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Why it is imperative to engage more digital experts on your team
IN the Covid-19 crisis, we are seeing a digital divergence. The tech giants are winning, and bricks and mortar companies are dying. Amazon, for example, posted record sales and profit in the middle of the pandemic, while Neiman Marcus and JC Penney are filing for bankruptcy.
But does this divergence apply to your organisation? Would your company be in a better position during the coronavirus crisis if it packed its board with digital experts? The short answer is: yes.
At the IMD Center for Future Readiness, we have been tracking companies' digital activities. This year we've partnered with CommonWealth magazine in Taiwan. We surveyed executives on what their companies are doing in this respect. We had responses from more than 1,500 executives from three comparable economies: Sweden, Switzerland and Taiwan. With this data, we were able to determine why some companies perform better regardless of the sector in which they operate.
In other words, you don't need to be in the tech industry to do well. All you need is to invest in your digital capabilities ahead of time. And I'm not talking about money - I'm talking about human expertise.
How many digital experts do you need?
We grouped companies by asking how much digital experience is on the board through these questions: "Does more than half of your top management team have digital experience?" "Somewhere between 25 to 50 per cent?" "Less than 20 per cent?" "None at all?"
We asked this because we suspect you need a certain number to effect change. As they say, one is a token, two creates a presence, while three becomes a voice.
And you might already know this. People who have direct digital experience place more value on data. They favour evidence over opinion in order to arrive at a conclusion. But here is the trick - you need a critical mass of digital natives to achieve a collective behaviour. Having just one data-driven person isn't enough.
Our survey of company executives found that decision-making changes according to the amount of digital expertise. When more than a quarter of the management team are digital experts, the board starts to value data more than personal opinion. We saw this across countries, suggesting a universal trend.
But demanding evidence when making decisions is more than using big data - it's a collective mindset. It's about deciding whose viewpoint should be believed during a board debate. We can't trust an opinion just because it comes from the highest paid person. So, what should be the criteria for deciding who to listen to?
For example, if you run an investment fund, you can't hide your performance. You either make money or lose it. Ray Dalio, billionaire founder of the hedge fund Bridgewater Associates, understands this well. To make smart investment decisions, he needs people he can trust. That doesn't mean loyalty, though - it means believability.
"Believable people are those who have repeatedly and successfully accomplished the thing in question," Dalio wrote in his famous book Principles: Life and Work, "who have a strong track record with at least three successes, and have great explanations of their approach when probed."
What he dislikes is when decisions are made according to the opinions of the people at the very top. Dalio believes there are times when the Chairman or the CEO needs to shut up and listen.
He tweeted: "If one person is clearly more knowledgeable than the other, it is preferable for the less knowledgeable person to approach the more knowledgeable one as a student and for the more knowledgeable one to act as a teacher."
Acknowledging what you don't know can be as valuable as knowing what you do. The current speed of change is outstripping any single person's store of knowledge or experience.
Does this all matter?
The more digital experts there are on the top team, the less negative impact their company is feeling from the pandemic, our survey shows. Some are even seeing a positive impact in the pandemic.
But this should come as no surprise. A board filled with digital experts is less likely to miss digital opportunities as decisions are made quickly based on data. It can also be easier to determine the degree of progress their business is making and the readiness to make necessary changes as you have all information at your fingertips.
In the same manner, when a crisis hit, you can quickly estimate the potential drop in demand and spend time strategising the right move based on the emerging information.
This is how the great divergence arrives. Your company's resilience depends on how much it has prepared ahead of time. Getting a critical mass of digital experts on the board matters greatly, if not the most. And this explains the winners and losers from Covid-19.
- Howard Yu is LEGO professor of management and innovation at the Institute for Management Development (IMD) in Switzerland.
- Shan Jialu is a research fellow at IMD's global centre for digital business transformation.
Footnote: In Sweden and Switzerland, the online survey was in the field from May 19 to June 18, 2020, and garnered responses from 805 executives (60 per cent of them are directors or above) representing the full range of industries, company sizes and functional specialties. Of them, 560 have been directly involved in digital transformation in their organisations.
In Taiwan, the survey was mailed to 2,000+ companies representing the full range of industries and company sizes, from May 25 to June 20, and finally returned 776 responses. The response rate was 38.72 per cent.