What are your thoughts on Board renewal and refreshment? Is it best achieved by changing composition but also training on hard and soft skills – ESG, digital, governance, diversity etc. – so all directors have a wider experience, skill set and appreciation which widens the vision of the whole board?
Guy: There are a number of ways to bridge the gap but the goal is to have a balanced board (not just one NED) with a good appreciation of digital, data and technology and the opportunities and risks it brings. To bridge the gap in the short term a board could introduce:
- A technology committee – all things digital are reviewed which will drive a deeper understanding
- A digital advisory board (increased popularity) – reporting to the board but bringing in specialists to support
- 1 to 1 pairing – Board member with a senior digital / technology executive
- Mentoring and training – development for board members
Do you have any advice for a business that needs the support of its workforce to effect a digital change, but at the same time the workforce knows that this will cannibalise a good proportion of their jobs?
Guy: I’m happy to discuss this in more depth with you personally (contact Guy Magrath on LinkedIn) as I worked for a company which transformed itself from a traditional and manual orientated catalogue provider to a leading digital solutions provider. In summary we were very open about the direction we were heading. If we could automate processes that were non value-add to the customer through technology we would, but at the same time we would look to find places where the human touch drove competitive advantage and real value-add to the customer. Here we would invest and upskill.
Tim: Transition and change is never easy to execute. To set up for success, you need a clear marker in the sand and to paint a picture of the future vision. The key is to state and share the vision clearly with the business and emphasise that there will be change. Plan your timeline and share the trajectory of what the new business will look like. This gives people the chance to be prepared. This cognitive process is something they want to be part of, and if not, they can move on or they can make the request to retrain and evolve skills. If there is anyone left sitting on the fence, then do you want them in the business?
Has COVID-19 exposed the lack of capability at Board level to address the rapid change and impact of digital?
Rashmi: The pandemic has left many boards fractured in respect of their approach to strategy and there are glaring gaps on the board in terms of diversity of thought and skills. The change has shown a lack of alignment in leadership in terms of digital implementation.
Guy: There is a common belief that Covid has accelerated digital behaviours by well over 5 years. For example, the percentage of overall retail sales that goes through e-commerce was about 20% last January increasing by about 1% a year. It now stands at 36%. Although that may drop back, it will still see a significant step change as many customers move from trialists to adopters. There is no doubt that many companies and therefore boards have been caught out, especially the ones that have no direct access to customers following lockdown. Although the pandemic was probably not on any board’s risk register, the changes in customer behaviour were (e.g. more millennials and a drive for increased ease and convenience). Without having these skills on the board, risks have suddenly accelerated exposing shortfalls in the board room.
How can boards be encouraged to attract hybrid professionals with diversity of thought rather than hiring the same types of people (which now includes a “digital expert”)?
Guy: Board chairs agree that their goal is to have an educated, informed, cutting edge board that can evaluate risk, understand new disruptive technologies, contribute to strategic decision-making and provide challenge to management. To fully understand these risks and opportunities requires knowledge and experience at board level. First, though there needs to be an acceptance that there is a gap, which the pandemic had no doubt shone a light on.
Tim: You absolutely need to ensure that you have a roundedness to the team, and the key to ensuring this is to avoid the trap of hiring in your own mould. Behavioural profiling can be a real asset to help tap into the variety of knowledge and experience available within the team and in creating an understanding of where conflict might lie, but also where you can unify the team and move forward. This 360 approach to the issue is one I would advocate.
Many CEOs have a short term business outlook driven by profit, market penetration or diversification and ultimately shareholder return. How do you change the mindset of the executive to have a longer term vision where the tangible or intangible returns won’t be recognised in the immediate future?
Rashmi: The leadership of the board is paramount. If the CEO and or the executive are of the mindset for short -term goals/issues, I would be questioning the role of the chair and the other directors. It is their job to question this approach. The overriding goal is to create long term value. Look to the board and see if there is in-group bias – not just group think. Revisit how often the board is meeting – does the frequency need to change? Spend time re-reviewing board polices long term. This issue arose in many finance and retail sectors in their hay day and the responsibility lies firmly with each director and the board collectively to ensure the board is working as a group. Invite an external evaluation from an appropriately experienced independent facilitator. The UKGCG recommends every three years for FTSE350 companies or times of major change for the board or company.
Rashmi reflected on the need for diversity on Boards. Do you have examples of companies that have changed the Board because of the new digital pressure? Is one member on the Board enough for leading the digital migration?
Rashmi: I have worked with boards and have encouraged changes to bring greater diversity in terms of skills and demographics which have included age, race and gender but all with different cognitive approaches. In respect of skills (and including digital) this cannot be solely upon one individual, and equally the board cannot be full of one type of skill. This is often when I have recommended subcommittees or advisory panels to help with the burden. It is also important to remember that as a board there can never be a delegation of responsibility to any one person on the board no matter what their expertise.
The focus of “digital” seems to be heavily focussed on the end customer interaction. Are we missing out on the application of digital to the core operating infrastructure?
Guy: Great question, when looking at a simple definition of digital by Forrester they define digital as ‘A digital business continuously exploits digital technologies to both create new sources of value for customers and increase operational agility in service of customers’. A good business uses data and technology to both identify new revenue streams as well as driving operating leverage (reduce the cost to serve).
Rashmi: I touched upon this in the webinar stating that the increase in technology in business decisions adoption has taken place in 25.4 days as opposed to the expected time of 635 together with migration of assets to the cloud in 23.2 days, as a contrast to the expected time of 547 days (McKinsey report Oct 2020). The application of digital to the core business has already started and if it has not, your organisation is going to have to play catch up. The businesses that have not focused on digital particularly internally are showing a decline in revenue. I referred to the Italian company offering natural gas and electricity that initially digitalised their internal operating structures which showed an improvement in collaboration and communication amongst the employees eventually helping them with the consumer experience and reaching a target 15-20% quicker. So yes, infrastructure is critical and I would also add that implementation should be done carefully – I gave the example of both Ford and GE.
What is the pipeline like for NEDs with deep digital experience?
Rashmi: I touched upon this and Guy further commented. There should not be just one person with “digital experience” and there are varying types.
- Digital thinker
- Digital Disruptors
- Digital Leaders
- Digital Transformation
From my experience finding the right people has always been about approaching the right recruiters such as Eton Bridge Partners.
When you think of digital transformation from a strategic viewpoint, is it about cost efficiencies and process transformation, or as a revenue growth opportunity, or both?
Guy: It is both. Forrester define digital as ‘A digital business continuously exploits digital technologies to both create new sources of value for customers and increase operational agility in service of customers’. So its all about tapping into new revenue streams as a result of changes in customer behaviour and improving your operating agility through more efficient processes and scale.
Tim: I agree with Guy, it is both, but skewed dependent upon your current position and how ambitious your plans are, and indeed your acquisition base? The key challenge is securing the capability and skillsets to determine and drive the way forward. Most businesses have needed to pivot to create opportunity. The key hallmarks of success have been facilitating the transition to direct to consumer – digital is out of the bag – capabilities have advanced 5 to 10 years in response to customer demand. This has relied upon significant process transformation – in response to a wholesale shift in mindset and behaviour. Additionally, the investment world has been fast-tracked, particularly with respect to fin techs, which will be a mainstay for the UK economy according to Rishi Sunak.