Dealing with disruption

Boards respond to the opportunities and threats of digital disruption.

Here are 12 ways boards are responding to the opportunities and threats digital disruption presents to their organisation. Some changes are well entrenched as directors across industry grapple with the impact of new technology; others are just emerging.

1. Board composition

High-performing boards know digital disruption is an issue for all directors and that appointing technology specialists who cannot govern across a range of issues is problematic. But boards that lack technology experience are increasingly recruiting tech-savvy directors, including those with significant management backgrounds, to bolster governance skills in this area.

2. Decision-making bias

This is a recurring theme in organisations that have been crushed by disruption. Boards of traditional media companies, for example, underestimated the willingness of consumers to give up their newspaper to read information online. Department stores worldwide underestimated the speed at which consumers would migrate to online shopping. Boards must constantly safeguard against groupthink, challenge how decisions are made and question whether personal biases might lead to inferior decisions. Board diversity has never been more important.

3. Executive skills

Executive-search firms report they are receiving more mandates from boards to find CEOs with technology experience. But an information-technology background may not be enough. More important is finding CEOs who can create a digital mindset across the organisation and who see technology as the way business is done, not just an enabler of strategy or a service.

4. External views

Boards of large ASX-listed companies are visiting Silicon Valley and other innovation clusters to hear from technology leaders who are disrupting industry. They are also arranging more presentations from industry experts on current and emerging technology trends that could disrupt their organisation’s industry. Some large organisations have even organised software-coding training sessions for directors to develop their technology skills.

5. Lines of sight

Top boards are spending more time with executives beyond the CEO and Chief Financial Officer to understand how the organisation is prepared for industry disruption. This might involve meetings with the Chief Information Officer (CIO) or Chief Technology Officer (CTO) or annual or bi-annual presentations from them before board meetings. Or planned “fireside” chats with their direct reports to gain a better understanding of the organisation’s technology issues. Or boards spending more time on CIO or CTO appointment and succession planning.

6. Talent and capability

A closer working relationship between boards and the group human-resources executive is vital to understand the organisation’s internal capabilities to deal with disruption. The board must be satisfied the organisation has the right people to deal with disruption. Directors might ask: does the organisation have enough staff with data skills? To what extent could automation reconfigure our workforce? What additional skills will the organisation need in three to five years? Are we developing those skills now and/or how hard will it be to get them? Is the organisation successfully competing in the war for talent?

7. Organisation culture

Few issues are more important with disruption than organisation culture. The speed of disruption means organisations must be able to acquire new skills quickly and drive constant change. More than ever, boards must understand if their organisation has a culture that supports a digital mindset and embraces rather than resists disruption. It will pay for boards to understand their organisation’s approach to real-time learning systems for staff and how that creates a genuine culture of lifelong learning across all of its workforce.

8. Organisation design

Boards should test whether their organisation’s structure aids or inhibits its agility and ability to respond to rapid disruption. Does the company still have a traditional top-down hierarchy that creates unnecessary bureaucracy, fosters silos and slows decision making? Has it moved sufficiently to an agile model based on small, empowered teams that have end-to-end accountability and greater decision-making autonomy? In this era of digital disruption, it will pay boards to test management on the appropriateness of organisation design.

9. Digital working task groups

Some governance observers have suggested boards create a formal sub-committee, like audit or remuneration, to deal with technology and disruption issues. A better approach for most enterprises is forming working groups around key technology issues and reporting the findings to the main board. For example, two directors could work with the two most senior technology executives to understand the organisation’s response to cybersecurity risks. Another working group could form to examine the organisation’s internal skills and capabilities, learning processes and succession planning as big data and artificial intelligence take hold.

10. Incentives

Boards should test whether the organisation has the right hard and soft incentives to develop an effective digital mindset. Is this approach reflected in key performance indicators across the organisation’s remuneration-incentive and succession-planning strategies? Are executives rewarded for failure, an inevitable part of the innovation process that, done well, can create learning outcomes and other company capabilities. Are there sufficient learning, development and career opportunities for staff in a rapidly changing market? Is there a dynamic organisation structure that ignites passion in staff, creates a shared vision and builds a culture where staff thrive on change?

11. Board decision-making process

Developing board processes to approve large technology projects and assess their implementation is an even greater governance challenge in the digital economy. Increasingly, boards are being asked to approve large technology investments when they might not have the right skills or enough time to do so. The result: failed projects that run badly over time and budget. Boards must ensure they have clear processes to approve technology investments, access to external advice if needed and skills to challenge what is being put before them.

12. Ethics

Organisations that thrive with disruption tend to have a shared vision and values. They make the right decisions more often because there is a strong sense of ethics across the workforce. Boards need to understand key ethical issues that could arise from technological disruption in their organisation.

For example, how could the use of big data affect customer privacy? How deep will we mine data to understand consumer behaviour? How far will we intrude into customers’ lives through technology? Are there clear processes and systems on how the organisation uses technology and respects customers, and have they been communicated to staff? Boards that overlook the link between technology and ethics could pay a heavy price.