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How can boards change the game?
DISRUPTION is possibly the most overused and least understood business buzzword today. Disruption is often conflated with digitalisation and innovation, when in reality, could occur as a result of other forces at work.
Notwithstanding, digitalisation is one of the most profound game-changers. Disruption by digital will radically alter the way things are done, and is hardly recognised at the early stages because there is little semblance to existing models. In this landscape, cruising works only if you are in the business of electric cars, or essentially, computer on wheels.
For boards, now is the time to recalibrate strategies, structures and leadership models to thrive sustainably in the new superfluid world, while coping with immediate survival challenges. Often, this calls for a reframing of current perspectives.
DIGITAL AS MINDSET, NOT TECHNOLOGY
Many organisations today speak of digital transformation and boards may easily assume that they need heavy capital investment in technology and large teams to get started.
However, being digital is not about IT. It is about taking on a fluid and agile mindset that is focused on innovation, using technology as an enabler.
Organisations also tend to apply digital transformation to customer experiences while sidelining significant opportunities in digital innovation in operations, such as applying blockchain in smart contracting, artificial intelligence in forecasting, and robotics in order management automation.
Digital transformation is also often seen as an added challenge to governance and compliance. Board members should understand that digital innovation does not necessarily increase their risk. In many cases, organisations are using technology to improve the compliance landscape. For example, pharmaceutical companies are using spend analytics to spot fraudulent behaviour in their sales teams.
However, digitalisation does change an organisation's risk profile. Boards should not be paralysed by the increased exposure to cybersecurity risks that comes with digitalisation. Rather, this should be baked into the risk management framework and seen as an opportunity to shore up resources in cybersecurity for overall organisational resilience.
In harnessing digital transformation, independent directors continue to be an important source of ideas, innovation and experience. Organisations are also leveraging advisory panels and alliance partners to keep their boards current.
Relatedly, board evaluation and succession planning criteria may need to be reviewed on a more regular basis, with an emphasis on a broader range of capabilities and experience.
In future, we may see independent directors coming from a broader range of organisations than has been the case. Experience with academic institutions, technology providers and startups will become more valuable.
FROM REACTIVE TO COLLABORATIVE
In the past, businesses usually steer clear of governments but the relationship is evolving. As boundaries evolve with disruptions impacting both governments and businesses, the private and public sectors increasingly have a symbiotic relationship, with boards and companies moving from being reactive to regulations to becoming integral to the formation of regulations and policies.
Many board members are now part of advisory panels or industry alliances with strong engagement and regular interaction with governments and regulatory bodies. Such platforms offer the flexibility and counsel of a diverse group of subject matter experts with a shared objective in mind.
These engagements are to the organisation's advantage - you get wind of the latest developments, understand the rationale for certain decisions, and can lend a voice to help shape policies.
This spirit of collaboration extends to keeping an open mind on partnering. For example, established businesses are now more open to invest in startups, which enables them to rapid-test business models and technology for the best fit.
Partnerships with complementary peers or competitors are also on the rise with sector convergence. How boards help to steer their organisations on such an agile approach to growth and innovation will be critical.
THE 'LONG' AND 'SHORT' OF MEASUREMENT
With the external environment changing so rapidly, distractions are aplenty but boards should be clear that the goal of the organisation does not change. Ultimately, businesses should still strive to increase shareholder value, and to that end, typical existing business objectives such as customer experience improvement and operational efficiency will still apply.
Return on investment and equity will remain the key underlying metrics to measure the success of transformation over the medium to long term.
However, with more digital transformation programs delivered in an agile manner, designing, developing and testing in shorter cycles can improve the speed to value. Thus, in the short term, projects are likely evaluated via the user experience, as businesses break projects into bite-sizes and allow the end user to assess if the prototype is the right fit for them.
In this aspect, performance measures will be project-specific, incremental and more fluid than before. This will have a bearing on how boards evaluate and communicate on returns and performance.
To successfully lead the business through disruptions, boards should seek to address the following questions:
- Does the board embrace a disruptive mindset?
The board, management and team must be aligned on a forward-looking stance, and be willing to try, possibly fail, and try more. Review all decisions with a "business-not -as-usual" lens.
- Is strategic planning a once-in-a-year affair?
Have the courage and discipline to engage in ongoing dialogues with the management, to "challenge" status quo and discard areas that do not add value. Disruption and innovation must be an iterative process.
- Will you buy or build capability?
Assess the strengths and non-core capabilities of the company, board and management, and consider how you would bridge the competency gaps.
- Is digital transformation seen as a project in isolation?
"Digital" is most effective when applied in a holistic way across the entire value chain, driven by the challenges faced by customers, vendors, partners and employees, rather than delivered top-down.
- Are you part of the solution or part of the "problem" for regulators?
Greater interaction and openness with regulators is going to be critical for business, government and society at large to respond effectively to digital disruption.
- The writer is head of advisory at Ernst & Young Advisory Pte Ltd.
The views in this article are those of the author and do not necessarily reflect the views of the global EY organisation or its member firms.