Technology and Digital Acceleration on the Board Agenda
By Sheila Hooda

Prior to the pandemic, most corporations were focused on technology and digital transformation. The pandemic has, however, added a heightened level of urgency to how boards and management view technology and digital capabilities. No longer is technology considered an enabling function or a source of cost advantage — it is a critical strategic differentiator and a key business driver.

This point is reinforced by a recent McKinsey report, which found that 68% of companies were modernizing or investing in core technology capabilities to make technology a competitive advantage. In a similar vein, the survey found that over a three-year period from 2017 to 2020 there was a five-fold drop in technology being viewed as a cost driver.

The pandemic and the ensuing economic crisis have accelerated tech/digital adoption by at least five years. This rapid shift has largely been instrumental in helping companies navigate the pandemic crisis, with an estimated 50% to 80% of customer interactions and product offerings going digital. This shift is predicted to continue not only through the recovery, but also afterward, as new customer behaviors and digital demands emerge.

To offer the benefits of remote work, e-commerce, entertainment, tele-health and other digital products and services, companies are investing in significant tech/digital capabilities, talent and processes. For example, online cloud data storage now accelerates the delivery of these digital products and services. Additionally, artificial intelligence and advanced analytics are being used to gain deeper insights for customer centricity and enhanced customer experience. Robotics and machine learning are being leveraged to help drive efficiencies and scale. As a result, boards are dedicating time to educate themselves about technology as they integrate and embed technological/digital oversight into the board governance infrastructure.

Along with the move to digital operations and data proliferation, the cyber risk threat landscape has evolved. To be successful, companies will need an effective cybersecurity program as an integral part of their risk management to secure these new digital operating models and domains. Delivering business value will require effective governance of the cybersecurity and visibility into the risks and investments involved.

This refocus of business on technology and digital tools was a result of an unforeseen crisis that forced rapid adaptation to the pandemic-driven remote environment. But customer preferences and demand for enhanced experiences, growth and value creation opportunities, and the benefits of productivities and efficiencies companies gained imply that these shifts are long-term, structural and strategically fundamental in nature. Additionally, a recent study by the Boston Consulting Group indicates that digital leaders achieve earnings growth that is 1.8 times higher than digital laggards and more than double the growth in total enterprise value.

The following are some of the key dimensions for boards to consider in this new environment:

Strategy development. Oversight of strategic planning includes focus and clarity on technology/digital as a core competency and a key differentiator for value creation. Board questions should center on understanding customer needs, the types of technology/digital capabilities needed and how companies will access this competitive capability. Boards should also want visibility into technology disruptors and their impact on the company’s strategy along with execution and performance monitoring.

Board composition. To facilitate deeper technology and digital perspectives in boardroom discussions, boards should include technology/digital expertise and experience in skill matrices and board recruitment.

Capital allocation. Boards should know how management will function within the technology ecosystem. Will the corporation acquire, outsource, strategically invest or partner to upgrade technology capabilities? Is the board thinking about the company’s business portfolio and potentially divesting businesses unsuitable for the digital environment? Scenario planning and stress testing coupled with robust financial analyses will enable board oversight on the dedication and/or reallocation of capital. Depending on the size of the company and/or its level of technology maturity, boards could see suggested ranges of investment from a few hundred million to billions of dollars.

Risk management. Boards should question the enterprise’s cybersecurity readiness. How is management considering investment and controls in cybersecurity and data privacy programs to ensure successful and secure digital transformation? On a parallel operational front, boards will want to know about the company’s crisis preparedness with a focus on business continuity and disaster recovery to enable resiliency in the tech/digital environment.

Human capital. Human capital is a significant strategic asset in the tech- and digital-driven environment and has risen on the board agenda. Highly skilled tech/digital talent and leadership will be in demand and in short supply. Boards should ask questions around skills inventory, reskilling and upskilling initiatives, and talent sourcing. Boards will also want to understand management’s thinking around the future of work that will necessitate different incentive structures, flexible work patterns, man-and-machine work alignment and an emphasis on employee wellness.

Culture. Boards should look at internal and external surveys and metrics to assess the cultural readiness for the accelerating pace of tech/digital. They should want to know more about internal initiatives to prepare and strengthen the company’s culture to support experimentation, ongoing innovation, agility, risk taking and continual learning.

Board and management dynamic. Increasingly, boards and management will work in a spirit of partnership based on trust. The board agenda will need more time dedicated to open discussion and debate as each side adapts to an evolving environment for which there is no existing playbook.

Sheila Hooda is the CEO and president of Alpha Advisory Partners. She is an experienced independent director. The opinions expressed in this piece are solely her own.

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