Digital transformation and the role of the Board
Venetia Lean, Member of the Board of Directors at Banque Havilland
Technological change is not a new concept for boards, but the speed of change witnessed recently is unparalleled particularly with the rapid advancements in technologies such as AI, cloud computing and big data. In addition, recent estimates indicate that the COVID pandemic has accelerated the digital timeline by up to four years, pushing digital matters to the top of the board agenda. Digital transformation can no longer be seen purely as the domain of the IT department.
Many boards of directors, however, find themselves overwhelmed by the complexity and speed of digital transformation and unclear on the role they should take, fearing that they do not possess the required technical expertise to guide the management teams and make the right decisions for the business.
Whilst it is important for directors to be aware of and engaged in the big themes that impact their businesses the key to their role in digital transformation lies in their fundamental board responsibilities, which in basic terms are setting strategy and culture, risk management and oversight. Boards should not fall into the trap of needing to become technologists but consider what does an effective board do in managing change (digital or otherwise).
Focus on understanding the implications of technology to develop strategy
To set the vision and strategy the Board needs to understand the implications of technology on the business they are in, and how it will impact the way in which the business creates value in the future. Training and expertise should focus around helping directors to understand the business implications of key technologies in the context of their industry. The goal should not be to build a board of technological gurus but to shift mindsets and open up new possibilities to assist in the strategy and help the board to challenge the management in its development of the business.
In order to build clarity and alignment around the digital strategy boards and management need to strip back the business to its purpose and identity. Take for example, Banque Havilland whose purpose is to be a boutique private bank providing wealth management services high net worth clients. The next stage is then to consider how to deliver this using digital technology and continue to create value for the business and its clients. For example, in a high trust business where the personal relationship is paramount it is unlikely, we will replace advisers with robots, but we can consider how to use the new technology to speed up and ease certain procedures for our clients to enhance our premium service. In this scenario it is the role of boards to push the management to understand the real source of competitive advantage, and how the transformation can leverage these advantages to deliver new sources of revenue.
As part of the strategy setting it is also the role of the board to help management set a clear road map for the entire organisation to follow and ensure that sufficient financial, human, and technological resources are allocated to support the transformation initiatives. This includes investing in the necessary infrastructure, talent acquisition, and training programs.
Establishing the culture for digital transformation
In all organisations the board is responsible for setting the tone at the top, and with digital transformation this is even more important. Digital change is exponential whereas human change is more linear and gradual – a cultural shift is required in the organisation. The board needs to foster a digital culture that encourages innovation, collaboration, and adaptability. This includes promoting a mindset that embraces change, encouraging experimentation, and rewarding risk-taking.
The board provides clarity and direction, ensuring that all digital initiatives align with the overall business strategy.
Robust approach to risk management remains key
Digital transformation comes with inherent risks such as security breaches, data privacy concerns, and technological failures. The board needs to assess and manage these risks effectively as it would with other risks associated with its business. This includes establishing robust cybersecurity measures, implementing data protection policies, and monitoring the performance and compliance of technology vendors. In some instances, the technology is developing so quickly that regulation and standard practices have not yet been established (e.g. global race to set rules around the use of generative AI), boards need to utilise their standard risk management frameworks and procedures to move forward with caution. The “Move fast and break things” motto of Facebook does not work in highly-regulated businesses in the financial sector for example. Boards need to operate in the context of their industry norms and regulations.
Critical role in overseeing the progress of digital transformation
A key role of the board is to monitor the often-significant investment and progress. Digital transformations are complex often comprising of multiple initiatives. Board can help management prioritise the most important projects that will deliver most value and then determine the best way to monitor these, which may not mean using traditional KPIs. For example, tracking outcomes that create value in the context of the organisation might be a better indication of success in the short term as opposed to ROI – for example time to open a bank account, or process a credit application. The board needs to regularly review the results to ensure that the initiatives are delivering the desired outcomes and make necessary adjustments to the strategy to ensure continuous improvement and success.
It is clear that rapid advancements in technology have disrupted traditional business models and forced organisations to adapt to stay relevant and competitive. Digital transformation for existing businesses is a challenging, complex, long-term endeavour that cannot be solely left to the IT department. It requires a strategic and collaborative effort from the entire organisation, with the board playing a crucial role in driving and overseeing the transformation.
Effective boards make conscious decisions through seeking out information and differing views, taking time to evaluate the opportunities and risks and then making a collective decision in the best interest and context of the business, then monitor progress over time. In my mind this is the role of the board in digital transformation.