Digital Transformation Payday
A book review by Howard Brod Brownstein
Digital transformation is a common theme among the issues and decisions currently facing boards. It can involve elusive concepts and may seem simple to talk about but complicated to implement. Even the most long-standing industries and businesses are affected by digital transformation. It permeates every area of a company’s activities, including production, supply, marketing, sales, human resources or regulatory compliance. Digital transformation also may change the appropriate measures of performance as well as the methods of measurement.
Fortunately, a recently published book, Digital Transformation Payday: Navigate the Hype, Lower the Risks, Increase Return on Investments, provides some valuable information for executives and board members who want to understand and deal with these issues. The author, Dr. Tim Bottke, is a senior strategy partner at Deloitte in Munich, Germany, as well as an associate professor at SDA Bocconi School of Management in Milan, one of the top business schools in Europe. He has done extensive research into companies’ investment in digital transformation as well as the degree of benefit that such investment has created.
Board members must educate themselves about digital transformation and how it affects their company and industry. Indeed, knowledge of cyber issues is one of the most sought-after attributes in board member searches, and educational programs for board members focused on cyber are increasingly popular.
Such rapid change by definition involves increased risk — preexisting risks as well as newly emerging risks. And achieving any degree of digital transformation typically involves substantial investment in equipment and systems, as well as in educating the company’s organization and adding new personnel. This combination of substantial required investment and increased risk should be attracting prioritized attention by boards, especially since stories abound about attempted digital transformation delivering disappointing results or worse.
Companies too often jump into digital transformation without really understanding the anticipated benefits or the costs. They sometimes feel a desperate need to catch up with competitors or may be trying to keep up with industry change, perhaps falsely assuming that everyone’s in the same boat. And, of course, the purveyors of systems and equipment are effective at getting companies to sign off on substantial investments without any guarantee or even clear expectation of concrete results, which may vary widely by company and industry.
Bottke’s book lays out a valuable conceptual framework for understanding and implementing digital transformation. He points out that digital transformation is more about “being” than “doing.” In other words, it isn’t a one-size-fits-all, check-the-box to-do list. Management teams and boards must therefore begin by reexamining their corporate strategy, particularly how digital transformation may be required in order to continue to pursue that strategy, as well as how the strategy itself may be changed by digital transformation. They should then proceed to map out a detailed plan, complete with intermediate goals, timetables and milestones, as well as expected costs and a clear-eyed understanding of existing and possible new risks involved.
In addition, the book demonstrates how digital transformation should be pursued at scale, since it will likely permeate the organization and its activities and should not be approached on a trial or pilot program basis. The digital transformation process is also iterative, since everything that is needed to be known is seldom known at the outset — this is a “learning by doing” process. The core of the company’s business should be the ultimate consumer of the technological change.
As all of the above suggests, and Bottke’s book points out, digital transformation may involve substantial new investment, which in and of itself is an important board matter. Boards must make sure they are capable of understanding such potential investment and overseeing the implementation of digital transformation and measurement of its progress. This may well require boards to do things in a different way than was previously expected.
One thought that occurred to me while reading this book is whether it would be appropriate to assign oversight of digital transformation to a board committee — if one exists with the necessary scope and the right composition — or perhaps to create a special committee for its oversight. Boards too often resist the creation of new committees, but they can be a valuable tool for boards to increase and improve their effectiveness, especially when something new is happening or is on the horizon. Most company bylaws provide for boards to easily create such committees, whether they are to be permanent or temporary.
Another underutilized tool for boards is engaging an advisor to assist the board with a particular task. If the board composition lacks knowledge of cyber and digital transformation, engagement of such an advisor might be a prudent move.
Boards must educate themselves about digital transformation, regardless of their industry. Digital Transformation Payday is a valuable resource for that purpose.
Howard Brod Brownstein is president of The Brownstein Corporation, an M&A and turnaround management firm, and serves as an independent corporate board member for Merakey and P&F Industries Inc.