May 22, 2019
In the digital world,
getting the board on board is a strategic imperative
To successfully 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 is virtually impossible to do if the majority of board members are not digitally savvy.
A recent study using machine learning analysis by the MIT Center for Information Systems Research showed that out of 1,233 publicly traded companies with revenues over $1 billion only 24% had board members who were classified as technology experts.
The study went on to document that those companies who had three or more digitally savvy board members outperformed companies delivering:
- 17% higher profit margins
- 38% higher revenue growth
- 34% higher return on assets
- 34% higher market gap growth
Lastly, the study showed a wide variance of digital savvy boards across industry sectors as shown on the chart below:
Source: MIT CISR analysis of 1,233 publicly traded companies with revenues over $1 billion
Deploying digital technology is paramount to success
Sheila Jordan, SVP and CIO of Symantec, firmly states that “there isn’t a single strategy in any business that isn’t enabled by technology. Technology is the common denominator in every single key strategic imperative in every company.”
Against that backdrop, two recent CIO surveys from Deloitte and one by the Harvard Business Review present some very disquieting results:
- Deloitte’s 2017 study found that less than 10% of S&P 500 companies had a technology board committee and less than 5% had appointed a technologist to a newly opened board seat
- Deloitte’s 2018 study found that in the average organization only 18% of the technology budget was spent on developing new digitally enabled business capabilities with the balance being spent on business operations and maintaining existing systems of record.
- A 2018 HBR survey asked 5000 board members around the world what activities they thought their boards were good at. Technology and innovation ranked 17th & 18th.
Scott Bonham, a board member at Loblaw Companies, Magna and Scotiabank, says from his experience “it is imperative for board members to understand these disruptive changes as they relate to technology and actively guide the organization to go beyond traditional IT conversations and leverage technology to grow the business.”
It’s essential to create an ongoing digital technology dialogue with the board
There is nothing more compelling to start a dialogue with the board than when the company is faced with an existential threat to its existence like when Amazon bought Whole Foods or Uber and Airbnb changed the competitive landscape in transportation and hospitality.
A more proactive approach is to start a dialogue with the board around some core framing questions such as:
- How does our company become a digital enterprise without compromising our customer relationships, our brand value proposition and our employees’ well-being?
- How does our company look and operate as a digital enterprise?
- How open is our culture to changing the way we do business?
This proactive approach also provides the opportunity to reframe the dialogue around business model risk and value creation rather than just the basics of technology itself. As one director said, “If you don’t step outside and see what ‘better’ can look like, you can actually think you’re doing pretty well.”
What does better look like?
The MIT study identified three critical factors where digitally savvy boards positively impacted the company’s performance:
- Individual board members had an “enterprise level” understanding of digital technology and how it could enable new business models, improve customer experiences and create more efficient operations
- Those companies with three or more digitally savvy directors significantly outperformed companies with fewer than three digitally savvy directors
- Digitally savvy board members used their knowledge, experience and insight about technology trends and transformations to help senior business leaders explore “the bigger picture facing the business.”
The other ways companies increased their digital acumen that directly impacted their competitive performance included:
- Actively increasing the number of digitally savvy board members
- Establishing a digital technology board committee
- Including digital technology topics on each board agenda
- Having board members make visits to “born-digital” companies and established companies who have successfully deployed digital technology
- Providing digital technology educational tools and continuous learning forums
As the chart below illustrates, increasing the breadth and frequency of interaction with board members is critical to elevating the digital technology dialogue to a strategic level and how the company can leverage these new technologies to accelerate value creation for its customers, employees, supply chain partners and other key stakeholders.
Getting the board on board to support technology’s strategic potential is essential for any company that wants to compete as a digital enterprise. Increasing board members knowledge and understanding of the multiple ways digital technology can create business value and impact company performance also elevates IT from a cost center support function to a full strategic business partner role.
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 here. And, if this content could be useful to someone you know please share it here:
