In the new digital world, tech savvy board members are a competitive necessity

Since 2000, over 50 percent of Fortune 500 companies have been acquired, merged or declared bankruptcy. Any company that cannot or will not transform itself into a digital enterprise faces an existential threat to its existence. The unprecedented waves of disruptive digital technologies including social, mobile, cloud, data analytics and smart devices are redefining how companies engage with every one of their critical stakeholders. Simply put, go digital or go home.

The business landscape is littered with companies who either couldn’t or wouldn’t make the critical decisions to shift their business and operating models to accommodate a new wave of competitive challenges as shown on the slide below:

Is your company a digital leader or a digital laggard?

As I wrote in an earlier blog, the 2017 New Rules of the Digital Age report from Deloitte found that only 5 percent of the companies surveyed said they have strong digital leadership development programs and 65 percent said that had no programs to drive digital leadership skills.

To compete as a digital enterprise requires starting at the top with the CEO and Board agreeing on the right digital strategy for the company and a game plan to implement it. That being said, I found the results of a 2016 Deloitte board composition study very revealing and very troubling. The study documented that even among the highest performing S&P 500 companies less than a third have a technology savvy director as shown on the slide below:

Further the study highlighted that only 3 percent of all public companies appointed a technology savvy director to newly opened board seats in 2016 as shown on the slide below:

Analyzing these results makes a very compelling case for the vulnerability most companies have to digital disruptions that could diminish their competitive viability and ultimately undermine their very existence.

Building board level digital expertise

In a 2015 McKinsey survey, only 17 percent of directors said their boards were sponsoring digital initiatives and only 16 percent said their companies fully understood the impact disruptive digital technologies could have on the company’s performance. For example, it took P&G’s Gillette razor brand over two years of continuous market share loss to online upstarts Dollar Shave Club and Harry’s before they took corrective action.

These statistics underscore the glaring truth that most boards do not have the digital expertise to have meaningful discussions about how the company can and should prepare to compete as a digital enterprise. One challenge is that there aren’t enough “digitally qualified” directors to go around so companies need to look at other alternatives such as digital technology sub-committees and advisory boards as well.

Here are some suggested starting points to build higher levels of digital expertise on your company’s board:

  • Make digital transformation a regular item on the board agenda and use it to help educate board members as to the scope and disruptive impact digital technologies are having across multiple industries.
  • Take the board on a digital road trip to Silicon Valley and other centers of disruptive technologies. Schedule meetings with VC firms and digitally savvy companies so they can see and hear first hand the breadth and scope of these new digital technologies.
  • Start developing a new narrative for the investor community as to how the company will change the way it makes money in a digitally transformed economy. Digital startups are better at convincing investors to postpone earnings per share than well established companies with a long track record of quarterly earnings growth and sustainable dividend payments.
  • Conduct a companywide digital technology talent assessment to determine the current level of digital transformation skills and capabilities. Based on that assessment, gain the board’s support to develop a program to grow your digital expertise through new hires along with the training and development of current employees.

Starting the digital transformation dialogue with the board

There is nothing more compelling to start a new dialogue than an imminent threat to the very existence of a company like the moment Amazon bought Whole Foods or Uber and Airbnb changed the competitive landscape in transportation and hospitality.

Another way to get the boards attention is to provide a stark contrast between the performance of your company and a disruptive competitor. For example, Tesla’s market capitalization is roughly equal to General Motors even though its revenue is one-twentieth of GM’s. Tesla’s digital technology based business model continuously collects data from its vehicles and uses machine learning to improve predictive maintenance, self-driving capabilities and anything else that enhances their customers’ driving experience. Today a consumer can configure and purchase a customized new Tesla from the company’s website in eight minutes. Hopefully this subject matter is on GM’s board agenda today.

Here are a series of questions that I think can serve as a good starting point for a digital transformation dialogue with the board:

  1. How long can the company’s current business model deliver its desired business growth goals and financial results?
    • How sustainable are the company’s revenues, margins and net profits?
  2. How vulnerable is the company’s business model to being digitally disrupted?
    • How quickly could the company respond to this digital disruption?
  3. How well can the company leverage digital technology for increased competitive advantage?
    • How robust is the company’s digital technology pipeline?
  4. How open is the company’s culture to changing the way it does business?
    • How capable is the company at competing as a digital enterprise?

As always, I am interested in your comments, feedback and perspectives on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com