Perspectives for a Digital-Ready Board
By Ramesh Munamarty and Robert Webb
Why it is critical for Boards to be onboard with Digital?
According to Gartner 2021 “CIO Agenda”, 69% of Boards report accelerating digital business initiatives in response to Covid-19. As McKinsey’s Sep 2019 report indicates corporate crisis has become a modern-day’s rite of passage for the Board of Directors and the executives.
Are Board of Directors clear about their roles and responsibilities in a crisis?
Crises are an ever-present threat that can strike any organization, however well they apparently are run. A crisis scenario is the ultimate stress test of resilience for any company, board or executive. However, in a recent survey it was found that fewer than 25% of directors have regular discussions regarding their roles and responsibilities in a crisis. In this time of unprecedented technology changes, boards are grappling with how to ensure that the new risks and opportunities, emerging from a diverse set of digital forces, are understood and factored into the strategy.
Boards have traditionally played more of a fiduciary role and are in a delicate position as they need to be well versed in digital in order to challenge the CEO and CIO on the strategy and risks related to execution. A number of organizations have embarked on some form of digital transformation. However, less than 10% of the 1400+ organizations surveyed by Deloitte in 2018 can be classified as Digital Vanguards - where organizations have a clear digital strategy and IT is perceived as a market leader. For such Digital Vanguards, stakeholder communication is paramount. Around 38% of the Digital Vanguard CIOs met with the board on a monthly basis and around 65% of them report strong or very strong relationships with other business functions and with customer-facing functions.
Having at least one tech-focused board member will increase the likelihood of success.
A study of US public companies that are high-performing S&P companies (who outperformed S&P 500 by 10% or more over 3 years) are nearly twice as likely to have at least one tech-focused board member than lower performers. There is a high degree of reliance on this board member for everything that it is digital. In order for the oversight to be effective, communication needs to be a two-way street between the Board and the CIO. Boards need to be more forthcoming in needing to discuss digital, and CIOs need to build their credibility with functional and C-Suite leaders to be able to discuss digital, innovation, risk, cybersecurity regularly and have a constant dialogue to leverage technology to drive business value.
Are we expected to increase spending on innovation?
The first step for the executive team is to make sure that the technology investment decision making process is jointly done between the CIO and the other business leaders and there is a clear structured process to measure the return on investments. It is important to constantly measure how much of the budget is being spent on operations (“keeping the lights on”), vs. value-add activities to drive business outcomes and finally the allocation to Innovation. Digital Vanguards expect the spending on innovation to move to 38% in the coming years and the operations cost reducing to about a third of the total budget.
Do we need to think more about Governance, Risk Management and finding a right Talent?
In addition to making sure there is good governance to make sure right investments are being made, and that the risks for execution are appropriately managed/mitigated, it is very important to make sure that the organizational culture attracts and retains top talent. In order for technology organization to have strong stakeholder buy-in, there needs to be a good balance of technical and soft skills which is not easy to find. 60% of the CIOs surveyed report difficulty in finding such talent and said that they are relying on external partners and service providers for key talent.
In the past, boards had one Digital Director who was relied on extensively on all matters related to digital but it has become impossible to have that kind of reliance on a single individual. In a recent report by Spencer Stuart, Adam Crozier, Chair of Whitbread, said that it is a mistake to approach digital as being adjacent to the core business and that it is at the heart of what you do. Other Board chairs also opined that having a single digital director is not enough anymore. As a result, you want people on your board, who have either driven digital disruption or lived through it.
Some strategies that the Boards can take in order to be effective are:
- As the business landscape evolves and technology is becoming integral to the business strategy, a number of boards are forming a new Technology committee in addition to the big three – Audit, Compensation, Nominating and Governance. The key aspects of focus in this committee is on innovation, technology and cybersecurity.
- Pair directors with executives to be their “technology buddy” to keep them abreast of the underlying technology used to drive business outcomes
- Scale up director education on constantly evolving digital tech and the challenges/opportunities faced by the company and the wider industry
- Assemble an Advisory board – these have become increasingly popular to tap the expertise of a select group of experts to help the board on Digital business development, cybersecurity and assessing the effectivity of the IT systems. A growing number of companies are choosing to set up technology/digital advisory boards to cover the broad spectrum of digital issues with external SMEs. According to the study done by Spencer Stuart “These advisors are unencumbered by the fiduciary responsibility of the BoD and can focus exclusively on educating and advising boards on how best to deal with challenges facing their industry and company.
- Call upon external advisors to lead sessions with the board
- Leverage next-gen experts – have younger employees present on latest tech to the board
- Benefit from Silicon Valley – Invest in digital start-ups and send the executives and non-executives to Silicon Valley annually to catch up on the latest trends.
In conclusion, boards’ effectiveness will be based on the degree to which they are able to keep pace with the digital technology trends and ensure that the management is fully capable of capitalizing on the opportunities and mitigating threats.