Expert insights from Aileen O’Toole CDir, who combines independent non-executive director roles with digital strategy consulting assignments.
Digitisation needs to move from the periphery to become a top priority for boards, given profound changes in customer behaviours, markets, supply chains, innovation and workplaces during the pandemic. The “new normal” – the phrase commonly used about doing business during COVID-19 – is giving way to what McKinsey calls the “next normal” – where digital transformation is at the heart of value creation and how businesses can survive and thrive post-pandemic.
eCommerce adoption in the US grew as much in the first eight weeks of the pandemic as it had in the previous decade while similar spikes were shown across Europe, including Ireland. The acceleration of digitisation is as pronounced in B2B as B2C sectors. As economies re-open, forecasters expect that customers will not revert to pre-COVID habits and that advances in digitisation will be retained – and even further accelerated.
This raises fundamental questions for boards about their strategies and specifically their roles in digital transformation. Increasingly, business value and long-term sustainability are connected with technology. According to Gartner, digital was ranked by board members globally as the top strategic business priority for the next two years. Gartner notes that it is a “strong enabler in addressing employee, customer, supply chain, and broad brand impact to position the enterprise to come out of the crisis stronger”.
Boards and COVID-19
Businesses fell into three distinctive camps when the COVID-19 crisis hit:
- The first group were advanced in implementing their digital strategies and well-positioned to respond.
- The second were at an earlier stage and had to ramp up, not always successfully but with plenty of learnings.
- The third group were not on the starting blocks and many implemented digital initiatives for the first time – to ensure survival, in some cases.
Typically, for directors of businesses in the latter two groups, technology has not been a big theme in the boardroom. In this scenario, board composition is a factor. Less than a quarter of newly appointed directors of Irish quoted companies has a digital background and just 3% had knowledge of cybersecurity, according to 2020 research from Heidrick & Struggles.
Many experienced directors are uncomfortable with this subject. A self-acknowledged lack of computer literacy, an absence of board training and assumptions that it’s management’s not a board’s responsibility were among the many insights given to the Irish Computer Society’s study on cyber resilience and boards.
Where boards do consider digitisation, it is often with a narrow lens. Cyber risks often dominate – understandably, given the scale of threats and attacks (notably the HSE), increased insurance costs and directors’ personal liabilities for cyber security and data protection. However, such a limited focus means that the board has minimal or indeed no input into setting strategies to avail of strategic opportunities while mitigating risks.
Digitising the Core of the Business
Businesses that tinker around the edges of their business models, rather than ensure digitisation addresses the very core of those models, won’t deliver the desired returns. In some categories, this may propel a downward spiral, as existing and new competitors respond with agility and speed. That has been the case for some high street retailers.
While brand awareness and digital marketing spend generated traffic on their eCommerce sites, they struggled to convert browsers into buyers. One fashion chain’s own online sales in the previous year grew by just 5%, whereas its sales on a third-party fashion marketplace site grew by 41%. Same brand name, same products but different leadership mindsets, strategies and business models. The marketplace site then picked up the chain’s brand from the administrators, motivated not by high street stores but by intellectual property, mainly customer data.
On the other hand, there have been examples of other businesses who evolved their digital strategy in response to changing customer behaviours and digital technologies, such as BMW. It has dispensed with the long-term product life cycles that have been the hallmark of the motor sector.
Instead, every aspect of BMW’s product planning has been shortened, while its learnings of contactless sales processes during the pandemic have been scaled. This will enable the selection and purchase of individually configured vehicles exclusively on its digital platforms, which will be delivered to customers’ homes, in a seamless customer journey.
Recommendations for Boards
Boards must ensure the correct balance is struck between setting the vision and determining a strategy that ensures technology enables business growth and continuity, on the one hand, while overseeing cyber threats on the other. They must take the long view and cannot allow past experiences dictate that future. Here are some recommendations:
- Reset the board agenda: Digital needs to a recurring item on board agendas with directors and trusted external advisers providing insights and assurances on strategy and risk mitigation to inform board decisions, while boards are constructively challenging management on current and proposed priorities.
- Establish a Digital Committee: A simple way to address skills and knowledge gaps is to establish a committee on a short-term basis. It would have a brief to plan the board’s role in digital strategy and overseeing implementation. Consider appointing an independent digital expert to support Committee members.
- Set a simple but compelling vision: Ensure that the message, metrics and the ‘fit’ with the long-term strategy resonate with everyone in the business. Use customer language, not techno-babble.
- Don’t waste a good crisis: This old adage is apt. The most successful businesses during the pandemic ignored the past, rapidly changed processes, responded to customer priorities through a workplace culture built on collaboration, test-and-learn exercises and data analysis. Other businesses, and their boards, have much to learn from their experiences.