Digital smarts - a post-Covid necessity for boards
By JEFFERY TAN
The Business Times, 11 October 2021
THE Covid-19 crisis has seen the emergence of a digital divergence. Online businesses are on the ascendance, while traditional businesses are on a fast decline.
In Singapore, we saw the winding up of Robinsons, a brick-and-mortar store with 160 years of retail history - precipitated by the rise of online platforms as the new shopping norm, including the return of a wholly-online Robinsons under new management.
To be well positioned for this digital transition, companies need to have directors with digital expertise to guide them through this time of significant disruption.
The digital challenge is not new, but its pace of acceleration has greatly intensified due to the pandemic. It is no longer a vision waiting to unfold. It is a new reality that has arrived sooner than expected.
Digital voices on the board
Last year, the IMD Center for Future Readiness surveyed 1,500 executives from Sweden, Switzerland and Taiwan on their digital activities. The results showed that companies that invested early in digital capabilities - both financial capital expenditure and human capabilities - performed better, regardless of whether they are in the tech sector. Interestingly, the survey suggests that companies with digital experience on the board or top management performed better.
A recent MIT study defined board digital savviness as "an understanding, developed through experience and education, of the impact that emerging technologies will have on businesses' success over the next decade".
The report highlights that it takes at least three digital-savvy board members to deliver superior performance. One of the directors interviewed for the report said: "A single tech-savvy director in the boardroom risks feeling lonely and misunderstood. To effect change at the board level, there must be a critical mass of directors who truly understand."
In an earlier research, findings from the study of 1,122 US public companies showed that only 24 per cent of boards were digitally savvy. However, their performance was better in just about every metric, including revenue growth, return on investment and market cap growth.
Digitally savvy boards do things differently. The report found that digital directors change the risk conversation from evaluating the project risk to the business model risk of not doing something new.
A consequence of having leaders with digital experience on the board is the greater value that is placed on data - a powerful driver of strategy in today's business environment.
Data natives favour evidence over mere personal hunches and opinions in arriving at conclusions.
Many boards are still novices in using digitally derived data in formulating strategy and charting business initiatives.
Examples of successful use of data to enhance positive business outcomes include the likes of Grab and Gojek, which use ridership data to determine demand.
In so doing, they have transformed data into a financial premium for their companies via initiatives such as surge pricing - an opportunity that traditional taxi companies which have operated this business for decades did not envision nor exploit.
Unless companies have leaders who understand the digital arena well, the potential opportunities that can be seized will not be picked up, and more worryingly, possibly lost to the competition who have the requisite digital savviness in this space.
Using evidence as the basis for making significant business decisions is more than just using big data.
It is a collective mindset of the decision-makers, and about deciding whose viewpoint should be given more credence during a board debate. In this regard, boards should not just rely on or trust an opinion just because it comes from the highest-paid or top-ranking person in the entity.
The current speed of digital change is outstripping any single person's store of knowledge, experience or capability. Consequently, collaboration and cross-learning are key for boards to remain updated, relevant and ahead of the digital learning curve that is continually challenging every business. Companies that choose to ignore this dynamic, do so at their existential peril.
Why this matters
The challenge for boards in their governance role is how best to exercise oversight for a risk that one may not fully appreciate or understand.
Many boards do not devote significant (or sufficient) attention to the digital agenda because they lack the digital expertise and experience to do so.
In the light of the fast-evolving digital landscape, boards need to ensure that they devote adequate time to discuss strategic and critical digital risks. Otherwise, this can become an area of concern for the business.
Digital directors can highlight the relevant issues. Just as functional expertise like finance and legal are now an entrenched norm on boards, increasingly, having directors with digital skills and experience will become an expectation of stakeholders - from shareholders to analysts who examine the financial performance of companies.
Having digitally savvy directors is now a key board expertise for businesses to successfully navigate the digital landscape. Boards and businesses need to be prepared to induct digitally savvy directors - if only to ensure that their business survives and thrives in the post-Covid world.
The writer is a member of the advocacy and research committee of the Singapore Institute of Directors.