Good governance can filter out the noise & unearth real opportunities.
It’s hard to go a day without blockchain, cybersecurity or artificial intelligence making headlines as business disrupters, and it’s got many private company owners and managers focused on technology more than ever.
About 50% of private company leaders believe their organizations will be disrupted by non-traditional competitors in the next two to three years, according to a recent Deloitte Private global survey of almost 1,900 private companies across 30 countries. And nearly 40% expect a moderate to significant impact on their businesses from technological advances.
“Considering how technology can help to contribute to innovative strategies, as well as understanding how management is monitoring the risk of technology disrupting a company’s strategic objectives, it should be a part of all board strategic discussions,” says Roger Nanney, a vice chairman of Deloitte LLP and the national leader of Deloitte Growth Enterprise Services. “A board that understands this and challenges management by asking the right questions is a clear example of how the board’s input and oversight can help a company navigate changing conditions.”
Several digital developments were expected to have the most impact on business in 2018, reported the study:
Survey respondents cited cyber intelligence, analytics, cloud infrastructure, mobile devices, and big data. In terms of investment priorities, 40% put cloud computing/software as a service and customer relationship management at the top of the list, closely followed by data analytics/business intelligence and automation of business processes.
“It’s very hard to find a sector of the economy these days where digital issues are not important to a company and a company’s future,” maintains James DeGraw, a partner at Ropes & Gray’s corporate technology group in San Francisco who has worked with private company boards.
But how do companies figure out if a tech disruptor is something that may impact business or is just hype?
AI and blockchain, DeGraw points out, are two good examples of disruptors that need a critical analysis to figure out the true impact on an organization. And that’s where a board can be invaluable.
He offered an example of a company he worked with that was losing market share and management couldn’t figure out why. A board, which had deep understanding of the industry, was brought in to work closely with management to figure out the issues, including significant data control and protection problems. “There was a need for IT spending and rethinking,” he notes, and the board helped management come to those conclusions and turn things around.
Directors don’t have to be technological experts, he adds, they just have to have a basic understanding of how certain technologies work in order to ask the right questions and figure out if the right IT people are in place to capitalize on advances.
“Especially for a private company,” he continues, “the board can help executives and owners when it comes to strategic thought.” Whether it’s an advisory or a fiduciary board, he adds, they need to be useful — “not just a bunch of names on a website.”
Indeed, change is coming so quickly today that it’s difficult to know for sure what boards should be prioritizing.
“The digital transformation at the enterprise level, as well as emerging technological convergence, are happening at a pace we haven’t seen in 25 years,” says EY’s Digital Enterprise Transformation Leader, Yang Shim, and that means there are so many byproducts of tech that boards need to think about.
Workforce transformation, in particular, should be on a board’s radar screen. When it comes to how technology will be implemented and used at organizations, he explains, “the people aspect of it has to be very important” — how it will be used, the risks involved, etc.
The bottom line, he says, is what new technologies mean to value creation. “The more you know then you can prioritize. That’s where we see people being very successful,” he adds. Directors should not just focus on the changes “but articulate the value creation.”
How can boards make sure they’re bolstering value creation?
“With technology advancing rapidly, boards should ask questions and encourage their CEOs to pay attention to potential disruptive threats and to devise appropriate strategies for today’s changing times,” says Phyllis Ezop, president of Ezop and Associates, a consulting firm that studies business success and failure patterns. “Today, there is much concern about disruption, and there is often an urgency that says to disrupt yourself before someone else does. But, that urgency can have a dark side.”
“While a strategy for dealing with disruptive threats is essential,” she continues, “what is less often said, but equally important is the need to incorporate technology into strategy in a way that meshes nicely with the company’s strengths.”
Tech implementation that isn’t a strategic fit can be costly, she cautions.
“So, boards must ask questions not only to encourage CEOs to keep up with changing times,” she adds, “but also to help protect the company from adopting strategically ill-fitting technology that can easily damage the bottom line without the hoped-for benefits.”