The requirement of electing digitally aware and savvy corporate Board is becoming increasingly critical. As Board Directors continue to assess their oversight role towards digital transformation initiatives, it is often observed that Board members may not have full understanding of the scope and scale of digital transformation, the competitive landscape and how to stay relevant, need for self-education in this area, the realignment of Board structure to address technology as the business driver, and a continual assessment of organization talent and leadership.
NACD in collaboration with Marsh & McLennan Companies, recently published research results from interviews with corporate Directors on opportunities and needs for Board Governance for Digital Transformation. The research indicated five principles for Board focus. These are:
- Approach emerging technology as a strategic imperative, not just as an operational issue.
- Develop collective, continuous technology-specific learning and development goals.
- Align or re-align board structure and composition to reflect the growing significance of technology as a driver of both growth and risk.
- Demand frequent and forward-looking reporting on technology-related initiatives.
- Periodically assess the organization’s leadership, talent, and culture readiness for technological change.
For each principle, the report identifies specific oversight pitfalls, and for each pitfall, the indicators and recommendations for addressing the indicators and the underlying drivers. For example, one oversight pitfall in approaching emerging technology as a strategic imperative, item 1 above, is management presentation often overly focused on technology adoption and deployment and not necessarily on customer centered benefit yields. The recommendation to alleviate this pitfall is to structure initiatives and presentations from a customer benefit realization perspective.
Also identified are specific questions for the Board and Management for each principle. For example, for item 1 above, the Board focused questions are:
- Is the Board comfortable with the understanding of the implications of technology driven disruption on strategy and industry? Do directors grasp how emerging technologies could affect or even invert existing business models?
- Are Board-level discussions regarding technology appropriately balanced between enabling business growth and preserving business value?
- Which emerging technologies seem over-hyped or over-sold in their potential to transform the business?
- Do directors have a shared understanding of the meaning to “go digital” to transform the enterprise? Have they clearly delineated the oversight role of the board with regard to emerging technology and digital transformation?
An example of the corresponding Management focused questions are:
- How is management expecting specific emerging technologies to transform the business? What is the business value of the emerging technology considered for adoption?
- What emerging technologies are the most concerning and why? How soon will they significantly impact core business?
- How do some of the new emerging technologies impact overall company strategy? How does management assess strengths and weaknesses relative to current or potential future competitors? What would be the worst-case scenario should competition advance with digital transformation? Are there competitors that are not on the radar?
- What are current innovation models? Are there potential partners not considered who might help scale innovation quickly and help differentiate from competitors?
This report is available at the NACD and is a good read for organizations planning or undertaking digital transformation.