Digital Transformation: How to Cope with Shareholder Pressure?
All businesses are affected by digital transformation and many are moving in this direction. This is a major break in organizational modes, business models and the way of managing at all levels. In fact, we are talking about the fourth industrial revolution, after those of the steam engine, electricity and computers. It is also, and above all, a strategic break that must be mastered at the highest level.
Board of Directors: the four preferred postures including digital transformation
The directorates-general are therefore at the forefront of guiding the digital transformation strategy, because innovative technologies such as Artificial Intelligence, the Internet of Things, Machine Learning or Blockchain …, upset all aspects of the management of digital technology, from strategy to operational performance.
In such a context, what role should the board have? Four changes must be made within the bodies: to understand the new challenges of the digital transformation, to change the modes of governance, to adapt the competences of the members of the boards of directors and to elaborate specific indicators.
Focus on the challenge of digital transformation: operational performance
According to Gartner’s CEO Survey, nearly six in ten executives recognize that their digital investments have already improved the profitability of their businesses. It is therefore the mission of the executives to demonstrate to their boards of directors that the digital transformation generates new revenues, thanks to the judicious exploitation of the good business opportunities, at the right time. The Board of Directors, on this point, plays its full role in guiding the digital strategy, according to business issues, and validation of its success.
Reinventing corporate governance
With digital transformation, historical corporate governance is no longer appropriate. In particular, two governance principles must guide Boards of Directors. On one hand, check the consistency of the digital transformation with the corporate strategy, so as to capitalize on all the opportunities and to value all the assets of the company. On the other hand, guarantee risk control to maximize value creation, insofar as the digital transformation is based more on risk taking (to conquer new markets, launch new products and services, change the organization …) only on a precautionary principle. Ensuring a virtuous trajectory of digital transformation is one of the priority tasks of a board of directors.
Develop skills to gain digital maturity
Faced with the challenges of digital transformation, are the current structures of Boards of Directors really adapted? This is not certain if one considers, for example, the types of training, the experience and the age pyramid of the administrators, especially in very old companies.
However, if the business becomes digital, the Board of Directors must also become so, because we must understand what can bring often complex technologies, from connected objects to Artificial Intelligence, passing by Big Data , the Data Lakes , robotics, collaborative platforms, predictive analysis, 3D printing, social networking or social selling . Not to mention the development models of start-ups, combined with approaches such as Test & Learn, Design Thinking or Lean, which older companies are increasingly inspired.
As many concepts as the members of a Board of Directors of a company in digital transformation must control, at the risk of being outdistanced by the competitors who themselves can be much more agile to improve their Time to Market. It also involves the use of the most modern digital tools (e.g., portals or dematerialized documents to improve the effectiveness of a Board of Directors), but also adopting a posture that promotes proactivity and idea generation. An analysis published in 2017 by the Harvard Business Review (“The board directors you need for a digital transformation”) distinguishes four essential skills, which correspond to as many profiles of directors, which must have a Board of Directors to succeed the digital transformation:
- The digital strategist: he/she is not in the business, but he/she perfectly masters the digital environment of the company.
- The disruptor: it can come from a “pure player”, for example a start-up, and it brings ideas out of line with the existing one.
- The leader: he has the experience of trades that have transformed with digital, with an experienced manager profile.
- The “processor”: he/she has already participated in the transformation of a profession, at the operational level.
Elaborate relevant indicators to drive the shareholder value
In a Board of Directors, the role of shareholders is to judge progress made (in terms of changes in turnover, profitability, growth, control of financial and human resources, etc.) and compliance with the strategy that the general management is responsible for conducting.
These missions obviously do not change in a context of digital transformation, but they require, however, a finer level of control. Let’s not forget that digital transformation creates uncertainties, turbulences and disruptions that many boards are not used to facing.
This management aims to measure the degree of digital maturity of the company, its processes and its employees. It also serves, concretely, to inform the members of the Board of Directors on the progress made. Thus, for example, we can retain the following indicators, to communicate to the board of directors: the share of resources dedicated to strategic projects, the innovation effort, the number of digital projects that have reached or exceeded their objectives.