Being digitally conversant in an era of digital transformation is quickly claiming Board attention. Most companies are looking to use technology to improve business models, customer experience, operational efficiency, and more. Boards must help them move forward at a sufficient pace, advocating for change, supporting, and sometimes nudging CEOs.
In this podcast, Dr Sabine Dembkowski, Founder and Managing Partner of Better Boards discuss crucial issues to consider when creating a digitally savvy board with Peter Weill, Senior Research Scientist at the MIT Sloan School of Management and Chair Emeritus at MIT Center for Information Systems Research (CISR).
“What is this secret sauce of being digitally savvy?”
Peter explains that after studying the digital savviness of all the boards of U.S.-listed businesses, only 24% of those companies were digitally savvy. Yet those companies outperformed the rest, with 30% or higher revenue growth, return on assets, and market cap growth.
After evaluating digital savviness, he and his colleagues at MIT CISR used machine learning to download and measure from the bios of all board members how digitally savvy they were. Some large industry differences were noticed, such as 57% of boards in the information and media industry being digitally savvy, but only 24% in retail and 13% in financial services.
“It takes three to digitally tango”
It can be difficult for boards to find digitally savvy talent, Peter accepts but believes it is not impossible. He explains that recruiting one or even 2 such board members makes no measurable impact on performance, but companies with 3 digitally savvy directors had significantly increased performance. He suggests this type of talent for boards might be found in former or sitting Chief Information Officers. He also recommends looking for members in industries that have transformed digital very quickly, such as media, telecoms, information businesses, and technology businesses. Another place to look is venture capital companies with digital company founders.
“It's the 50% of time on strategy that we see makes a big difference”
Peter believes that the most important thing a Chair can do is manage the agenda to spend the right amount of time on each role, with a good breakdown being 50% on strategy, 15% on oversight, and 35% on defense.
“A digital strategy is a business strategy; it shouldn't be separated”
Peter advocates a common language, where boards and management teams use words in the same way, selecting a handful of frameworks and using those consistently. He also reiterates the need to hire new digitally savvy board members, and while board “refreshment” presents an opportunity, it is small relative to education. In his experience, board members are extremely curious, and fast learners, and providing education around digital for them is important.
He does accept that there is a correlation between age and digital savviness, but this does not make younger candidates necessarily better directors, as they have less experience in other areas. He advocates diversity on the board and helping sitting directors become more digitally savvy as well as recruiting talent.
The three top takeaways from our conversation are:
1. Identify digitally savvy directors, or make a plan to get them.
2. Actively manage agendas to allocate the right amount of time to strategy, oversight and defense - with a goal of 50% of the time focused on digital strategy issues.
3. Create a common language at the board and top management team level, with a dashboard that measures value capture over time.