IT decisions that could potentially be affected. For example, questions relating to IT skills needs and recruitment plans, IT organisational design and the location of shared services and centres of excellence, security and data privacy, contracts with vendors, and the specific functionality of systems used in multiple countries.
Questions to consider include:
1. What might the implications of Brexit be on UK-based employees that currently require a visa to work in the UK or don’t hold a UK passport, and on British citizens that are employed elsewhere in the EU?
2. How will Brexit affect employee recruitment plans? What proportion of the company’s new recruits is expected to come from outside the UK? Are there any specialised skills that are in short supply and which can only be fulfilled by talent outside the UK? And will it be become easier or harder to attract employees to the UK?
3. How might the cost base of operations in the UK change versus other locations in Europe, and will there be any additional costs or other obstacles to providing IT management and support to Europe from the UK or vice versa?
4. What data privacy and other regulatory implications will this have, especially after the uncertainty regarding recent rulings over the Safe Harbour agreement?
5. Will current or planned vendor contracts hinder any changes to the location or shape of IT operations?
6. What investments might be required to change the design or functionality of systems in areas such as HR, finance, sales, customer service, supply chain, and procurement that are shared across Europe?
Andrew Horne, IT, Practice Leader, CEB