Disruptive innovation has a clear impact on the half-life of companies’ business models, and industry disruption and digital transformation present opportunities and risks that are shaping—and speeding up—business model changes.
To gain perspective on this important area of board oversight, Protiviti met with 20 active directors during a dinner roundtable at an August 2018 NACD event to discuss the board’s oversight of industry disruption and digital transformation. Here are some important takeaways from that discussion.
Evaluate digital readiness. Digital leadership requires a certain state of mind. Digital leaders change the way an organization acts and thinks in everything it does. To be successful, digital leaders must prepare their organizations to compete in the digital age. They must also assess how advanced digital know-how is across the company. Is the organization a follower or a leader? If it is a beginner or a skeptic, does the board encourage management to advance its digital maturity? Can management identify and act on strengths and weaknesses across the business in the context of the digital vision, mission, and strategy?
Management can have the best possible strategy, but the organization can’t execute if it is not digital-ready. It is also difficult to formulate a viable strategy if the organization is not digital-ready. It helps if the company benchmarks itself against the competencies at which digital leaders excel to better understand the path to achieving digital readiness. Protiviti offers a framework to help organizations conduct this assessment.
Understand what transformation entails. To probe management for answers to questions about the company’s advancement as a digital entity, directors should prioritize digital familiarity and literacy in their own development as well as ensure they have access to digital-savvy experience. True digitalization starts at the core. The board, therefore, must transform itself before it can offer effective oversight of the organization’s digital journey. Just as a strategy that attempts to layer technology on an analog business doesn’t work, neither can a board consisting solely of directors who grew up in the analog age contribute effective oversight without substantive steps toward digital literacy and digital savvy.
One option may be to form an innovation committee with technology, digital, and transformation experts as members. Another is to include directors with the requisite technology expertise on the board to complement the directors who grew up in the analog age. Yet another option is to engage outside advisers to inform the board with relevant perspectives.
Focus on resiliency and agility. In the digital era, good governance may need to be different than even five years ago. Boards need to sharpen their focus on innovation initiatives and on changing the organization’s mindset concerning digital initiatives. People and culture are the keys to success in digital transformation. If an organization has effective digital leadership, enhances the digital capabilities of its people, and creates a corporate culture that incentivizes and empowers creativity and innovation, it will become a truly digital organization. Changing the mindset also requires effective communication by management of a compelling narrative regarding the company’s focus on digital transformation and the need for change.
The board can play an important role in fostering a resilient and agile mindset by allocating sufficient agenda time to discussing the company’s innovation strategy and culture and encouraging open discussion on direction and progress. This requires constructive engagement with management and broader, more diverse perspectives regarding how the organization should embrace digital culture opportunities. The dialogue should be supported with appropriate innovation-specific metrics that tell the full story of how the strategy is performing, what the return on investment is, and how effective the company’s innovation culture and capabilities have become.
Keep an eye on the customer experience and competitive advantage. How can directors ensure that management has its act together, has the right team and competencies in place, and is taking the organization down the right path? A customer-centric approach to digital strategy breeds confidence that the organization is making the right moves.
Success in executing on digital initiatives is about knowing the company’s limitations and avoiding procrastination on making the difficult decisions to address those limitations. A strong focus on the customer is a powerful driver for moving forward. For example, data strategy and legacy infrastructure issues (e.g., technical debt) are examples of difficult problems that are often ignored. But with a commitment to enhancing the customer experience and commanding customer loyalty, companies can overcome this inertia and do what it takes to remain competitive.
Ensure there is a compelling plan that fits market realities. The board needs to ensure that management formulates a viable plan for managing business disruption and transformation and executes that plan. This isn’t easy given the uncertainty in determining the appropriate technologies to embrace, new products and services to offer, strategic supplier and distribution channel partners to engage with, and changes to make in the business. Under the auspices of the board, management must measure and monitor progress. As noted earlier, a digital readiness assessment can help by clarifying the organization’s strengths and weaknesses so that management knows where to focus on its journey to digital maturity.
Consider humane digital transformation. A clear and coherent strategy is needed to address worker dislocation and displacement. That was a critical issue during the NACD event, which no one took lightly, and several participants continued to discuss it after the roundtable concluded. Currently, the answers are elusive.
For a more complete look at this roundtable, including key takeaways, read Protiviti’s full summary of the event.