Resource Regions: Central and Eastern Europe

AI Act: How Did We Get Here and Where Are We Now?

In April 2021, the European Commission submitted a detailed proposal of its plan to regulate artificial intelligence development and use in Europe: the AI Act. The AI Act’s goal is to ensure that the development and deployment of AI systems in Europe is safe, transparent and compliant with the EU’s fundamental rights and values ― protecting the public, while still fostering innovation.

The Commission adopted a “general approach” on a set of harmonized rules on artificial intelligence in November 2022, but rapid progress of the technology, together with the sudden wave of innovation in Generative AI systems, delayed the final discussion of the legislation as new amendments to cover the latest developments were explored. On May 11, the European Parliament committees approved the AI Act with a large majority in a vote that paves the way to the plenary vote in mid-June (June 14 as a tentative date).

Let’s now look at the main principles of the proposed regulation and how it will impact the AI market in the region.

Regulating the Development and Deployment of AI in the EU ―  Key Aspects of the AI ACT

The proposal identifies three (+1) risk categories for AI applications and applies different restrictions and obligations on system providers and users, depending on the category of the application in question:

• Unacceptable risk: applications that involve subliminal practices, exploitative or social scoring systems by public authorities. Such applications will be banned.
• High risk: applications related to education, healthcare and employment, such as CV-scanning, ranking job applicants, will be subject to specific legal requirements (e.g., ensure transparency and safety of the systems, complying with the Commission’s mandatory conformity requirements). Providers of “high-risk” systems will have obligations to establish quality management systems, keep up-to-date technical documentation, undergo conformity assessments (and re-assessments) of the systems, conduct post-market monitoring, and collaborate with market surveillance authorities.
• Limited risk: this mostly includes AI systems such as chatbots that will be subject to specific transparency obligations (e.g., disclosing that interactions are performed by a machine, so that users can take informed decisions).
• Minimal risk: applications that are not listed as risky, nor explicitly banned are left largely unregulated (e.g., AI-enabled video games). Currently, this category covers the majority of AI systems used in the EU.

How Will the AI Act Affect the European AI Landscape?

The introduction of the European AI Act has sparked discussions on its potential impact on the adoption of AI technologies. Will this regulation hinder AI innovation in Europe? The answer is not straightforward, as it depends on various factors and the evolving landscape.

AI regulation may impose compliance costs, administrative burdens, and legal uncertainty on businesses and developers. Extensive testing, validation, and monitoring of AI systems may become necessary, which can be time-consuming and expensive. There might also be limitations on the types of applications, industries, data, or algorithms used in AI systems.

However, when assessing the direct impact on AI use cases falling under the regulated risk categories, the outcome is not overwhelmingly negative. When we at IDC built a data model to verify which and how many AI use cases will be directly impacted (we considered those that would fall into the above listed risk categories) the outcome was only modest, and we have not seen the impact, defined by possible lost revenue, to be worrying.

The compliance costs and administrative burdens could be challenging for SMEs and startups, though, which may inhibit competition in Europe if larger, more established providers find it easier to comply.

Industries like healthcare, public administration or finance are likely to face more stringent requirements due to their potential impact on human life and safety. Transparency, explainability, human oversight, and restrictions on the use of, for example, biometric identification technologies are some of the obligations that might be imposed. While these requirements may limit certain applications, they also aim to protect privacy and individual rights. However, it’s important to note that this regulation offers a list of exemptions, so if you are a provider for national security interests, you may not need to worry about that too much.

On the positive side, regulation has the potential to enhance wider trust and confidence in AI systems. This is crucial in countering overhyped pop culture-fed media narratives of AI as a threat. A trusted regulatory framework always reduces legal uncertainty and creates a level playing field for businesses, public institutions and consumers and citizens. Wisely designed laws will improve the quality and safety of AI systems and will first and foremost safeguard individuals.

The AI Act aims to encourage AI technologies that align with ethical and societal values that the EU strongly supports, such as transparency, accountability, and human-centricity. It wants to stimulate research and development in these areas and promote collaboration and openness among organizations and regions. By establishing common standards and best practices, the EU facilitates knowledge exchange and expertise sharing.

Conclusion

Looking at AI regulation through the lens of healthcare offers valuable insights. Healthcare regulations ensure safety, efficacy, and patient rights. They impose requirements on manufacturers to meet necessary standards. Similarly, AI regulations can ensure ethical and safe technology use while balancing innovation and protection.

While the potential impact of the European AI Act on AI adoption and innovation may present challenges, it also offers opportunities. By adhering to the regulatory framework, AI providers can navigate the landscape effectively, gain public trust, and promote responsible AI practices.

As the AI Act progresses, it is crucial to stay updated with the latest developments. At IDC, we will closely follow the progress of the AI Act and will continue publishing comprehensive research, providing deeper insights into its implications and potential impact as we approach the EU vote in June.

If you want to know more about this, please contact the team: Lapo Fioretti, Andrea Siviero, Neil Ward-Dutton or Ewa Zborowska

At IDC’s UK & Ireland Security Summit 2023, on April 17, 2022, 60 security leaders from across the UK and Ireland discussed the key theme of the event — “Security Strategy 2023: Managing Risk to Enable Digital Business”.

The summit featured an impressive panel of speakers from our partners and the CISO community, complemented by insights from the IDC’s European Security and Privacy team. Based on the presentations, workshops, and roundtable discussions from over 20 sessions, our top five European cyber security trends are as follows:

1. Threat Landscape

Security practitioners are aware that their attack surfaces are expanding due to digital transformation, remote work, IoT and mobile adoption, and an increasing reliance upon the Web for conducting all aspects of a business. Cyber threats facing organizations are diverse and fast-changing. The ability to understand and mitigate risk depends upon having a clear view on the complexity and dynamic nature of the threat landscape. Who might the threat actors be? How are they trading in terms of selling enterprises’ credentials and vulnerabilities? Employees and contractors at organizations continue to be a point of entry for successful cybercrime. This may be credential theft or more simply end users clicking on malicious links. Standards for security hygiene must be continually assessed and addressed; for example, avoidance of the use of guessable password formats, conducting regular back-ups on different mediums including immutable data back-up and limiting the use of unsanctioned IT or Bring Your Own Device (BYOD).

Businesses should challenge the security industry on how technology vendors and MSSPs can drive security behind the scenes; so that malicious URLs and emails do not appear in the inbox or browser in the first place. Thus, security should become more invisible and frictionless.

2. The Evolving Security Leadership Role

IDC sees the CISO role as a communications conduit to the board and the C-Suite on strategic security topics. It has become important for security leaders to have expanded skills broader than the technicalities of security. The modern CISO needs the capability to understand the overall business strategy and direction: inevitably this will include digital transformation or digital business elements. The CISO must ensure that security outcomes delivered are consistent with business strategy and digital initiatives.

3. The Importance of Cyber Crisis Readiness

A senior speaker from a European government national defence agency highlighted how demonstrations of crisis response during a major global sporting occasion was a valuable exercise, as it gave leaders first-hand experience of how the response to crisis is handled in a realistic scenario. In this example the crisis response group brought in senior government officials to witness crisis response activities. Major cyber-attacks on critical national infrastructure have become national security event, and predetermined crisis centres are essential to give the most effective response to serious incidents. The key takeaway is that security leaders should explore bringing the C-suite and Board into cyber crisis simulation “rooms” to imitate a major attack and use this to critically evaluate responses amongst the executive leadership, as well as build in muscle memory so that appropriate responses are more automatic.

4. Generative AI

It’s agreed that generative AI will have a transformative effect across all aspects of the technology industry, including cyber security. Generative AI is already a major issue as far as cybersecurity is concerned, with generative AI, for example, making phishing attacks much harder to detect. Businesses and governments should be encouraged to move quickly in understanding and responding to these new threats. Unskilled would-be cyber criminals can potentially create malware code using OpenAI, and thus the barriers for entry are now lower than ever, which is driving up the number of potential threat actors and cyber-attack volumes. On the other hand, the application of generative AI can help security teams build up their defences, by applying generative AI to SOC automation and SIEM/SOAR triage.

5. Security Skills Shortages and Lack of Diversity

There continues to be a major skills shortage in cybersecurity that’s been around for a decade. There are initiatives in place to address this, but organizations must do more to address the skills shortage and lack of diversity. MSSPs and security technology vendors should lead on up-skilling and diversity in the industry, by driving training programs, internal skills transfer programs, and efforts to encourage and motivate a more diverse workplace.

Railways are becoming increasingly strategic. They are more energy efficient and pollute less than private vehicles, and they are 15 to 20 times safer than cars.

Compared with private vehicles, they do not entail any fixed cost for travellers. No wonder governments around the world are making huge investments in rail. For instance, 21 out of 27 EU member state national recovery plans have allocated billions to invest in electrification and modernisation of rail infrastructure. President Biden’s Bipartisan Infrastructure Law has nearly tripled funding for rail infrastructure — to $1 billion a year for the next five years.

Airlines struggled to survive when COVID reduced traffic to unprecedented levels. Fuel price increases and labour shortages compounded the effect of COVID by creating the urgency to profoundly rethink business and operating models, while regulators and passengers demand accelerated investment in environmental sustainability, such as more fuel-efficient traffic management, more sustainable fuels and, in the future, zero-emission aviation.

Both industries have reached an inflection point. Hiring more people and growing the size of fleets and number of routes will not be enough to increase capacity utilisation and offer more competitive and personalised services, while maintaining high safety standards and improving environmental sustainability. Achieving those strategic goals will require railway and airline executives to invest in technology innovation.

Bold Ambition for the Future Will Depend on Realising the Value of Technology Innovation

Railways and airlines have invested in technology for many years to deploy digital customer experience capabilities, such as loyalty programmes, self-service booking and mobile payments, intelligent asset and fleet management capabilities to enhance operational excellence, and scheduling of routes and dispatch to bring together high-capacity utilisation and safety.

However, our recent studies show that they are not standing still. They are now looking at the next generation of technologies, such as 5G, artificial intelligence and machine learning, IoT and edge computing, augmented and virtual reality, even quantum computing for traffic optimisation. They are not doing so for the sake of technology, but to achieve four interdependent strategic business goals:

• Increase operational efficiency, while targeting net-zero impact​
• Increase capacity utilisation by combining intelligent scheduling, dispatch and traffic control systems to increase frequency of travel and smart predictive operations to help prevent delays and disruptions 
• Ensure that efficiency goes hand in hand with safety and security, even with higher utilisation rates thanks to digitally enabled physical security systems, regulatory compliance of operations and cybersecurity​
• Increase revenue growth through innovative service offerings, often by making their services and hubs — stations and airports — the anchors of a mobility-as-a-service ecosystem

To empower railway and airline executives to make strategic choices about next-generation technology investments, implement new organisational competencies and capacities that accelerate technology investment benefit realisation, and select tech partners that understand the technical and business evolution of their industry, IDC has launched new research on railways and airlines and transportation hubs.

Stay tuned for upcoming research on topics such as ticketing and revenue management, digital twins for intelligent operations, 5G and cybersecurity.

In Europe, the primary driver for corporate sustainability initiatives is the EU’s Corporate Sustainability Reporting Directive (CSRD). It came into force in January 2023 at EU level and must be transposed into national law in all EU countries within 18 months (by mid-2024).

The EU CSRD aims to improve transparency and accountability around corporate sustainability performance. It also aims to accelerate the integration of environmental, social and governance (ESG) considerations into corporate business practices to support the transition to a more sustainable, inclusive economy.

From 2025, those companies already subject to the Non-Financial Reporting Directive (NFRD) — around 10,000 in Europe — will have to report on a variety of sustainability indicators for their FY24. In the following years, the CSRD will be widened to cover around 50,000 companies — all those listed on EU regulated markets with more than 250 employees, more than €40 million in revenues and/or more than €20 million in total assets. The directive also covers non-EU companies with operations in the EU.

Download eBook: Sustainability in EMEA: Opportunities for Tech Vendors, Challenges for Tech Buyers

The key differences to previous laws are:

• The introduction of standardised, mandatory sustainability metrics on companies’ policies, risks, impacts and outcomes relating to ESG issues
• The mandate to consider double materiality, i.e., identifying all potential negative and positive impacts on people and environment connected with a company’s own operations and its value chain
• The requirement that reported information is audited
• The requirement that reported information is digitally tagged to feed into a European single access point

Non-compliance can lead to sanctions and financial penalties, but also reputational damage.

Our recent surveys have revealed that most companies are in the very early stages of being able to meet these requirements. The measurement of value chain sustainability performance (including Scope 3 emissions and product life-cycle assessments) is very complex and requires the creation of new KPIs and respective data architectures that enable continuous data collection and analysis, real-time monitoring, automated performance reporting, and data assurance.

Register for the webcast: Sustainability in EMEA: The Challenge of Moving from Ambition to Action

Will CSRD Legislation Lead to the Same Last-Minute Rush and Soar in Penalties as with GDPR?

Remember when the GDPR came into effect in May 2018? Shortly before, there was a great rush as organisations prepared for compliance. Why? Because of the threat of severe penalties. And penalties were imposed: since its launch, hundreds of millions of euros of fines have been handed out by data protection authorities around Europe. In 2019, those fines totalled €73 million, rising to €172 million in 2020 and €1.3 billion in 2021 (source: enforcementtracker.com).

As with GDPR, CSRD legislation replaces older laws with new, stricter and better enforced legislation. While they are EU directives, both GDPR and CSRD have “extraterritoriality” enforcement, meaning regulators can fine organisations anywhere in the world if they have operations in the EU and do not comply.

The risks of not being prepared for CSRD are significant. If member states implement similar penalties or sanctions as for financial reporting legislation, organisations could face legal sanctions (imprisonment or disqualification of company directors), public reprimands or penalties, depending on the country-specific enaction.

Non-compliance could also result in reputational damage, loss of stakeholder confidence, allegations of greenwashing and legal action from non-governmental entities such as climate activists.

And it’s not just the CSRD. The EU is also working on a Supply Chain Due Diligence Directive that aims to mitigate the adverse impact of governance, environmental and human rights risks in the value chain of companies selling products within the EU. Many national governing bodies are implementing or tightening mandatory carbon emission and other sustainability regulations.

Investing now in efforts to prepare data collection, analysis and reporting capabilities will keep an organisation ahead of the curve as CSRD and other new sustainability regulations are put in place.

Reporting compliance and impacts on risk management are one thing. Forward-looking companies are going further and are acting on the metrics. They are developing disruptive strategies and road maps for sustainable business transformation that redesigns end-to-end value chains and breaks up traditional industry models.

Circular (instead of linear) economy approaches are emerging, innovation is sustainability driven and products and services are becoming “sustainable by design”. Those approaches — not yet widely seen — are the basis for future-proof organisations that will have a much lower risk profile, greater resilience and long-term strategic growth potential. And they won’t have to fear sustainability regulations.

Related Research

2023 Key Sustainability Trends and Developments in EMEA

Sustainability and ESG Readiness Among European Organizations

Other Resources

IDC Survey Finds Organizations Turning Toward ESG Software Solutions and Independent ESG Program Management

The Need for Harmonised ESG Reporting for Financial Entities

The proliferation of data is transforming businesses and public administrations, and changing consumer experiences and society. The European Union has responded to the challenge with the ambitious European Strategy for Data (2020). One of the pillars of the strategy is the creation of common European data spaces in strategic economic sectors and domains of public interest.

Europe’s strategic data spaces vision is the next stage of evolution of data sharing. Rather than happening only within the boundaries of one organisation or through bilateral contractual agreements that are costly to manage and not conducive to innovation, data sharing must scale to multilateral exchanges, including beyond industry boundaries.

Building on the experience of the European research community with the European Open Science Cloud, the European Strategy for Data proposes an additional nine data spaces. Since the EU Strategy for Data also left the door open for other data spaces to emerge, other EU preparatory actions are planting the seeds for the development of data spaces in adjacent domains, such as cultural heritage, language, media, smart cities and tourism.

The key features of data spaces are:

• Federated technology capabilities that dynamically match data demand and supply in a trustworthy and energy-efficient manner
• Governance policies and processes for secure, transparent, non-discriminatory and fair participation of every data user and data provider
• The ability to make good quality, interoperable data available within and across industries, for non-profit/altruistic purposes, for-profit purposes or both, in compliance with EU regulation

Accelerating Data Sharing

The bold vision for European data spaces still has some way to go. IDC’s research on the future of industry ecosystems (subscription required) found that over 90% of public and private sector organisations globally share data with external partners, but only 30% do it in a consistent and strategic manner, instead of only when strictly necessary and mandated by law. Among European governments, only 22% of organisations have established public-private collaborations to share data for the public interest. There are many digital sovereignty, governance, semantic and technical interoperability challenges to overcome to fully achieve the European data spaces vision. Nonetheless, many actions are accelerating the realisation of the vision:

• European Union grants funding for coordination and support actions, such as DATES
• Implementation of new regulation, such as the Data Governance Act
• Implementation of industry-specific European regulations, such as the Commission Delegated Regulation (EU) 2017/1926 regarding the provision of multimodal travel information services
• Multilateral initiatives, such as GAIA-X
• Individual country platforms that could then be federated across Europe, such as the smart tourism data platforms being developed by the Italian and Spanish governments
• Individual countries’ investments in digital sovereign computing infrastructure that can support data spaces

We expect data spaces to be realised through different architectural and operating models. For example, some of them could consist of a set of common standards maintained by a non-profit association, while others could be based on a federation of national data platforms operated by member states’ governments that build ad hoc integrations for cross-border data exchange. They could also be centred on a joint platform, owned by one or multiple large private sector enterprises that operate as the anchor for a data space.

The Role of European Government in Data Spaces

As these architectural road maps and operating models evolve, it’s important that European governments take an active role in influencing the trajectory. Governments can play five roles in shaping the future of data spaces:

• Regulator. Governments act as policymakers to set the rules (laws, policies, standards, etc.) for deploying, operating and participating in data spaces.
• Operator. Governments provide the core data space platform services such as onboarding, identity management, data aggregation, data catalogues, data access and billing.
• Enabler. Governments fund and/or provide data space platform infrastructure such as connectivity, cloud and edge computing.
• Data providers. Governments supply data to the data spaces.
• Data users. Governments consume data from the data spaces.

Senior government leaders should not just wait and see for EU-wide regulations and programmes to define the European data spaces road map. They should take a proactive approach to realise the benefits of data sharing by:

• Evaluating what role they want to play to maximise the benefits for the public sector and to incentivise private sector contribution, while setting the example in terms of protecting personal data, intellectual property and digital sovereignty
• Working with the private sector to identify priority use cases, business models, governance models and technical blueprints that accelerate deployment in a secure manner
• Collaborating with technology suppliers and academia to accelerate development of technologies that enable trusted data sharing in federated, heterogeneous environments
• Collaborating with enterprises and industry associations to prioritise the data space in which it makes sense for governments to take an operator or enabler role
• Nurturing organisational competencies and culture that foster data spaces

If you want to learn more about the role governments can play and the capabilities they need for data spaces, read our new study (subscription required) and join us at the IDC Government Xchange.

The IMF has warned that half of the European Union and a third of the world face recession in 2023. This means that economic headwinds such as energy costs and currency fluctuations are forcing organisations to reassess budget decisions.

In our recent Future Enterprise Resilience and Spending Survey (December 2022), IT leaders said they expect inflation to impact spending decisions. IT cost price increases stemming from inflation and currency changes is expected to have the greatest impact on IT spending plans in 2023.

C-suite concerns are related to IT and technology challenges. In our Worldwide C-Suite Tech Survey (August 2022), 60% of European C-suite concerns about the impact on their IT and digital spending was related to challenges coming into sharper focus as macroeconomic conditions worsen. This includes IT price increases stemming from inflation.

So how can tech vendors navigate these issues and thrive?

Planning Is the Foundation for Success

According to research by the Harvard Business Review, companies that not only survived recessions but thrived afterwards were those that were prepared and agile — those that didn’t just slash costs but invested strategically.

Strategy is essential to know where to plan resources, to determine which projects you are going to prioritise and which you are not, and to know how you are going to identify and target the opportunities that will give you the best return.

Download eBook: Essential Building Blocks for an Effective Growth Strategy

A good strategy should help you align with business conditions, so that you can be agile enough to deliver short-term savings without impacting long-term growth.

Informed Decisions

Data becomes more important in volatile and uncertain economic situations. Economic conditions can impact regions and industries differently. Knowing the factors that might impact the market(s) you are selling into is crucial.

Those who are buying tech is changing, with European tech spending moving from the IT department to the C-suite. In Europe, 47% of IT spending is now C-suite funded (source: IDC Worldwide IT Spending Guide: Line-of-Business Forecast, January 2023, European forecast).

Download eBook: Speaking the Language of the C-Suite: Selling Beyond the IT Department

This is an example of how data can give you insight into your customers and how they are buying. Knowing who is buying, where they are spending and what is impacting spending decisions will help you build an effective strategy.

Data-supported decisions are key to effective resource management both internally and externally.

This means you need to know who is buying in your market. Which markets or industries are more resilient? What are their drivers and challenges?

Adapt and Invest

Times of economic uncertainty can also be a time of possibility. Microsoft, Instagram and Airbnb, for example, were all formed during or just after a recession.

Technology is an area where businesses tend to continue or increase spend. 66% of European C-suites believe that IT budgets will increase, even during an economic downturn (source: IDC Worldwide C-Suite Tech Survey, August 2022).

According to our Digital Executive Sentiment Survey (October 2022), European organisations now expect more than 50% of their revenues to come from digital business models on average in the next three years.

Technology is often seen as a critical business differentiator to better deliver business outcomes, increase resilience and accelerate revenue growth. So while caution may continue while the economic outlook is uncertain, investments in projects that improve efficiencies are continuing. According to the Harvard Business Review, prioritising digital transformation and digital technology can help cut costs and improve efficiencies.

In an economic downturn it can be harder to achieve growth, as you have to do more with less. It can also be harder to get customers to spend, so you must ensure that you are targeting the opportunities with the best chance of success.

But there are opportunities. So what you do and where you allocate resources becomes increasingly important.

You need results. To be proactive rather reactive, but still agile enough to pivot to changing market conditions. An effective strategy is essential to that.

Visit our website for more information on how we can help you build for growth.