Tag Archives: board member

Your Next Director Should Be a Geek

Imagine that you were a major investor in a leading company, and its board of directors had no members with independent, world-class financial expertise. Who would look after your interests? You could probably coach the directors to ask good questions, but they would lack the competence to judge the answers. The board would not be able to engage management in robust conversations about the complexities of capital structure, mergers and acquisitions, financial accounting, reporting, regulatory compliance or risk management. Most investors and regulators would deem such a board unfit to carry out its fiduciary guidance and governance responsibilities.

Yet that’s precisely where many companies are when it comes to information technology. Digitally driven change is becoming as critical an issue to most companies as finance. Companies are being called on to reimagine and reconstruct every aspect of their business; customers, suppliers and markets expect no less. Consider the rapidly expanding use of mobile phones in retail and banking. Or the changes foreseen in the transportation industry due to car-hailing algorithms and driverless vehicles. Already, one MIT study has found that digitally adept companies are, on average, as much as 26% more profitable than their competitors. And that advantage is only likely to increase.

The boards of many large companies are ill-equipped for these shifts. That was the conclusion of our 2015 study of more than 1,000 nonexecutive and executive directors at 112 of the largest publicly traded companies in the U.S. and Europe. By analyzing company filings and public information, we found that all too many boards lacked the expertise needed to understand how technology informs strategy and affects execution. In Europe, for example, 95% of the companies we assessed, excluding technology and telecommunications companies, still had no non-executive directors with deep technology fluency. In the U.S., almost half of the surveyed companies had no technology expertise on their boards. These included major financial-services, insurance, industrial and consumer products companies. Yet each of those industries is grappling with complex strategic questions that hinge on technology.

See Also: How Leadership Will Look in 20 Years

Even boards with world-class technology expertise can have blind spots in areas of strategic importance; these include analytics, cybersecurity and digital fabrication. And even experts who keep up with particular technologies may miss the general effects of rapid technologically driven change on core products, business models and customer preferences.

Many board members are aware of these deficiencies. They know that their companies will either embrace technological change and claim the markets of the future or be put out of business. In 2015, a PwC global survey of large-company directors found that 85% of the respondents were dissatisfied with the way their companies were “anticipating the competitive advantages enabled by technology.” Almost as many, 79%, said their boards did not sufficiently understand technology.

The pervasiveness of the problem is troubling for anyone who cares about these companies — but it also represents an enormous opportunity. At the board level, there is a need for knowledgeable, incisive “geeks”: independent directors with experience and perspective in putting technology to use. In the past, many boards have compensated by relying on management or external consultants for strategic advice. But the stakes are now too high to take that approach.

Boards can no longer duck the responsibility for the company’s digital transformation. They must take real ownership by ensuring that they are equipped to fully understand this part of the board agenda. Otherwise, how can they adequately oversee their company’s strategy, investments and expense base? How can they guide profitability, manage risk, assess management performance and ensure proper talent supply? Below are three critical steps you can take to better prepare your company for these challenges.

1. Hold out for sufficiently broad and deep expertise. Although company leaders agree on the need to attract technology-fluent directors, they often approach the undertaking as an exercise in diversity. They “check the box” by bringing in one person to stand for the full technological field, rather than seeking multiple directors with relevant experience and insight.

To assess the severity of this deficiency in the companies we studied, we analyzed the resumes of their nonexecutive directors on four distinct aspects of technology: pure-play disruptive digital business, enterprise-level IT, cybersecurity and the digital transformation of Fortune 500–sized enterprises. Each is critical to boards’ oversight responsibilities, and fluency in each requires a distinct body of knowledge and experience. Few experts in enterprise-level value-chain IT could offer expert guidance on building disruptive digital business, and vice versa. We found that more than 90% of the companies, including technology and telecommunications firms, lacked expertise in one or more of these critical technology areas. Our research revealed only two companies that addressed all areas: Google and Wells Fargo.

To address the gap, you must open multiple board seats for people with technological experience. Just as having only one woman on a board has proven to be insufficient, having just one IT-savvy member is problematic. To fill these seats, you may have to reach beyond the traditional search targets of former CEOs and CFOs. Tap into recent CIOs, CTOs and other C-level leaders at successful information-intensive companies; retired military officers with large information-technology commands; and senior consulting and private equity partners with deep cross-industry expertise in enterprise technology transformations. Resist the urge to rely solely on Silicon Valley experience. Start-up experience is valuable, but addresses just a small part of the large enterprise technology challenge. Likewise, the “move fast and break things” attitude in Silicon Valley often does not translate well to other industries.

When recruiting these board members, be wary of candidates without fresh experience; in fast-moving fields such as cybersecurity or disruptive digital technology, people who are no longer active don’t always keep up with the latest trends. If executives in the business sector are scarce, look elsewhere; other sectors may be surprisingly relevant. In financial services, for example, understanding sophisticated process control is increasingly important. The best prospective board member may come from the logistics industry — from, say, FedEx or UPS.

2. Support robust discussions of technology with the right kinds of practices and management structures. There are two possible mechanisms for accomplishing suitably robust discussions. The first is to establish a formal technology-focused subcommittee of the full board, on par with other oversight functions such as audit or compensation. This can be helpful in raising critical issues and promoting deep discussion of complex topics. It also creates a mechanism for engaging external advisers.

Alternatively, set up a technology advisory committee that meets regularly with top management and periodically reports to the board. AT&T does this. It may be easier, with such a committee, to attract best-in-class expertise, given that the time commitment is low and there are no full fiduciary responsibilities. Typically, advisory committees can also rotate members more frequently than a board can. It must be remembered, however, that an advisory committee reports to management, not the board. This will color its advice.

Whatever the structure, it is important for this group to address topics that go beyond technology strategy and IT governance. The most important priority may be enterprise strategy and the ways in which technology makes new value propositions possible. FedEx, which is as much a technology company as a transportation icon, has used such a board to great effect for many years.

3. Set the right context. Alan Kay, one of the foremost pioneers in personal computer conception and design, once said, “Point of view is worth 80 IQ points.” The context with which your board of directors views technology is a critical element for enterprise success. They must collectively understand the 10 to 15 drivers of technology that have taken quantum leaps in the past decade — for example, big data and analytics, cloud computing, mobile technology, artificial intelligence, the Internet of Things and autonomous transportation — and the potential implications each has for the company.

They must also have a clear view of their own company’s IT landscape: their existing hardware and software, including estimates of redundancy, age, robustness, any risk of obsolescence and costs. For example, how many marketing systems, customer databases and human resource systems does the company have? How interoperable are those systems? The need to ask these types of questions about a factory or back-office footprint would be obvious, but boards have generally neglected such inquiries regarding technology. The board must also understand risks related to technology, the defenses currently in play and any weaknesses in those defenses. Most important, the board must understand how the company’s IT systems relate to the company’s overall strategy, and what capabilities are needed to support it.

It falls to the board to ensure that the company has a multiyear plan to address technology needs while reducing costs and risk. Boards need not grant a license to spend. On the contrary, the hallmark of computers and networks is that they continually get faster, better and cheaper. These benefits accrue only to those with modern gear, however, so frequent upgrades are essential.

Finally, the board must incorporate its expanded technology context into larger deliberations. Talent recruiting and leadership development should be designed to fill gaps in technological fields. The criticality of IT should inform the review of proposed mergers and acquisitions. A close link to the audit committee is important because technology affects regulatory compliance and ethical issues. And the relationship to full board strategy discussions is critical.

Of course, placing someone with world-class technology expertise on a board does not guarantee success. Many technically proficient companies have lost to upstarts with a better product or service. But without this expertise, boards cannot play their most important role: intervening with substantive conversations about strategic decisions early enough to make a difference. And without these focused conversations about technological investments and decisions, boards cannot fulfill their fiduciary responsibilities.

Today, every board of directors has a once-in-a-generation chance to leapfrog the competition through technology competency. The opportunity is great because the task is difficult, and there is no large pool of talent waiting to be recruited. Those companies that meet this challenge successfully will capture the markets of the future.

A version of this article appeared in the Summer 2016 issue of strategy+business.

The Formula for Getting Growth Results

Real growth — not incremental improvements to last year’s numbers, but big results coming from new opportunities you manage to seize and commercialize — is hard to come by.

There are so many distractions, so many rabbit holes you can fall into — the lure of a cool technology, a move by a competitor that appears to be smart, a high-pressure conversation with a board member, a convincing argument from a colleague on why an idea will or won’t work or a CFO waving a red flag.

There are also so many ways to convince yourself that the status quo, at least for now, is tolerable — the comfort of a good current quarter, the reassurance of lots of money being plowed into new technology, the establishment of an innovation team or being recognized with an industry award.

But somehow, things still don’t feel quite right. You wonder why, in spite of upbeat business reviews from trusted employees, the new product pilots aren’t quite panning out. Some new start-up (or two, or three or more) seems to be whipping up a storm in the market, and you feel left in the dust (or left to contemplate paying a hefty premium to buy what someone else managed to build right under your nose).

What to do?

The answers are astoundingly simple, so simple, in fact, that they elude the very smart, big-school-degree types running around corporate America today. These leaders are fully in control of their growth destinies, yet all too often are unable to deliver and either blame some externality or create a mirage that all is well.

Here’s the three-step formula to get real growth:

  1. Define the customer problem you are solving. This is the first, almost painfully obvious step. Yet, consider how many people in big roles define their business’ marketplace value around internally generated definitions of value, claim to know customers’ needs but never talk to customers or allocate resources to deploy new technologies with no connection to how customers act or how they lead lives in which your business probably plays only a teeny, tiny role.

Let’s parse what this first step means.

  • Define: with absolute clarity, in a way that lets you understand the total scope of opportunity, not just what’s in front of your nose and linked to today’s P&L drivers.
  • The: one, with focus.
  • Customer: the people who take their wallets out of their pockets and give you their money – not the internal lobbyists.
  • Problem: a real pain point, not something that merely makes people feel good. People will prioritize getting rid of their pain as way more important than a gratuitous feel-good purchase.
  • You: the bigger you, the organization, mobilized around your singular focus.
  • Solve: dramatically better than anyone else, so you have a massive jump on others in the market who will chase after any good business opportunity to eat into or take over share.
  1. Establish the fundamentals to cultivate growth.
  • Governance: If your plan is to create big sources of growth, the CEO has to own the goal, including implementation, and hold the rest of the C-suite accountable. If not, accept your destiny as an incremental player, at best.
  • Accountability: Big new sources of growth will come from separate accountability outside the established P&L structures. No fault to the P&L leaders; their work is important and drives the company today. But the goals, timeframes, talent and implementation path to run a scale business is based on predictability, control and risk reduction. Contrast these attributes with what’s needed to spawn a big, new business: experimentation, failure, ambiguity and risk-taking. The established P&L priorities will always overwhelm the nascent ideas trying to grow into big future profit producers.
  • Talent: The people who are absolutely brilliant at running the machine are unlikely to be the same folks who will create the next big thing, and vice versa. That’s not personal, it’s the reality that we are all really good at some things and mediocre at others and should just avoid yet others. Be truthful about that, both regarding yourself and when evaluating others.
  • Metrics: Find the metrics that connect customer needs and wants to the customer actions driving the P&L. It’s a cop-out to say this can’t be done, and it’s easy to fall back on familiar but irrelevant metrics. Focus on customer behavior measurements to drive decisions. High-level reporting of income statement and balance sheet line items are interesting, and certainly matter to your investors. But they will blind you to the below-the-surface measures that matter – the real drivers that are moving every day as your customers make decisions affecting your performance whether or not you acknowledge them. Operate your business at that level, and you will drive your destiny.
  • Process: Industrial-strength processes that enforce predictability, control and risk reduction will steamroll over anything that doesn’t look exactly like what came before. Remember the definition of insanity often attributed to Albert Einstein: “doing the same thing over and over again and expecting different results.”
  1. Embrace and behave according to the mindset of a founder, or move on. In The Startup Playbook, author David Kidder cites the five qualities of the successful entrepreneur. These attributes apply equally well to leaders in any enterprise, not just what we have traditionally defined as start-ups.
    1. Know thyself. Your team’s success will be a direct reflection of your self-awareness and deployment of your own gifts to whatever opportunity you go after.
    2. Ruthlessly focus on your biggest ideas. Focus means laser-like drive against the beacon you see out in front of you that represents realization of your solution to the customer problem. But not to the exclusion of listening – being able to filter and apply that which is valid, without getting diluted by the well-meaning, but utterly useless opinions you will be offered. It’s a tightrope.
    3. Build painkillers, not vitamins. Back to Point 1. Solve a real problem. Don’t create a nice-to-have.
    4. Be 10x better. That’s Kidder’s estimate of how far ahead you have to be to outrun and outlast the inevitable competition.
    5. Be a monopolist. At least in mindset, think gigantically. Think about how you can own the market, not just create something that will satisfy a near-term demand.

Creating big sources of growth with real results can be predictable. You just have to follow the formula.

This post also appearing in Huffington Post.