Being digitally conversant in an era of digital transformation is quickly claiming Board attention.
Being digitally conversant in an era of digital transformation is quickly claiming Board attention. Most companies are looking to use technology to improve business models, customer experience, operational efficiency, and more. Boards must help them move forward at a sufficient pace, advocating for change, supporting and sometimes nudging CEOs.
In this podcast, Dr Sabine Dembkowski, Founder and Managing Partner of Better Boards, discusses crucial issues to consider when creating a digitally savvy board with Peter Weill, Senior Research Scientist at the MIT Sloan School of Management and Chairman Emeritus at MIT Center for Information Systems Research (CISR).
Some of the key takeaways of the conversation include:
“What is this secret sauce of being digitally savvy?”
Peter starts by explaining that after studying the digital savviness of all the boards of U.S.-listed companies, only 24% of those companies were digitally savvy. Yet those companies outperformed the rest, with 30% or more higher revenue growth, return on assets and market cap growth.
After evaluating digital savviness, he and his colleagues at MIT CISR used machine learning to download and measure from the bios of all board members how digitally savvy they were, scoring individuals first, then entire boards. Some large industry differences were noticed, such as 57% of boards in the information and media industry were digitally savvy, but only 24% in retail and 13% in financial services.
“It takes three to digitally tango”
It can be difficult for boards to find digitally savvy talent, Peter accepts, but not impossible. He explains that recruiting one or even 2 such board members makes no measurable impact on performance, but companies with 3 digitally savvy directors had significantly increased performance. He suggests this type of talent for boards might be found in former or sitting Chief Information Officers, who are increasingly joining boards. He also recommends looking for members in industries that have transformed with digital very quickly, such as media, telecoms, information businesses, and technology businesses. Another place to look is venture capital companies, with digital company founders now sitting on boards of larger organisations.
“Companies really should be focusing on selling outcomes, not inputs, selling X as a service and digital partnering”
Peter feels there are 3 opportunities of digital. The main opportunity is to better serve customers with an improved customer experience, reducing cost to serve, and reducing friction not only in the customer experience but also in the experience of employees who serve those customers. Also, there is opportunity for new business models, such as selling outcomes, not inputs. Most companies sell products, but what customers really want is the benefit or result of those products. Finally, digitally selling what a company does best, known as “X as a service,” embedding what they are great at in their customers platforms (e.g. selling anti-money laundering AML as a service). Finally, he mentions digital partnering (computer-to-computer partnering), which opens up tremendous new opportunities.
“It’s the 50% of time on strategy that we see makes a big difference”
Peter cites a study done by he and colleagues at MIT CISR that found boards have three key roles in digital. Firstly, strategy – business model disruption and opportunity. Secondly, oversight – overseeing major technology projects and spending to ensure value is delivered (which he feels should be automated in a dashboard as much as possible). Lastly, defence – cyber data privacy and regulations (typically by risk committee or sub-committee). He believes that the most important thing a board chair can do is to manage the agenda so that they spend the right amount of time on each role, with a good breakdown being 50% on strategy, 15% on oversight, and 35% on defence.
“A digital strategy is a business strategy; it shouldn’t be separated”
Peter advocates a common language, where boards and management teams use words in the same way, selecting a handful of frameworks and using those consistently as a common language. He also reiterates the need to hire new digitally savvy board members, and while board “refreshment” presents an opportunity, it is small relative to education. In his experience, board members are extremely curious, and fast learners, and providing education around digital for them is important.
He does accept that there is a correlation between age and digital savviness, but this does not make younger candidates necessarily better directors, as they have less experience in other areas. He advocates diversity on the board, and helping sitting directors become more digitally savvy as well as recruiting talent.
“One of the best things a board director can do is ask questions”
Peter describes several pathways to ready companies to be digitally competitive, and notes that the worst progress is being made by companies who are on multiple, uncoordinated pathways. Board members should query this. He also believes that one of the most difficult but necessary changes is changing decision rights, and boards can also question this. Digital is all about value, and dashboards should measure two things, value creation and value capture. Only about half the value created from digital by companies is captured in the bottom line.
The three top takeaways from our conversation are:
Identify digitally savvy directors, or make a plan to get them.
Actively manage agendas to allocate the right amount of time to strategy, oversight and defence – with a goal of 50% of time focused on digital strategy issues.
Create a common language at the board and top management team level, with a dashboard that measures value capture over time.
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