Why Digitally-Savvy NEDs are Crucial to Successful Business Transformation
Friday, June 25, 2021
The COVID-19 crisis has catalysed digital transformation and accelerated managerial tensions that are inherent in many organisations. A McKinsey report showed that 70 percent of digital transformation initiatives fail, never reaching their initial goals. Behind every failure is a wrong decision due to many reasons, among which are the misunderstanding of the scope of a problem, a non-systemic approach to digitalisation, an organisational mindset prone to underestimating the capabilities of technology, and organisational structures and processes discouraging transformation.
The pandemic has put enormous pressure on organisations facing great challenges that need to be addressed in a short time. In view of the current pandemic, the role of Non-executive directors (NEDs) is crucial in helping businesses to address technological and economic shifts. There has never been a stronger need for their skills and expertise in providing objective insights, management oversight and strategic directions to ensure that short-term gains will not result in long-term losses.
To facilitate the understanding of and the discussion about the role of NEDs, Sphere Network organised a virtual event featuring a talk by Stuart Lynn. Stuart shared his first-hand experience of navigating companies in digital transformation, the challenges faced and key recommendations to take away.
Embrace the Scope of Transformation
Many organisations have high expectations about digital transformation without, though, understanding what changes to existing practices and structure it may entail. The integration of new technology is not a panacea for all problems unless a holistic approach is taken to tackle all the factors that make up a successful transformation.
Companies’ initiatives should not only revolve around “what” transformation can bring, but “how” it can be done. A holistic approach addresses the strategic steps, including the articulation of goals, understanding existing organisational capabilities, embracing the scope of the transformation, setting objectives and developing plans. The strategy is followed by implementation steps, including the launch of the digital transformation strategy and changing existing business operations that are required to cater to business goals.
Organisational inertia prevents many companies from seeing the “how” of digital transformation. Therefore, the role of NEDs is vital to help organisations see the broader picture and modernise archaic processes. They will help prepare for digitalisation by bringing their own expertise and the network of key contacts that has been accumulated through working in different sectors and collaborating with different industry stakeholders.
Organisational Mindset and Structure
The course of transformation reflects the decisions of the Board of Directors. However, there are two common pitfalls that stop effective transformation design and management.
Firstly, too often, the Board has a stereotyped perception of technology, hindering its full-scale deployment. They have a lack of trust in technology, consider it to be a cost-centre and a potential cyber-security threat. On the one hand, digital-savvy NEDs need to give confidence to the Board and the Finance team that the replacement of the technology holds new opportunities to capitalise on, rather than costs, with ambiguous prospects in relation to ROI. On the other hand, NEDs need to persuade the Board that digital transformation is not just the replacement of the technology, which would improve business performance, but it is one of the key elements/resources that can help achieve objectives. The technology works in concert with the right people with the right skills and the right organisational processes, facilitating change management.
Secondly, in many cases, IT specialists are under-represented at Board Level. It is hardly possible to lead digital transformation without knowledge, skills and expertise in technology. It is not possible to fully entrust strategy development to the Chief Transformation Officer (CTO) either, as they may have an insufficient understanding of the companies’ broader goals and objectives. Therefore, it is crucial for the Board to represent a balance of IT and strategic capabilities and have an organisational structure that encourages knowledge sharing. Although changing the Board’s mindset is difficult it is necessary, given the pace at which digital technologies are commoditised.
Ups and downs during the transformation process are inevitable. It is important to plan for the challenges that might arise concerning the management of staff, portfolio and relationships with providers, as well as the mitigation of costs. Sometimes, some aspects of transformation could be neglected due to the need to catch up with changes very fast.
The work of digitally-savvy NEDs is a big responsibility and every action taken bears an impact on business. In such situations, NEDs need to slow down the development and rethink the consequences. It is worth monitoring on a daily basis the commercial side of the process and its alignment with business objectives and outcomes. This requires re-evaluating whether all the processes are intact, starting from staff engagement in change management, and ending with portfolio management. In portfolio management, sometimes, short-term sacrifices are needed for long-term gains.
Some projects that had been launched before COVID-19 have to be shut as they are not viable in the new economic reality. Favouring short-term projects may be a way to prevent financial risks in the fast-paced and turbulent business environment.
- Digital transformation is not only about the technology, it is about people and processes working in concert to ensure an efficient organisational structure, culture and a skill set to achieve business goals.
- Digital transformation is hindered by a lack of trust, fear of costs, a misunderstanding of the role of technology, a lack of knowledge about how transformation happens and the lack of a clear vision about ultimate goals.
- The lack of connection and collaboration between CTOs, CEOs and CFOs undermines the understanding of the strategic and operational capabilities of companies in change management.
- The role of digitally-savvy NED is to work with the Board to bring expertise and guide the Board of Directors about the processes, resources and people needed to ensure successful digital transformation.
- Ups and downs during digital transformation are inevitable and NEDs and Boards need to be prepared for them.