The Incumbents Digital Dilemma: Why Digital Disruption Demands New Skills in the Boardroom
November 7, 2018
Editor’s Note: This article first appeared on LinkedIn here.
Competing in a digital world requires companies to recognize a simple fact: we are rapidly moving from an era where systems support humans to one where humans will support systems. No company is immune from the inevitable disruption that digital technology is bringing.
Forget about software “eating the enterprise.” Software is fast becoming the enterprise. The pace and scale at which this change is happening is mind-boggling and unprecedented. Whether we like it or not, the foregone conclusion for directors is that we are now all in the technology business.
Not only have the ways in which customers purchase products, consume services, and interact with organizations shifted (although they have, radically), but human expectations have also altered irrevocably. Consumers now expect their experiences be seamless and their products intuitive and customized. The demand for everything to be mobile, transparent, and instant isn’t ending with consumers; enterprises are grappling equally with the changing expectations of employees.
Anyone who harbors doubt that we are in a new era need only look at how Digital Disruption has upended telecom, media, and retail in the past decade to realize that the challenge for directors is inevitable.
How do we provide the foresight, insight, and oversight required in this digital era? What are the right questions to ask? And what kind of skill sets will boardrooms require in the future?
Digital disruption demands that companies thoughtfully and boldly reexamine their strategies and business assumptions. Reliance on customer loyalty, traditional business or operating models, or heretofore barriers-to-entry represents fallacies in thinking.
We need to challenge our organizations to re-evaluate the competitive landscape:
- Who are the emerging players?
- What is it about what they do, or how they do it, that customers seem to like?
- Is there a risk of a new competitor attacking in a way that would cannibalize current revenue streams if you were to respond? (The famous example being Netflix’s original strategy of “no late fees,” which marked the beginning of the end for Blockbuster.)
In other words, where are you vulnerable?
We must also understand the potential drivers of disruption within a particular industry. Is data produced by billions of IoT devices going to become a real strategic asset, as we’ve seen in the energy and healthcare industries? Or is it more likely that the rise of automation and artificial intelligence will eliminate certain costs? Perhaps you’re contending with emerging technologies that threaten to render vast numbers of employees redundant. Or maybe it’s an entirely different operating model and customer experience that simply could put you out of business.
These questions should be at the heart of boardroom discussions and will spark organizations to look increasingly to their directors to provide insight and guidance as they pursue their digital endeavors. Yet many boards aren’t equipped to frame and address these questions with the “digital fluency” they require.
Recognizing potential disruption ahead of time is even more important for successful and established companies and is particularly challenging for publicly listed companies, contending with the pressures of quarterly results, analysts and investor expectations. Boards must play an active role in navigating the choppy waters of transformation and embarking on the necessary journey long before the threat of disruption manifests.
Alas, very few organizations, or indeed boards, relish this kind of change.
Driving successful transformation often involves the difficult task of addressing the “incumbent’s dilemma.” The very elements that made you successful might now be impediments in the digital world. For example, companies that are asset-heavy now exist in a digital world that demands everything virtually. Others, reliant on business models structured and priced for ownership, are competing in an era where value is increasingly created by ‘sharing’.
Incumbents are also often plagued by “legacy debt,” everything from outdated technology to silos of information, inefficient and cumbersome processes, multi-year initiatives, annual budgets, and industrial era regulations. This debt is a major part of the dilemma incumbents face when they try to nimbly respond to changes or threats in a timely fashion.
And, while experience is undoubtedly valuable, the skills needed in this cloud-enabled, design-driven, data led, socially savvy, “light-speed, lights-out” world can make tenured talent, including in the boardroom, a liability, when the imperative for new skills and thinking has never been greater.
Nowhere is the board’s role more important than in the hiring and firing of the CEO, who by definition is now also the organization’s Chief Digital Officer. Yet how often do we think of searches that way? Core criteria for all CEO appointments must include how a candidate leads in the digital world and, in the incumbent’s case, how he or she manages to pursue two separate strategic courses: repositioning the core business and investing and growing new areas of digital revenue.
The onset of digital businesses has also brought new requirements for how directors assess and oversee risk. Along with traditional responsibilities, boards must contend with a plethora of new risks and challenges. Is your organization dealing with its data appropriately? How are you managing any potential over-reliance on external cloud-technology providers? Do you know whether your cybersecurity defenses are sufficient to handle 24/7 exposure to attacks that all businesses now face? And how are you positioned to respond if breached?
Change starts at the top, which is why it’s important to turn a critical eye to both our leadership teams and to us as directors.
Digital knowledge is important, but so is diversity of thought. We tend to focus on diversifying through gender, age, and ethnicity, which is much needed, but the digital era requires true cognitive diversity. We need people who think differently, come from varying backgrounds, and who can constructively and collaboratively challenge the current thinking.
Only when we, as Directors, bring an array of ideas and perspectives to the table can we become a more visionary and effective board—one that thinks big, thinks different, and, best of all, thinks digital.
Dr. Anita Sands is an independent board director, investor, advisor, speaker, step-mom to 5 young adults & mom to baby Rosie. She, and her husband John, split their time between San Francisco and NYC. All comments personal.