The UK’s momentous decision to Brexit, and the consequential uncertainty of the withdrawal process under Article 50 of the Lisbon Treaty, is likely to have a short- and medium-term impact on enterprise IT investment in the UK. Senior executives will want to prepare their core systems for any implications of revised trading and legislative agreements, and may postpone investment in nonmandatory IT projects such as digital transformation until the needs of the business-as-usual environment become clearer.

IT departments must focus on application changes

For modern business applications, most required changes to business logic in areas such as commerce, tax, and data handling should be possible through configuration rather than customization; however, for older legacy applications, recoding or reworking may be required. Similarly, modern applications, particularly those delivered as cloud services, are upgraded on a more frequent basis, making it easier to add new functionality where this may be required. For older on-premise systems, an upgrade is typically a major undertaking, requiring a significant investment of resource, all of which will put additional burden on IT departments and their budgets.

Ovum’s conversations with enterprise IT leaders suggest that few have planned or prepared for the changes that might be required as a consequence of Brexit. This is understandable given the unprecedented situation in which the UK now finds itself, but is likely to increase the level of caution that is applied to ongoing investments in business improvement and more speculative innovation projects, and may also play out against a potential downturn in the macroeconomic environment. This IT budget uncertainty will persist for at least the two-year EU withdrawal process, but beyond that time frame the level of uncertainty will be dependent on the clarity of the UK’s future trading arrangements with Europe and other global partners.

During the referendum campaign, IT suppliers have, as a group, been strongly in favor of the UK remaining within the EU. This is in part due to the commercial implications for their own businesses, but is also in recognition of the uncertainty for their customers, in areas such as systems preparedness, data protection, IT contract terms, and the physical locations of IT service delivery. Ovum recommends that IT leaders should be proactive in discussing Brexit implications with their strategic suppliers, to create transparency for both sides in terms of business planning, and to minimize any disruption from system changes.