Business digitalization: the consequences of sanctions and the transition to Russian software

How will sanctions result in the field of digital solutions for Russian business, how will the transition to domestic software take place and when will it be completed?

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What are the risks to business from digitalization

In managing the company’s digital development, it is prudent to take a risk-based approach and assess the cost of risks to the business for each solution. When digitalizing a business or a separate part of it, it is important to take into account the following points.

  • The use of cloud solutions can lead to data loss and create obstacles for the company’s business processes. For example, many small and medium-sized businesses (SMB) use a well-known American service as a corporate library of knowledge about the company for storing and organizing documents, which risks losing information about their business processes in case of an emergency. If you use such services without a backup and the ability to upload important information at the right time, then you can suddenly lose corporate developments, knowledge bases and other information, which can roll back many corporate processes far back.
  • When placed on servers, there are risks of partial data loss. For example, some companies that left Russia have a large amount of DBMS-level software (database management system). Even if the server is located “on the ground”, but for some reason a key lock will happen or the DBMS simply stops working, then you can lose access to important information. There are cases when, due to a failure in the system, companies lost access to data about their clients, and the websites of state institutions were inactive for several weeks.

Digital risks in the current realities of sanctions are a minefield where you can be “blown up” at any moment with very serious consequences. The danger of complete or partial shutdown of certain business segments and data loss can be borne by any foreign software installed on computers and local servers, as well as by the use of foreign cloud solutions.

Project risk analysis: how to protect yourself from the negative consequences of blocking foreign software during digitalization

The very first thing to do is set up backup of the main cloud blocks and critical resources “on the ground”. For example, you can duplicate important information in a separate secure data store – this is the best and most efficient solution when financial resources are available.

Conduct a risk analysis of your IT infrastructure or software. To begin with, I can recommend drawing up a risk management plan and filling out a risk register. Completing the basic project risk documentation will allow you to estimate their cost as part of a quantitative analysis, as well as develop a strategy for responding and managing these threats.

Always assess the possible risks of a decision: what happens if something is done or not done. For example, analyze whether it will be critical for you to turn off a particular digital system. If, due to the shutdown, your business loses 100 million rubles with a probability of such a risk of 50% (the total risk estimate is 100 million rubles * 0.5 = 50 million rubles), and the introduction of an alternative solution will cost 10-20 million, then it makes sense to introduce this option in case of adverse events.

It is also worth coming to terms with the loss of familiar, understandable and convenient foreign solutions and already now look for alternative domestic counterparts, which may not fully, but at least partially cover the functionality of foreign software. The main difficulty is that many Russian developments are effective only pointwise. They lack product consistency and the ability to combine with other solutions (this feature is either not supported or is difficult to configure).

Do I need to switch to Russian software now

Each company must analyze its needs and capabilities in order to make an informed decision about the transition to Russian software. In general, business digitalization is based on two principles:

  • Mandatory legislative decisions. For example, presidential decrees No. 166 and No. 250 instruct businesses and government agencies to stop using software from unfriendly countries. Moreover, this applies not only to critical information infrastructure (CII) facilities, but also to other areas. Such measures have been taken to strengthen cybersecurity.
  • Own desire to switch to Russian software based on the business processes and goals of the company. If the risks from using foreign software are minimal and there are no critical consequences, then it makes no sense for a small organization to switch urgently to domestic developments, you can still use what works on the territory of the Russian Federation. The most optimal is to prevent unexpected software shutdown and work on several alternatives just as a “plan B”.

What has changed for domestic companies with the need to switch to Russian software

The largest business, represented mainly by state corporations, is actively implementing the strategy of switching to Russian software. According to forecasts, by 2025, two-thirds of companies will switch to new software, and the share of such products will be from 80%. Russian banks have extended the transition plan until 2027 – this process will be controlled by the Central Bank of the Russian Federation.

Medium and large commercial organizations are now gradually abandoning the use of Microsoft Dynamics CRM software (server versions) for customer relationship management, since the developer has stopped supporting the product in Russia. For example, the development business and a number of related companies are smoothly switching from Dynamics to a domestic solution that has no working analogues yet.

Many firms have come to understand that today it is strategically safer to place critical systems and information “on the ground”, and not in the cloud, access to which can be turned off at any time.

However, there is a downside to this issue: in addition to sanctions on software supplies, there are restrictions related to the import of high-tech products into the country, including servers, chips, etc. At the same time, small companies cannot afford to buy new server equipment, and they often look towards used solutions.

What are the alternatives to foreign software

The departure of Western vendors has led to the need to look for alternative solutions that create certain problems: most often – financial ones. For example, in order for a company to implement a Russian-made BI system, it will take millions of rubles and the involvement of additional specialists, since this is a long and costly process.

Developers are already working in Russia, supplying software solutions not only to large state-owned companies, but also for SMB. For example, there is software based on the concept of self-service: it is user-oriented and allows you to create analytical reports, data models, visualizations without the help of programmers and a complex backend solution.

Of course, there are open source solutions, but they require more work with the infrastructure and a certain involvement – one analyst will definitely not be enough for the business, specialists will be required to frontend reports and build a data processing and storage system, the complexity of which depends on the tasks of analytics and the specifics of the business.

Exit of foreign software: business implications

Today, all state corporations can purchase software exclusively from a special register approved by the Ministry of Digital Development. And if the necessary software is not in the registry, then it will not be possible to buy and implement it. In other words, if the organization producing Russian software wants to supply products to state corporations, then it must first get into this register.

The presence of an IT program in the register of the Ministry of Digital Development gives many advantages:

  • advantage in participation in public procurement;
  • receiving grants from the government;
  • VAT exemption;
  • concessional lending.

But to get into the register, the author and his development must meet a number of requirements.

The main document on the basis of which the register was created is Decree of the Government of the Russian Federation No. 1236. It approved the procedure for the formation and entry of an approved product into the register.

Another consequence of the departure of foreign software is the overpricing of information products by many domestic developers, since there is a constant demand for software from the state corporate business, that is, large companies. SMBs often cannot buy expensive software.

Accordingly, there is a risk of further appreciation of domestic developments, which will lead to digital differentiation and even some discrimination, when some players will have access to technology, while others will not.

Therefore, it is likely that small businesses will purchase certain solutions (for example, Microsoft products) through third countries at their own risk, without any alternative. At the same time, in the coming years we will see a large number of startups focused on small companies through small checks and an affordable comprehensive service.

In general, avoiding the use of foreign software has both positive and negative consequences for Russian business. Among the positive aspects are the following:

  • Independence from external suppliers. Using Russian software, organizations reduce their dependence on foreign suppliers and technologies, which will prevent possible problems with sanctions or geopolitical conflicts.
  • Support for the domestic IT industry. The transition to Russian software contributes to the development of the domestic IT industry, creating new opportunities for local developers and firms.

Negative consequences:

  • Technological limitations. Russian software is not yet so functional compared to foreign counterparts, which limits some of the capabilities of companies and their competitiveness in the world market.
  • High transition costs. The transition requires significant investment in staff training, system upgrades and the development of new processes, which entails additional costs.

Although the quality of Russian-made software so far does not reach the level of foreign developers, today there is a great prospect for the rapid development of this IT sphere.

At the same time, it is important that the creation and implementation of digital products take place in conjunction with a “simple” business, and not with a focus on large and state-owned corporations’ contracts. In any case, in the near future, the consumer will suffer the most, while he carries all the additional costs for the development and implementation of software.

Of course, a complete transition to domestic software is impossible (and not needed), but the ratio of 80% of Russian software and 20% of solutions from friendly countries is quite real and workable. It is likely that the transition to such figures in Russian business will take place by 2027-2028.

By Nina Oleinikova, Associate Professor, Department of Project and Program Management, Capital Group, Russian University of Economics named after G. V. Plekhanov

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