One of the greatest threats faced by organisations in today’s digital world is a Board that does not fully appreciate the threats and opportunities presented by technological advancement. How data can provide a competitive advantage, and the implication of new technology on the business model, customers and organisational design and its transformational potential. To be successful digital transformation is a top-down leadership exercise that impacts every aspect of an organisation – it’s much deeper than simply acquiring new software or bringing in external consultants. In purely digital enterprises, speed, collaboration and agility are baked into the culture. They’re inherent in the way everybody works and in every decision taken. But in more traditional organisations, many executives lack the expertise or experience to take the lead in digital transformation.
That’s why, over the past few years, we’ve seen dozens of examples of large consumer-facing businesses appointing high-profile NEDs with digital backgrounds. It’s a trend that’s spreading across other sectors and into companies of all shapes and sizes. Increasingly, we’re being asked to help boards find NEDs who combine a deep knowledge of the digital landscape with a solid track record in corporate management. But with demand high, they’re in relatively scarce supply.
What’s more, simply filling the digital expertise gap with a ‘digital guru’ isn’t guaranteed to deliver results. To make the right appointment, there are some important factors to take into account. By way of illustration, consider the stories of two very different organisations, 5 years apart, we’ve altered a few details to protect the innocent…
About six years ago we met the CMO of a £10bn retail business. They had been in role for just coming up to a year and had joined from an online price comparison business, bringing with them a Digital Director.
But things had not worked out as planned and less than 12 months in the newly appointed Digital Director had tendered their resignation. We were surprised, they had a great reputation and impressive track record at their previous company. So what had gone wrong?
When we met the individual it quickly became clear that despite buy in from the Board for a strategic shift towards e-commerce, the rest of the company was still in a ‘bricks and mortar’ mindset. It hadn’t embraced a business strategy, operating model and digital strategy which were one and the same thing. It hadn’t embraced a truly digital approach and without the buy-in of senior and front-line managers, the planned changes withered on the vine.
But he recognised that he wasn’t entirely without blame himself. He had assumed that what had worked in a purely online business would work at a traditional retailer. He hadn’t listened enough, or invested sufficient time and effort in winning hearts and minds. Frustrated by the lack of progress, he’d resigned as soon as an opportunity arose to join a promising new online start-up.
As we pointed out to the CMO, unless the corporate culture changed, simply replacing him with another digitally-savvy executive was likely to end in the same way. What’s more, it was important to recognise that corporate culture wouldn’t change overnight.
So rather than recruit a replacement, the CMO decided to champion the digital agenda personally. And this started at the top, getting the CEO and the executive team to walk the talk and change their own behaviours and attitudes as the first stage in getting a digital mindset embedded throughout the organisation. And they brought a few ‘bright young things’ to act as role models and catalysts for this new culture.
LESSON ONE: for a business to drive a digital agenda it has to embrace a digital culture throughout the organisation, not just bring in a ‘digital guru’.
More recently, we were approached by the Chairman of a financial services business with a brief to find a Digital NED. Highlighting another trend; requests for Digital NEDs used to be largely from technology, retail and consumer businesses, now we’re seeing far more demand from businesses within the financial services, industrial and healthcare sectors.
The key question for our financial services Chairman was, “what would the ideal NED candidate look like?” But when we started to explore this, it quickly became clear that neither he nor his nominations committee had given much real thought to what the role should actually entail.
The Corporate Governance Code states that the role of the board includes constructively challenging and helping develop proposals on strategy as well as determining the nature and extent of the principal risks it is willing to take to achieve these objectives. But this was a board that felt out of their depth when assessing proposals for an omni-channel strategy perspective and simply didn’t understand the risks of the huge investment programme planned. With the knowledge that the majority of businesses suffer cyber-attacks, they didn’t feel confident in their cyber due diligence and developing a cyber security plan. That they as a board were asking the right questions and fully understanding how to mitigate risks.
Acknowledging that they needed the right person in the boardroom asking the right questions was a vital first step, but what kind of digital NED did they want? Was it someone with who had changed an old business model, or someone who would bring a more entrepreneurial focus to the board with a greater risk appetite? Someone who had scaled a business or someone who could advise on starting up new channels? These are critical questions, because digital NEDs come in many different shapes and sizes - entrepreneurs who have founded digital businesses, CMOs of digital retailers, digitally savvy CEOs and COOs, heads of digital agencies or more technical CIOs – and all are in short supply. The key was working out what kind of NED the business wanted before we could go out and find them.
LESSON TWO: first work out what kind of digital NED you need.
It may not be easy to attract digital NEDs - they often dislike hierarchical structures and formal decision-making. They also may be suspicious of the board’s true aspirations around the digital agenda and critical of the extent towhich the organisation has bought into a ‘digital culture’. As a result, we often advise boards on changes to their onboarding and making concessions around committee membership to get the right skills on board.
LESSON THREE: you may have to behave differently to attract them.
But what about advice for potential NEDs? Well here are two important pieces of advice we give…
First, great NEDs need a breadth of experience to be able to assess and comment on a full range of commercial and governance issues. So even if you’re brought onto the board as the digital expert, you need to have a view on risk, finance, marketing, HR, etc.
LESSON FOUR: if you’re a digital director make sure you can show leadership breadth
Second, we have always advised potential NEDs that even if they’re not from a finance background, they need to be financially smart. We now add that even if you’re not a digital expert, you need to be digitally savvy.
LESSON FIVE: if you’re not a digital director make sure you can show you’re digitally savvy
If you are a potential NED looking for advice on how to best prepare yourself for this next stage, or indeed a Board who is seeking advice or the right NED to help drive forward your business, contact Warren Partners.