Are boards on board with digital?
Blog post by: Turid Elisabeth Solvang, Founder & CEO FutureBoards.
We are in a perfect storm of perpetual change. Around us, technology, business models, and markets are transforming at unprecedented speed, changing the very bones on which business and industry are built. Boards must learn while on the watch to navigate these unfamiliar and treacherous waters. What is at stake is their company’s future.
Over the past couple of years, the boardroom buzzword has been “digital disruption”. And no wonder, for it is estimated that in every industry sector, one third of all companies will be disrupted in the next two – yes, TWO – years! We may not know what our future brings, but we can be quite certain that it will be different, and that the changes will affect both the composition of boards, and the way boards work.
AI in the board room in less than eight years
Last year, the World Economic Forum asked 800 technology executives which technology tipping points they expected to have occurred within the next decade. You will not be surprised to hear that 6 out of 7 experts expected the first 3D printed car to be on the road by then. But did you know that they also think the first transplant of a 3D printed liver to a human will have taken place? And are you aware that nearly half of these executives and experts believe that the first artificial intelligence machine will have taken its seat on a corporate board of directors less than eight years from now?
Klaus Schwab from the World Economic Forum has dubbed the era we are in “The Fourth Industrial Revolution”. He is convinced that we are currently in the early phase of a revolution which fundamentally alters the way we live, work, and relate to others. This should be of high interest to board directors. For at the end of the day, the company’s success or failure is on the board’s plate.
Digital competence is needed to fulfil boards strategic role
Board work is not an exact science. It is a string of subjective assessments and decisions about risk, threats and opportunities. The privilege – and the responsibility – of having the final say in vital strategic decisions, belongs to the board. Making the best subjective call requires good foresight, and good foresight relies on both cutting-edge expertise and the wisdom won from long experience. In that context, where does an AI robot fit in?
The board of directors’ responsibilities are twofold: charting the company’s strategic direction and keeping tabs on company management. To fulfil either role, the board needs to be up to date on global and industry trends and opportunities, and have sufficient insight to understand the reasoning behind management’s decisions, as well as the experience to know when to support management, and when to question their decisions.
But – in a perfect storm of change – how can boards of directors ensure that their companies are poised to take advantage of the opportunities offered by new technology and business models, whilst also containing risk and retaining relevance? In such as setting, how can board directors add value to the company’s decision making?
Well, digital competence certainly is key. For unless they are on top of digital developments, how can boards fulfil their strategic role? How can they enter into constructive dialog with management about new business models and product innovation, if they don’t speak the language of digitization? I am not saying that every board director should be a technology expert. But companies need board directors who are up to speed with general digital trends, as well as with developments and opportunities in their specific lines of business. Adding a digital afterthought to an already developed strategy, is not enough. Every decision, every fork in the road must be assessed from a digital perspective.
The problem is that although we need this competence right now, we don’t necessarily know what it is. Today’s board directors were neither born nor raised digital.Turid Elisabeth Solvang, Founder & CEO FutureBoards
The problem is that although we need this competence right now, we don’t necessarily know what it is. Today’s board directors were neither born nor raised digital. In fact, most of us grew up in a time when phones were attached to the wall, and when watching a movie involved a trip to a building with plush seats and popcorn vendors. Moreover, we are accustomed to industrial development occurring incrementally, whereas today, innovations just as soon happen in leaps and bounds, and the competitive environment can change at the blink of an eye.
Boards likely to function as the last bastion against digitization and innovation
Several international studies conducted in the past few years have confirmed that, albeit improving, the level of digital competence on boards of directors is still deplorably low. In a study published last year, the Boston Consulting Group found that although 80 % of Nordic board members and CEOs think digitization will have considerable impact on the company, only half of the respondents think that their own board has sufficient digital competence to be of help to management with regards to digital topics. The consulting firm warns that while the role of boards is to see the big picture, think ahead, and seek opportunities, they are actually more likely to function as the last bastion against digitization and innovation.
Many companies are aware that they are coming up short. Board-ready candidates with digital competence are a hot commodity, and nomination committees vacuum the field for tech specialists to fill the knowledge gaps. But one swallow does not a summer make, and rarely does a token tech-head a company transform.
All board directors need to develop a good understanding of the opportunities and risks that arise from The Fourth Industrial Revolution.Turid Elisabeth Solvang, Founder & CEO FutureBoards
In fact, to fulfill their roles, all board directors need to develop a good understanding of the opportunities and risks that arise from The Fourth Industrial Revolution. And even as they lack that competence today, many board directors are painfully aware that if they sleep on their digital watch, they are placing the company at risk.
Digitally alert board directors have therefore provided practical recommendations about how to approach digital competence. This is the change they are looking for:
- The digitally responsible board understands how digitization affects information, communication and transactions in the relevant industry.
- Rather than instructing management, the digitally responsible board asks pertinent questions and inspires good directions and decisions, i.e. ensuring it is made a focus across the company by integrating digitization in line management, and by encouraging a review of the company’s business model and value chain to identify digital opportunities.
- The digitally responsible board accommodates experimentation. No one knows exactly where the digital economy is going, where the next disruptive change will be coming from, or where watershed change will happen. Experimentation can lead to groundbreaking solutions, and even when it doesn’t, it keeps the organization’s muscles agile and alert to taking on the change that will inevitably come.
- The digitally responsible board also permits higher risk taking, by investing in areas of unknown potential. For in the end, the greatest peril of all is that your business idea is rendered obsolete.
It takes time to build the full set of experience and qualifications proficient board directors need, and many a year will pass before we have whole generations of fully proficient board directors who were also born digital. That notwithstanding, we are all in a position to learn – to become, as it were, “born-again” digital. In fact, as responsible board directors, we need to be.
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Blog post written by Turid Elisabeth Solvang, Founder & CEO Futureboards.