This article has been written by Subhabrata Basu, a student pursuing an Executive Certificate Course in Corporate Governance for Directors and CXOs from Skill Arbitrage.
This article has been edited and published by Shashwat Kaushik.
Table of Contents
Introduction
The winds of change are blowing all over the world and the most impactful and pronounced effect of that is seen and felt in the field of technology. Nothing is sacrosanct anymore and there’s a need to continuously upgrade and upscale both at the enterprise and individual levels. In this article, let us delve into why it is necessary for the people at the helm of organisations to adapt and be one step ahead in this technological race so that they can lead their organisations to success against all odds and create shareholder wealth.
Digital transformation as it stands today
Digital transformation has made rapid strides in the last decade and more so after the pandemic started in 2020. Overnight, the normal brick-and-mortar model of businesses was disrupted and the only way to survive for the organisations was to be connected with all the stakeholders online. And then gradually rapid progress has been made in the areas of cloud computing, artificial intelligence, blockchain, etc. These have aided organisations in becoming more efficient and nimble, reducing time to launch products across geographies and with better targeting.
Evolution in the role of the board and independent directors in digital transformation
The Board and the Independent Directors have a very crucial role to play in the digital transformation of the organisations. According to a HBR report, 80% of the global directors felt that the boards should lead this instead of leaving it to the IT departments. Globally, the execution of this differs, with the boards being more active in Asia compared to those in the US. The different ways in which directors need to drive the adoption of digital transformation are:
Change in scope of work
Gone are the days when the boards used to only monitor CEO appointments, approve strategies, and oversee risk and compliance; now they are expected to look into the challenges posed by rapid digital transformation and provide stewardship to take the company ahead.
Blurring of lines between boards and management responsibilities
With rapid digitalisation leading to existential crises for the organisations, the boards are having to play a more active role in finding the right digital solution and tracking the adoption of the same by the organisation.
Digital tools for board operations
The board themselves needs to adopt digital tools in their own functioning while going about the board-specific processes like sharing internal documents, voting, and communicating confidential documents securely. Gone are the days of physical meetings and the boards have to adapt to the requirements of hybrid meetings.
The enablers for the board to provide digital transformation oversight
The question is, how do the board members, including independent directors, do justice to this new expectation from them to lead on the path of digital transformation? How can the board members ensure that they have all the tools available with them? Let’s look at this in detail now to get a better understanding:
Data availability
In today’s fast-moving business landscape, having the right set of data available in a fast manner is of paramount importance. The organisation needs to make available to the board real-time access to various business metrics with management commentary and key performance and risk indicators. If there are sudden disruptions anticipated or otherwise, the board needs to be made aware of that. All this will enable the board to take the right decisions swiftly, thereby providing the much-needed support at the right juncture.
Communication platform for better collaboration
The board, including the independent directors, is a body of people working towards a common goal and that calls for the availability of an efficient and secure communication medium so that they can work together seamlessly. As the board members may be geographically away from each other, the availability of such communication and collaboration tools will ensure that they are made aware of the situations fast enough and can then work together to respond appropriately.
Cybersecurity concerns
As the omnipresence of cyber threats looms larger and more tangible, the onus on boards to provide robust oversight intensifies. To effectively navigate this complex landscape, organisations must bolster their risk management frameworks. Incorporating advanced risk monitoring systems and reinforcing them with impregnable firewalls is a critical first step. However, to truly mitigate cybersecurity risks, a comprehensive approach that includes cybersecurity training programs is essential. These programs empower employees at all levels with the knowledge and skills to identify and respond to potential threats, thereby creating a culture of cybersecurity awareness throughout the organisation.
This multifaceted strategy empowers boards to effectively manage cybersecurity risks, enabling them to make informed decisions, allocate resources judiciously, and hold management accountable for maintaining a secure digital environment. With these measures in place, boards are better equipped to handle the challenges associated with digitalisation and digital disruption.
Digitalisation, driven by rapid technological advancements, has revolutionised the way businesses operate and interact with customers. While it offers immense opportunities for growth, efficiency, and innovation, it also introduces new vulnerabilities that cybercriminals can exploit. Digital disruption, characterised by the emergence of disruptive technologies and business models, further complicates the risk landscape. To thrive in this ever-evolving digital landscape, boards must have a deep understanding of the potential risks and vulnerabilities associated with digital transformation.
They must also ensure that the organisation has the necessary resources, capabilities, and processes to respond swiftly and effectively to cyber threats. This includes investing in cutting-edge cybersecurity technologies, implementing robust governance policies, and fostering a culture of collaboration between IT and business units.
By embracing a proactive and comprehensive approach to cybersecurity, boards can help their organisations navigate the complexities of digitalisation and digital disruption while safeguarding their assets, reputation, and customer trust. The real-time data-driven decisions taken by the board, aided by secure communication channels and proven risk management practices, are the way forward for boards. And this is a continuous process for boards to follow and practice as technology will keep evolving.
What more can the boards do to play a bigger role in the digital transformation
As the digital transformation race intensifies with rapid advancements in technology, organisations face a growing imperative to adapt and evolve to remain relevant and competitive in the market. This requires significant investment of resources, time, and effort. The board of directors plays a crucial role in steering the organisation through this transformation journey. Effective stewardship from the board is essential to ensure that the organisation successfully navigates the complex landscape of digital disruption.
Each individual director, including independent directors, has a responsibility to contribute to the organisation’s digital transformation efforts. It is no longer sufficient for board members to possess a general understanding of technology; they must develop a deep comprehension of the digital ecosystem in which the organisation operates. This includes familiarity with emerging technologies, market trends, competitive dynamics, and regulatory frameworks related to digital transformation.
Board members should actively engage in continuous learning and development opportunities to enhance their digital literacy. This may involve attending industry events, participating in workshops and seminars, reading relevant publications, and seeking mentorship from experts in the field. By investing in their own digital education, directors can better understand the implications of digital transformation for the organisation’s strategy, operations, and long-term success.
Furthermore, board members should actively participate in discussions and decision-making related to digital transformation. They should challenge assumptions, question the status quo, and provide constructive feedback to the management team. By fostering a culture of innovation and experimentation, the board can encourage the organisation to take calculated risks and explore new opportunities driven by digital technologies.
In addition to their oversight role, board members can also play an active role in supporting the organisation’s digital transformation initiatives. They can leverage their networks and relationships to connect the organisation with potential partners, investors, and thought leaders in the digital space. By building bridges between the organisation and the broader ecosystem, board members can facilitate access to valuable insights, resources, and expertise that can accelerate the organisation’s digital transformation journey. A consistent push from the entire board is needed to succeed in the digital transformation of the organisation. Let us look at the various steps and initiatives one by one:
Add more time to the digital transformation agenda in board meetings
The complexity of digital transformation is further exacerbated by the multiple dimensions that need to be addressed to find the correct solution that will work for the organisation. There’s a need for the right talent and resources, which again need to be aligned with a strong leader to take it forward. Also, with the newer technological additions come the added cyber threats, which need to be addressed properly. All these need more board agenda time to discuss them thoroughly as appropriate capital needs to be allocated.
Having the right set of directors on the board
The CEO of today who is grappling with the risk of digital disruption affecting his business, needs the right support from the board to ride through these challenges. The board should have directors with the knowledge and experience to provide the needed support to the CEO. A board refresh might be needed to bring in the right people who can do the job.
Diversity of the board is again important to get various perspectives to the digital transformation challenge and get some ‘out of the box’ views to bring in fresh ideas hitherto not on the table.
Director education is of paramount importance to improve the entire board’s digital literacy. Also, the governance committees should continuously evaluate the need to add independent directors with the right knowledge and experience of digital transformation to the board. This will go a long way in the overall digital transformation of the organisation.
Paving the way for artificial intelligence (AI)
With the high adoption of AI across various industries and business verticals, it is important that the board be completely supportive of the adoption of AI within the organisation. This will take the client experience to a new level and take the organisation ahead in technological adoption, aid business transformation, and achieve operational and risk excellence. Given the need for higher spending to aid AI adoption, the board needs to budget for such strategic initiatives.
The hurdles in the journey of digital transformation
The board must take cognizance of the difficulties in implementing digital transformation due to the various factors at play in the organisation. The board has to support the CEO in surmounting these challenges, as digital transformation is a non-negotiable initiative for the continuity of the organisation. Some of these challenges are as below:
Lack of unified decision-making structure
Different divisions run their own transformation agenda and there’s no common leadership across departments to push this as an overall strategic initiative.
Archaic systems
Many organisations cling on to old and outdated systems due to shortages of funds. Digital transformation in such cases is a herculean challenge as it needs making massive efforts to bring about the change.
Change-averse culture
Across the organisation, there’s a culture of avoiding and opposing change as employees prefer to remain in their safe zones and not embrace new technology and processes.
Budgetary challenges
New technologies need considerable investments, which the organisation may not be in a position to do or averse to doing as they perceive such expenditure as operational in nature and not consider the strategic importance of investing in new technologies to help the organisation keep pace with the competition.
Requisite skills shortage
Digital transformation requires employees to be armed with the right skills as they go about adopting blockchain, artificial intelligence, cloud computing, strengthening cybersecurity, etc. The adequate talent is in short supply and expensive, leading to a delay in the adoption of these new age technologies.
The board has to work closely with the CEO and the management team to get over these hurdles gradually to help the organisation adopt digital transformation.
Conclusion
Digital transformation is here to stay and will in fact grow in leaps and bounds in the times to come. To remain in business and be profitable, organisations will need to adopt it or perish. It will need a concerted effort by the board, the CEO, and the management team to face the headwinds both internal and external and steer the organisation to success.
The board, including the independent directors, will need to lead this from the front. For this, the board will need to first upskill itself with the right digital technology know-how and/or add the right people to the mix having the requisite knowledge and experience. All the enablers in the form of data availability, communication framework, and risk management need to be in place to help the board in this journey. It is expected of the board to spend adequate time on this and support it with strategic funding and collaboration. While there will be many hurdles along the way, they will need to be addressed in time and properly to smoothen the process of digital transformation. The board will need to go all out and engage stakeholders from the entire ecosystem to minimise the effect of digital disruptions and accelerate the momentum of digital transformation. This will lead to value creation for all the stakeholders and take the organisation to greater heights of success.
