Effective digital economy boards
02 August 2016
Edwin Sim takes a close look at effective board members in today’s digital economy.
Effective boards of directors today must begin serving as thought partners and move beyond arms-length relationship with digital issues.
A recent McKinsey study concluded that only one in five directors understand how the industry dynamics of their companies are changing.
“Board members must increase their Digital Quotient to meaningfully engage senior management.”
Better knowledge about technology environment
McKinsey said board members need better knowledge about the technology environment, its potential impact on different parts of the company and its value chain, and how digital technologies can undermine existing strategies and stimulate the need for new ones.
“They also need faster, more effective ways to engage the organization and operate as a governing body and, critically, new means of attracting digital talent.”
Boards getting this message
Today, all independent board members have seen how digital players are threatening incumbent businesses.
“…..roughly one in three say that their business model will be disrupted in the next five years.”
However a 2015 McKinsey survey showed that only 17 per cent of directors and their boards were sponsoring digital initiatives and an earlier study showed that only 16 per cent fully understood how the industry dynamics of their companies were changing.
Bridging literacy gap
Although a common board response to the oncoming digital disruption often included hiring digital directors, chief digital officers, making pilgrimages to Silicon Valley or launching digital subcommittees, McKinsey these valuable moves are often insufficient to bridge the literacy gap facing board members.
“There’s a new class of problems, where seasoned directors’ experiences managing and monetizing traditional assets just don’t translate.
“Many boards are left feeling outmatched and overwhelmed.”
Moving beyond arms-length relationship with digital issues
Effective digital environment board members need better knowledge about the technology environment, its potential impact on different company parts and its value chain, and how digital can undermine existing strategies and stimulate the need for new ones.
“They also need faster, more effective ways to engage the organization and operate as a governing body, and critically, new means of attracting digital talent.”
Because today’s digital disruptions may necessitate long-term business model changes with large short costs, McKinsey said boards must often view themselves as the ultimate catalysts for digital transformation efforts.
Some CEOs and board members have argued that the far-reaching nature of today’s digital disruptions can often require long-term business-model changes with large, short-term costs.
Board members are now required to view themselves as the ultimate catalysts for digital transformation efforts.
“Otherwise, CEOs may be tempted to pass on to their successors the tackling of digital challenges.”
Today’s top management teams need boards that are strong digital sparring partners when they consider difficult questions such as investments in experimental initiatives that could reshape markets, or even whether the company’s current business will be competitive in the digital age.