“Boards that are digitally savvy help to build companies that outperform the competition.”
Many boards want to believe they are digitally savvy, but the idea of digital disruption is so broad that it needs to be broken into categories that are most meaningful to boards:
- Digital technology. These are the emerging technologies like machine learning, predictive analytics, artificial intelligence (AI), the Internet of Things (IoT), blockchain, virtual reality and quantum computing. These technologies have gained steam this past decade and are defining the future of every business.
- Digital business models. E-commerce, free, freemium, subscription-based, on-demand and ad-supported are all new types of digital business models that have arisen in the past two decades. One would be hard pressed to find an industry or company not being disrupted by one or more of these models.
- Digital security. This includes the world of cybersecurity, fraud and data privacy. The past five years alone have seen great advancement in this area, and it’s not slowing down.
With these categories in mind, it is easier to make the connection between the importance of a digitally savvy board and its ability to not only be strategy-focused, but also change the board agenda. All three of these types of digital knowledge are critical if a board is to effectively oversee today’s emerging risks.
But directors must avoid the false sense of security that often creeps in when knowledge shifts occur. Matt Loeb, a research fellow at MIT’s Center for Information Research, was involved in the published study referred to above. He is also a director of the Center for Cyber Safety and Education, Excelsior College and the American Society of Association Executives. “Many boards are experiencing a sense of euphoria, believing that they are doing better than they really are when it comes to digital,” he said in a podcast. “However, according to MIT’s research, only 24% of boards meet the criteria for being digitally savvy. This means that, faced with unprecedented new technology capabilities and the speed of change, directors must up the board’s ability to obtain a better understanding of the potential opportunities and risks to company business models from emerging technologies such as AI, IoT devices, blockchain, quantum computing and the like to ensure appropriate oversight for digital transformation efforts.”
So, if being digitally savvy is a key to becoming more future focused, what can the other 76% of boards do? A large part of the answer comes down to diversifying the composition of the board. Once again, digital technology can be a huge help.
Improving board composition
Digital technology can help evolve the composition of the board, resulting in a more diversified and digitally savvy board.
For decades, board composition has stayed relatively unchanged — a mostly homogenous community of individuals. But with the massive advancements in digital technology, we now live in a connected world that has the potential to open up the director-candidate pool one thousandfold. This is a good thing for introducing diversity of experience, because qualified board candidates who understand the differences in digital disruption can be difficult to find.