Author: Rohit Kalro, Head of Digital Transformation and Strategy Advisory for Thoughtworks in India
Digital has always been looked at as a supporting or enabling capability for businesses. This could be in the form of digital marketing or being the information technology backbone to power a company ahead. The last couple of years have taught us – digital is going to play a far more critical role in organizations’ growth.
Digital capabilities or the lack thereof can kill a business if not severely curtail its capability to win or even continue to have a fighting chance in a competitive market. Today, digital is rightfully recognized as a strategic capability, driving competitive advantage for a firm.
And while bringing digital dreams alive, boards have the opportunity to play an ever larger role in guiding their legacy businesses to become modern digital businesses.
We look at how boards of organizations can contribute to this journey:
Monitoring digital investments
Tracking digital investments’ performance helps drive focus and also highlights any shortcomings to board members. Monitoring return on capital investment is obvious. However, boards have been guilty of not measuring technology investments rigorously and we recommend amending this by prioritizing metrics that track returns from digital investments.
Boards could adopt a two pronged approach – one set of metrics drive improvements in legacy areas (where ROI is a good indicator) and another more loose set of metrics track returns from risky and experimental investments – not too different from what a venture capitalist or asset manager would follow.
Facilitating speed to market
Going digital can quickly and efficiently deliver value to customers. Speed is a key metric that reveals if investments in digital capabilities are paying off or not. The speed at which value is created becomes a real differentiator for the customer and their future-perfect business. We advise boards to prioritize speed to market as a metric to be reviewed, to indicate the ‘health’ of their transformation efforts and to evaluate which initiatives are moving this metric in the right direction.
For instance, many of our retail customers benefit from automating their competitive pricing capabilities. In a manual system, it takes a few days to a week before prices can be updated but using technology, one could monitor and update prices in close to real time, thus living up to customer expectations.
Managing risk and cybersecurity
Organizations going digital are exposed to non-traditional risks due to their new digital capabilities. These new threats usually require different capabilities and speeds of response than what the organizations are used to. Aside from dealing with new threats, digital also impacts the evolving legal, regulatory and compliance needs of a modern business.
Data privacy and cyber security as more urgent capabilities to develop. Increasingly, organizations’ sustained proficiency in data and technology will help mitigate risks and encourage creative solutions in legacy scenarios such as supply chains and predicting trends. We urge boards to ensure a proactive risk strategy is in place to offer businesses coverage from such risks – an efficient monitoring strategy and accurate prediction of risks using data science capabilities.
Planning a digital talent strategy
Building effective digital capabilities demands the right talent at all levels of the organization. We expect the board’s single biggest investment towards transformation journeys – being focused on its people. Talent is key to establishing the right digital capabilities and taking them to market.
We counsel boards to build visibility into capability-centred investments, into how these investments align with businesses’ strategic goals and the progress when deploying them in areas of strategic importance.
Making investments in innovative or disruptive capabilities
A key outcome of digital transformation is building differentiating capabilities for future competitive advantage. Investments directed towards this effort that leverage emerging technologies, tend to be experimental in nature without the guarantee of return.
To counter the risk, we guide boards to allocate a percentage of their digital investments, in line with their risk appetite. We advise a venture capital-like approach and an evaluation of returns for such investments. Boards play a critical role in setting the organization’s ‘investment-agenda’ and making sure the portfolio of investments is aligned with strategies and capabilities needed for the future.
Deciding executive compensation
Compensation packages aligned to the organization’s performance are not new at senior leadership roles. But boards could evaluate adding another layer of compensation linked to digital transformation initiatives’ and investments’ success. Digital is no longer the remit of the CTO or CIO alone. And with digital capabilities being embedded into multiple business functions, a degree of digital maturity is expected across the business.
A performance-based reward handed out to functions that attain digital maturity and capability helps build alignment across the business and encourages business leaders to collaborate more effectively with technology leaders – building momentum for the transformation journey.
Board members play an important role in overseeing organizational vision and strategic transformation. The misstep is when there is a technology-first focus – usually leading to random investments in technology products that are not directly related to the business vision. Organizations are then straddled with multi-year investments in technology projects that do not build a competitive advantage or a differentiated positioning in the market.
Instead, our recommendation is for organizations to develop differentiated business capabilities and align these capabilities with the strategic vision. A board member’s role in this approach is critical and will help the rest of the business align technology investments to the right outcomes. It also guarantees a long-lasting and sustainable transformation journey.
It begins with company boards recognizing a successful modern digital business as the goal of digital transformation over maturity in the use of a specific technology.
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Disclaimer: Content Produced by Thoughtworks
