Henri Eliot: Should your next board member be a geek?
12:00 PM Tuesday Jun 7, 2016
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Current research is challenging the view that boards should resist recruiting too many technology specialists, and reinforcing how unprepared some boards are for the challenges of digital disruption.
A study of more than 1,000 non-executive directors of 112 of the largest publicly traded companies in the US and Europe showed their boards lacked expertise in understanding how technology is informing strategy and affecting execution.
The research, published in the latest edition of Strategy + Business, found 95 per cent of European companies assessed (excluding those in IT and telecommunications) had no non-executive directors with deep technology skills. Almost half of US companies assessed had similar problems, despite grappling with complex technology-driven strategic questions.
A 2012 MIT Study showed that “executives in every industry – from media to electronics to paint manufacturing – face a bewildering array of new digital opportunities. They are paying attention, but they have few signposts to guide them”.
How do boards make strategic decisions for traditional companies that are older, larger, and burdened with inflexible legacies in the digital age?
The MIT study looked at what fast-moving digital innovation means for large traditional companies. In the two year study, they covered more than 400 large firms. They found that most large firms are already taking action. They are using technologies like social media, mobile, analytics and embedded devices to change their customer engagement, internal operations and even their business models. But few firms have positioned themselves to capture the real business benefits. The research points to a “real digital advantage to those that do”.
“Boards can no longer duck the responsibility for the company’s digital transformation,” wrote Chunka Mui, Toby Redshaw and Olof Pripp, in Your Next Board Member Should be a Geek. “They must take real ownership of ensuring that they are equipped to fully understand this part of the board agenda. Otherwise, how can they adequately oversee their company’s strategy, investment and expense base?”
High-performing New Zealand and Australian boards are aware of the risks and opportunity of digital disruption to their organisation’s business model, and are taking steps to improve technology skills in board composition. Some are recruiting directors with technology management experience; others are forming technology advisory boards or committees, or sending their directors on study visits to Silicon Valley or other technology clusters.
“There is a view that boards should resist recruiting too many specialists, in technology or other areas, who can only govern in their area. Top directors are capable of governing across multiple areas and joining the dots between complex issues. The impact of technology on strategy should be the domain of every director, not only those with an IT background”.
Instead, the authors make three suggestions for boards to meet technology challenges.
First, “companies should open up multiple board seats for directors with deep technology expertise. Seek directors with fresh technology experience who are abreast of fast-moving trends”.
Second, “develop formal board structures to address technology issues, through sub-committees or advisory committees. The authors say: “It is important for this group to address topics that go beyond technology strategy and IT governance. The most important priority may be enterprise strategy and the ways in which technology makes new value propositions possible.”
Their third suggestion is “developing the right context for technology discussions at board level. “Boards must have a clear view of their own company’s IT landscape. It falls to the board to ensure that the company has a multi-year plan to address technology needs while reducing costs and risk.”
The authors say technology governance is an opportunity. “Every board of directors has a once-in-a-generation chance to leapfrog the competition through technology competency. The opportunity is great because the task is difficult, and there is no large pool of talent waiting to be recruited. Those companies that meet this challenge successfully will capture the markets of the future.”
Henri Eliot is CEO of Board Dynamics.