PART 1: Why You Need a
Digi-Savvy Board of Directors
(First in a series of articles on digitally transforming your company,
starting with the Board of Directors)
There are no short cuts to the future in the digital age. You need to establish a sustained innovative culture, starting at the top of the enterprise, in the Boardroom.
Today's high-performance companies fixate on Digi-Transform strategy. They have seen the future and are enthusiastic and decisive about what needs to happen, by whom, by when, and why. These forward-thinking dynamic and decisive executives confidently figure out how to digitize the Boardroom, the C-Suite, and the company at large. They know how to plan for and embark on a genuine Digi-Transform journey.
Just a few such leading-edge Boards and CEOs are blazing a trail, following a customized digital roadmap, with distinct milestones and short deadlines. They are in a hurry, while keeping an alert eye on existing and upstart competitors. But they never look back. Their eyes are fixed on a moon-shot goal to reinvent their company.
Digital Directors ask tough digital questions. Bringing in-depth experience to their role, they typically have served as change agents if not full “digital transformers” responsible for driving large-scale change (such as turnarounds). They bring both a fresh perspective and digital competence. These intent change agents pose challenging questions such as:
- How can we best meet fast-changing customer expectations?
- Do we have the speed, technology, and digital skill set to transform?
- Do we need to bring in outside expertise to Digi-Transform properly and successfully?
Digi-Transform: What is It Anyway?
It is important to understand what Digi-Transform is ... and what it isn't.
- Digi-Transform is Customer Driven. It is about meeting new and fast-changing digi-savvy customer expectations and giving them a "wow" experience. To begin, you must analyze and evaluate how the customer journey is changing, and the degree to which customer satisfaction is declining -- as it surely will be (along with market share) if you are not keeping up with the digital customer. In turn, that will give you ample evidence of your need to Digi-Transform. Conversely, as Digi-Transform proceeds, you will see rising customer satisfaction, new customer acquisition, climbing lifetime customer value, rising sales, and vastly improved performance indicators, including market share and profit (see later).
- Digi-Transform is not only IT Driven. Upgrading legacy systems, as we know, greatly enhances processes with added value by reinventing them, while scrapping others. But if the digital customer is left wanting, then that alone is not a long-run solution. You absolutely cannot leave this to IT alone.
- Digi-Transform is not just for Tech Companies. Without question, exceptional opportunities exist in all industry sectors, B2B and B2C, and in fact for any organization that is in any way serving the public.
- Digi-Transform has a Common Cultural DNA. Every company, regardless of sector or size, must transform. There are no ifs, ands, or buts; you cannot wait and see. That means you must change your organizational culture so that everyone lives and breathes digi-transform, 24/7. They come to work each day to enhance the digital customer's experience.
- Digi-Transform is Time Sensitive. There is an urgency to launch Digi-Transform and it requires a specific strategy, goal, and time-lined roadmap, with executive mandates that achieve all objectives on time.
Digi-savvy Directors are a rare breed. Even today's leading-edge highly-digital companies have only one or two "digital directors" while laggard companies have none. Indeed, the vast majority of Boards remain “Non-Digital.” They are asleep at the helm. No more than 10% of Boards can be classified as “Highly Digital,” with another 10% being somewhat digitally aware. But 80% of companies lack even basic digital representation on their Boards.
Digital must be seriously and consistently thought about, and studied. Where this is not the case, but digi-transform is simply read about perfunctorily in articles, Board members and executives are nervously looking over their shoulders at upstarts and shrugging, either dismissing the threat, or feeling helpless about what they should do. Such companies are doomed to be digitized out of business.
In some 90% of companies, digi-transform efforts are far too slow or conservative, even non-existent, preventing the company from innovating effectively and causing them to fall behind in the market, as follows:
- Laggards: 20% of companies are complete laggards, oblivious to the digital revolution, and seriously falling behind in their market. Unless they wake up and re-invent themselves fast, they will simply wither and die.
- Conservatives: 35% are die-hard conservatives that are risk averse and put extreme prudence ahead of innovation. They are somewhat aware of the digital revolution, but if they do not move soon, they too risk being disrupted right out of business.
- Slow Learners: 35% are slow learners, doing a few digital applications. But most of them tiptoe around the edges, putting on a show but achieving barely anything of consequence. They also are too slow and thus will miss valuable opportunities, unless they speed up very soon.
- Leading-Edge: 10% (at most) are leading-edge digi-transformers. The true pioneers in this group are vastly out-performing their industry competitors (see later). As mentioned, a few even have some digi-savvy members on their Board of Directors. And they are delivering exceptional performance results.
Most Boards are Simply Not Ready for Digital
Why is the pace of digital change in most companies so dismally slow? In surveys, only 38% of CEOs even have digi-transform on their priority list. Only 40% of CIOs are digitally engaged. Engagement is far worse for CMOs (31%) and CFOs (17%), and sits at a lowly 14% for Boards of Directors (see table below).
Digi-Transform efforts are being held back by the Board, and even by the CFO despite the fact that a shift to digital business correlates with higher revenues and profitability. Boards significantly lag the C-Suite in prioritizing what is their company's single largest opportunity.
This is mainly because Directors lack digital expertise. One study found that at least 80% of Board members are not at all digitally savvy. According to Forrester Research, this is due to two false assumptions by Boards: that Digital is IT's problem; and that these Boards falsely and arrogantly believe that they do have command of the issue.
The digital presence on Boards is only in its infancy and seriously lags what is essential, based on a study of the 110 largest public companies in USA and Europe by Amrop. Even the Boards of tech companies have only 36% of Directors who are digi-competent. On non-tech Boards, the representation is a paltry 5%. By contrast, traditional financial acumen is 3 times more prevalent than digital competency, regardless of industry. As an ex-banker and a public company Director with Audit Committee experience, plus Interim-CEO experience, I suggest that financial acumen and digital competency are of equal importance today.
Boards typically are change averse, due to an over focus on risk rather than opportunity. Digitization does demand a risk-tolerant culture. Yet, to be frank, the Board role of focusing on risk is itself too risky in these revolutionary times. Fear of failure and strict governance practices in fact suffocate the essential innovation which must occur.
By contrast, Digital Boards are committed to change and Digi-Transform. Even if they have some digi-savvy Directors, they look outside to bring in digital competence and expertise for help and perspective. That enables them to develop the necessary digital competence to bypass shortcomings (and excuses) to achieve Digi-Transform on schedule, and with superior performance results. (This will be explained in detail in a subsequent article.)
Making the Case for Digi-Transform:
Outstanding Performance Advantage
Forget trying to make a detailed case analysis to justify the investment in Digi-Transform. Being customer-driven, the benefits of Digi-Transform are beyond question. Companies that embrace Digi-Transform are outperforming their peers across the board (as amply demonstrated by a recent 200-company study by Capgemini and MIT; see table below).
The exceptional performance of digi-savvy companies is striking. They are way ahead on revenue generation, profitability, and market cap. On average, they:
- Achieve 26% more profit
- Generate 9% more revenue
- Enjoy 12% higher market valuations
These numbers are astonishing; the data speaks for itself and is beyond argument. Other studies show even more spectacular results. For example, companies that focus on customer experience generate 60% higher profits (Gartner study) and boost company value by 30% (Bain study). What is left to be discussed?
In the face of this standout performance excellence, it is impossible to justify not proceeding to Digi-Transform. And don't say your company is different, or that it is not a tech company, or that it cannot possibly match these results. Dismal past performance is not an indicator of what is possible after Digi-Transform. Frankly, not to proceed is to sign the company's bankruptcy filing. This is not an over-statement.
Every industry faces an array of new digital challenges but also major opportunities. Yet most companies are burdened with weak Board oversight, unqualified management, inflexible tech, and outmoded cultural legacies that leave them transfixed, unable to adapt and transform. Unless they mature digitally, such companies simply will not be digitally competitive. They will not survive.
So what accounts for the above-described performance differences? Simply put, the outstanding companies are more digitally savvy and intense; they are more digitally mature.
Digital maturity depends on three main aspects (as listed at the foot of above performance table), as follows:
- Winners Have Digi-Savvy Directors, who either are existing members who have serious Digi-Transform expertise, or are new digi-savvy Directors brought in from outside. In either case they often are supplemented by guidance from external Digi-Transform Advisors to the Board, and/or C-Suite (this important aspect will be discussed in detail in the next article in the series).
- Winners Have Digi-Transform Tech Intensity, where tech-enabled initiatives change how the company thinks and operates - its business model, processes, and customer engagement. Some companies are investing, but it is ad hoc and they are uncoordinated in their digital initiatives, so they are floundering, unfocussed, and failing. Digital intensity also boosts growth by weeding out unproductive activities and moving into better opportunities.
- Winners Have Digi-Transform C-Suite Intensity, where digi-savvy CEO and C-Suite leaders know how to drive change across the company, based on a Digi-StratEDGY vision to capture the future, plus a digi-savvy Board to oversee the effort. Digi-StratEDGY is my term to describe "leading-edge" (or EDGY) digital strategy. It is leading-edge because it is truly futuristic, and hence future proof. (The C-Suite will be covered in a separate article in this series.)
Summary: Time to Re-Invent Your Board
It is way past time to completely Digi-Transform your company, regardless of your industry or business type. And this shake-up must start at the top, in the Boardroom.
- If you are serious about being successful in the new era, your Board of Directors needs to become Digitally Competent without delay.
- You most likely will need to bring in outside expertise in the form of a Digi-Transform Advisor to accomplish everything required.
How best to do all this will be explained in the next several articles.
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Copyright 2016, Frank Feather