Mon 2 Oct 2017
News - Directing Digitalisation: Guidelines for Boards and Executives
Directing Digitalisation: Guidelines for Boards and Executives

Your digital challenge

“Everyone’s talking about digital, but nobody can agree on what it means,” Ludo Van der Heyden of INSEAD told ILA’s AGM on 27th June. This is to be expected, he added, as adaptation to new technology is a constant challenge. He warned directors that they need to understand how digital can be harnessed to facilitate oversight, and how it could require strategic repositioning.

“Management and governance is a language, so when you say ‘we want to be more digital’ you have to know what this means,” Mr Van der Heyden argued. He is well placed to understand the challenges, being the founding Director of INSEAD’s Corporate Governance Initiative, and co-Director of the International Directors Program and the Value Creation for Owners and Directors. He based his presentation on major international surveys conducted by INSEAD during the last couple of years*.

Rethink or adapt?

“Success is not technology dependent: it is more about culture and direction, in other words the standard stuff related to leading a company,” he said. Around a third of companies surveyed had no digital strategy, rather a business strategy with digital tools attached. From the point of view of marketing, digital means CRM, while audit want paperless systems, and then there’s email. But using technology is not digital transformation, and only a minority of businesses are seeking to rethink the way they operate. Sometimes doing little is the correct choice, but too often this can be driven by a lack of awareness at the top of how transformation works and why.

“Beware of digital gurus,” was Mr Van der Heyden’s first piece of advice. It’s fine to have a digital director on the board, but not if they have a vision they want to sell that does not suit the company, its market and its culture. Digital will change an organisation’s habits and this needs to be understood, but: “performance is gauged by what you measure, yet whether that translates into value is another question.”

Big picture first

Stage one is working out how new technology is impacting your industry. The chances are your business will not be like Kodak: set to be wiped out by new technology. More likely digital players will be nipping at your heels as: “traditional barriers to entry are being replaced with softer obstacles such as purpose, mission, authenticity, and trust.” Change is constant, and honest, unbiased assessments of threats and opportunities are needed.

Thus equipped, the director is better able to understand how the organisation may be impacted, how it could adapt, and how the board can help. From top to bottom, the firm will need to understand the changes digital will make, and the board and executives must take the lead. Mr Van der Heyden suggested culture will probably need to adapt, with a less hierarchical, more collaborative approach. And this is not just within a business, but also with partners and clients. “The public is now a key player in value creation, and value destruction,” he warned, highlighting the recent United Airlines incident which went viral.

Listen harder

On the up-side, digital gives firms more powerful ways to listen to customers. Richer data enables decision-makers to back up hunches and challenge preconceptions, enabling firms to explore. “This new environment calls for continuous transformation driven by a built-in process of constant testing, learning and adaptation,” said Mr Van der Heyden. Could the standard goal of boards working for shareholder value need to change in an environment of ever more powerful consumers?

He advised that directors “become students of their own digital journey.” Digitalisation will have an impact on boards, so it is important to get ready even if the threat may appear distant. Boundaries are melting, with the likes of Apple and Alphabet competing with banks, while Uber is a platform, not a taxi firm. The focus should be on training, asking questions and then stress testing said Mr Van der Heyden. On the other hand, although customers want firms to be on the ball, this should not be at the price of excessive disruption. Boards have no choice but to try to help their companies tread this fine line.

* The Real Impact of Digital, as seen from the virtual coalface, 2016: The Real Impact of Digital 2016
Directing Digitalisation: Guidelines for Boards and Executives, 2017: Directing Digitalisation 2017
Both by Liri Andersson and Ludo Van der Heyden, INSEAD