Two more facts in the avalanche of information about going digital: first, among companies with more than $1 billion in revenue, those with digitally savvy boards have at least 34% higher performance on revenue growth, market cap growth, and return on assets. Second, less than one quarter of boards are considered digitally savvy.
Side by side, these statistics are difficult to ignore, and they raise the question of how to build a digitally savvy board.
A new research briefing from the MIT Center for Information Systems Research offers concise and specific guidance on this point, walking through what it means to be digitally savvy and how best to get there, with a spotlight on the experience of Principal Financial Group as a case study.
As a starting point, the report — by research scientists Peter Weill and Stephanie Woerner, and Principal Financial Group’s Gary Scholten — defines being digitally savvy as “an understanding, developed through experience and education, of the impact that emerging technologies will have on businesses’ success over the next decade.”
This understanding extends to three key areas of board involvement:
- Strategy: articulating and acting on the opportunities and threats to the company’s business model from digital and how the company will succeed in the future.
- Oversight: ensuring that major digital projects and technology spending are on track.
- Defense: protecting the company from cyber risk and system outages, and ensuring data privacy and compliance.
Importantly, it takes at least three digitally-savvy board members to deliver superior performance. As one director noted when surveyed, “A single tech-savvy director in the boardroom risks feeling lonely and misunderstood. To effect change at the board level, there must be a critical mass of directors who truly understand.”
Below are five steps for building this critical mass.
1) Create a common language and decision-making framework
Too often, people use the same words — “platform,” or “ecosystem” — but mean different things. To prevent board members from talking past each other, companies must establish a common framework and language for discussing digital strategy and overseeing key digital decisions. Though this requires upfront effort, it helps to unite people with disparate industry experience and different mental models, and it avoids the potential for finger pointing, long delays, and conflicting project ideas.
2) Treat digital strategies as business strategies
Digital can be used to change companies in at least four different ways. It can improve the customer experience, reduce the cost of operations through automation, develop new sources of revenue, and improve employee experience. The chief information officer, or someone similar, should lead early, big-picture discussions about the implications of digital; external speakers should be invited to provide perspective. Principal Financial Group brought in fintech entrepreneurs and data experts for educational sessions; they organized executive committee “digital immersion” trips to facilitate a common understanding of the competition posed by digitally native companies. And as these ideas about digital strategy become more wholly integrated into company culture, from top to bottom, they will filter organically into board- and executive-level discussions.
3) Create real-time dashboards for oversight
Boards must monitor the fiduciary side of this digital transition. To do this, companies should create a real-time dashboard that measures spending and progress alongside impact (e.g., percent of orders made digitally or customer experience metrics). The specific measures are less important than launching this process, as you can refine over time. The dashboard not only frees up time for discussion at board meetings — less reporting — but also makes the company more digital in its operation.
4) Use board discussions to showcase talent
Board members must assess a company’s ability to execute on its digital strategy. So it’s important for the executive committee and board to interact with a broad range of digitally-savvy executives. Demos of recent implementations or projects under investigation are more effective forms of communication than slide presentations.
5) Don’t surprise executive committee members, and coordinate work
No matter its promise, a digital business strategy cannot succeed without full engagement of the executive committee. Do not undermine executive committee engagement by introducing new or different approaches with the board before executive committee members have weighed in. Get them on board early.
Similarly, coordinate digital strategies across the company. In 2015, Principal Financial Group formed a digital strategy committee that comprised business executives, their corresponding divisional CIOs, and the chief marketing officer. It was chaired by the enterprise CIO. This committee was responsible for creating a common framework to develop digital business strategies, and determine where to apply these strategies (business divisions versus the enterprise).
For the full brief on building a digitally-savvy board, download “Working with Boards on Digital” from the MIT Center for Information Systems Research.