Building a digital business

You will need to ensure that the commercial arrangements involved in your digital investment represent the optimum outcomes for the organisation. One key part of this consideration is making buy vs build decisions. In practice it will not be a binary decision but rather a digital strategy will require a combination of the two approaches and consideration of a number of related issues. Below we list some areas that you might need to consider.

Outsourcing options

IT outsourcing can be the fastest way to achieve many digital transformation objectives. Providers no longer just support non-core business services but can also be a strategic partner. Improvements to your outsourcing and procurement approach and tools can deliver financial benefits, more robust compliance, a more efficient organisation, improved staff satisfaction and improved governance and risk management. Find out more about our wider outsourcing offering.

Technology development or procurement

If your digital strategy requires the development or procurement of digital technology (either alongside or in place of an IT outsourcing arrangement) this will require careful planning and documentation. Development now is frequently conducted on an agile basis which promotes flexibility and innovation. However, it can also be difficult to contract for and get a desired outcome using an agile methodology. Other risks like ownership of IP, use of open source software and cyber security also have to be managed. Find out more about our outsourcing and procurement team.

Attracting and incentivising talent

Traditional businesses are actively recruiting for people with specialist data skills. Retention and reward strategies need to be designed to encourage those with sought-after skills to stay, and not be lured away. The key is to ensure individuals are invested (financially and psychologically) in the business. Non-financial differentiators should also be addressed (employer brand, reputation, culture, ethics and opportunities). In addition, as talent involved in key projects moves between firms, organisations will need to take steps to ensure that any proprietary know-how and trade secrets are properly protected. And that enforceable restrictive covenants are in place to minimise the risk of damage to the business. Find out more about our wider employment and incentives team.

M&A

To achieve competitive advantage, you will want to gain access to the latest technologies and new business models, in particular if they are fuelled by huge amounts of data. Possible ways to do so are M&A, captive venture companies, collaborations or incubators, but also start-up as a service. Due diligence processes will identify any possible legal risks with the target company, such as data protection compliance or lack of data security. However, any data transfer from the target to the acquiring company during the M&A process (such as HR data) is subject to applicable data protection laws, which is often overlooked. Find out more about our M&A team can help.

Collaborating for competitive advantage

Collaborating with a reliable third party can be an effective “third way” towards building the right capability. In the example of commercialising data, some of most successful data exploitation products involve collaborating with competitors or vertical players, be it in combining datasets or leveraging the companies’ combined processing power or AI capabilities. Entering into a merger, engaging in a joint venture or joining a strategic alliance in order to unlock value from a dataset may be an integral part of your company’s strategy.

Competition implications

Digitalisation is changing the competitive landscape in many sectors and are influencing the market forces that give companies competitive edge . Increasingly competition regulators are looking at digital markets (both B2C and B2B) and in particular the control and use of data, as well as “killer” acquisitions to determine whether companies are able to influence their markets and cause consumer harm. This has also lead to the increased regulation of market participants in the . Find out more about our competition and anti-trust team.

IP rights

Your IP strategy will play a key part in the growth of your digital business, whether you’re building in-house or collaborating with others. You might consider investing in a portfolio of registered IP rights (such as patents, designs and trademarks), or structure your internal data-related activities properly, to benefit from IP rights that protect structured datasets. As you collaborate with others, it will be important to define carefully the use and management of new and existing IP. Find out more about our intellectual property specialists.

Tax Structuring

Digital transformation could result in a range of tax risks which could be mitigated if structured appropriately. Relocation of people functions could change the position on employment tax, permanent establishment and transfer pricing; shift in the nature of existing transactions could alter how they are treated for tax purposes, such as withholding taxes and VAT; and creation of new IP and transactions may mean that additional tax costs need to be accounted for. Digital businesses also need to navigate the ever-changing and complex tax landscape in relation to the impact of new rules relating to the taxation of the digital economy (including Digital Services Tax and the OECD BEPS 2.0 project). It won’t all be about mitigating tax risks. Development of digital technologies could also present opportunities from a tax perspective, including benefits to be obtained from various tax incentives (such as R&D tax relief and patent box/innovation box) and increasing tax effectiveness through a new IP ownership and licensing structure for cross-border activities. Find out more.

Financing your growth

Debt finance has been the preferred way to fund new investments over cash. Going forward flexibility in structuring will be key, with a current greater reliance on equity than highly leveraged debt as markets adjust to the new normal. For those seeking to acquire or seeking investment, private equity appetite remains strong in the technology sector, for both software and IT services especially in sectors such as FinTech. Find out more about our teams supporting clients with debt finance and equity finance.