What Are the Smart Questions Directors Need to Ask?

What Are the Smart Questions Directors Need to Ask?

Digital Transformation is a Director level issue – they are your new customer

What are the smart questions Directors need to ask?

Remaining relevant as a Managed Service Provider will mean speaking the Director’s language and helping them ask the smart questions that will provide clarity about their business’ Digital Transformation journey.

  1. What is motivating us to commence our Digital Transformation journey?
  2. How ready are we as an organisation from a skills and culture perspective?
  3. Do we have a business (and financial) strategy for the digital world?
  4. What are the change management risks?
  5. What are the external stakeholder’s current perception of our digital position?
  6. How will we manage our external accountability and compliance requirements?
  7. Are our current suppliers and partners able to support our digital transformation journey?

Why should I care?

“Digital Transformation” is THE buzz word wherever you look. It is presented with a “transform or be disrupted” message and rolled up into stories of the 4th industrial revolution[1]. So why is a technology story getting so much air time with Directors and why does it matter?

In this new digital world, technology is driving business strategy, process, compliance and external accountability as much as financial and legal matters. As highlighted in reports such as the EY 2017 board priorities for Europe[2] and the US[3] the business aspects of Digital Transformation put it at the heart of the Directors remit.

The underlying idea of car-sharing and short term property rental are not new but technology has enabled Uber and Airbnb to provide services at global scale and has fundamentally changed the customer experience and disrupted their industries. In both cases, they are also tapping into the broader social shift of the “sharing economy[4]” and taking advantage of standards and regulations that are no longer fit for purpose.

These often quoted, high profile examples are only the tip of the iceberg. The impact of these three forces is far broader based and is being seen across all industries. A leadership position for many Directors would be to work on the basis that:

“We are being disrupted. The only question is, do we know about it yet?”.

Is it happening now?

The following are examples from just two industries, however similarly disruptive scenarios could be found in every industry whether you think about cars, cows, lawyers or teachers.

Retail

Companies such as Amazon originally saw the opportunity to challenge and disrupt the bookstore industry and using this model they have subsequently expanded into a full range of retail offerings including food. Not content with this they have used what started as their spare computing capacity to become one of the largest cloud technology companies on the planet. As they expand around the globe their innovation culture is forcing change across multiple sectors.

“If Amazon isn’t on the agenda at board meetings for Australian retailers, then it should be.” David White, national leader of Deloitte’s Retail, Wholesale and Distribution Group

Banking

Traditional banking is being challenged from multiple sides. Bitcoin is questioning the role of central banks in the provisioning of currency and P2P Lending[5] is bypassing the banks entirely. Services such as ApplePay[6] and Square[7] are challenging the established point of sales suppliers and supermarkets are offering banking services to their customers.

The underlying technology of Bitcoin called Blockchain (DLT – distributed ledger technology[8]) is also being considered as a new model for “proof of ownership” across multiple asset classes.

“The disruption taking place in the financial services industry will be on par with the impact Uber and Airbnb have had on taxis and hotels.” Greg Baxter, Global Digital Lead, Citigroup

The business models of these innovative new entrants are more interested in finding gaps in legislation rather than adherence and as customers we create potentially contrary conditions. We are happy to use new innovative, customer friendly tools and implore our existing suppliers to be more customer focused and quicker to react. However, we also hold the established suppliers to much higher standards if anything goes wrong – we appear to want to have our cake and eat it[9].

What are the challenges?

Understanding that transformation needs to occur, does not mean that it is straight forward. There are always challenges to overcome. However, using these challenges as reasons for only limited action has been the downfall of many businesses over the years (Kodak, Nokia and Pan Am to name but three). Without even diving into industry or business specific issues there are two challenges that can prevent change even being considered.

The desire to maintain the status quo

We are told that we now live in a world of constant change, however for most of the time this is evolutionary not revolutionary. We support the existing strategy by improving our processes, supervising the operations of the business and enhancing our communications to stakeholders to ensure marketplace confidence.

Visualising this via the Tricker model of corporate governance[10], whilst the Directors carry out strategy activities, their focus will normally be in the bottom left (supervisory).

This desire to support the status quo is normal human behaviour. Thomas Kuhn in his seminal paper on “The Structure of Scientific Revolutions (1962)”[11] detailed how we are predisposed to support the prevailing model, even in the face of apparently overwhelming evidence. Periodically a phase of disruption occurs, a new paradigm[12] becomes accepted and we then re-enter the state of supporting the “new normal”.

To be a truly innovative company[13], innovation needs to be a conscious part of the culture.

Digital literacy

From a “digital” perspective the average age of board members (S&P500, Jan 2015, average age 63.1[14]) typically means that whilst their financial and legal skills are mature, they are less experienced on the technology side. There are many reasons for this, a few being:

  • IT is still a relatively young discipline. Technology only started to be taught in schools in the late 1970’s so it is only now that this cohort is entering their 50’s
  • The business world has often driven technology experts down the “geek” path and not encouraged a balanced business/technology skill set, rendering them less suitable for Board roles
  • Technology has for many years been about process improvement and cost management that supports a broader business strategy, rather than a direct source of businesses innovation. It has therefore been left as an Executive responsibility.

Where do I start?

Helping the Directors at your customers to ask smart and informed questions will provide insights and clarity for the actions required to deliver Digital Transformation within their businesses. Suggestions for categories of these questions and a brief explanation of why they are important to the business are offered below. The unique characteristics of the customer’s business will determine the answers. Your unique skills as a Managed Service Provider will determine where you can add value.

Without these smart questions, you risk playing with the digital rather than focusing on the business.

1. What is motivating us to commence our Digital Transformation journey?

Unless you are clear on your motivation, how can you assign a level of urgency? Are you planning for change that has not yet occurred or reacting to significant business disruption that is happening now?

2. How ready are we as an organisation from a skills and culture perspective?

The more successful you are in the current model the more your processes and people are the envy of your peers. However, this level of excellence can lock you into current processes and thinking and be the inhibitor that limits your ability to change.

3. Do we have a business (and financial) strategy for the Digital world?

“The definition of insanity is doing something over and over again and expecting a different result.” (attributed to various[15]). Digital transformation creates new benefits as well as new risks and this combination opens new opportunities.

4. What are the change management risks?

Change will hurt and if it isn’t hurting you are probably not doing it right. Consciously managing this pain will be critical to success.

5. What are the external stakeholder’s current perception of our digital position?

External stakeholders, whether they be financial markets, customers or suppliers will have a perception of your digital position. Unless you understand what this is, you will not know how to communicate the changes ahead and manage their expectations.

6. How will we manage our external accountability obligations?

Whilst formal compliance requirements may not keep pace during rapid periods of change there are likely to be very powerful expectations from external stakeholders that need to be managed.

7. Are our current suppliers and partners able to support our digital transformation journey?

Pick carefully. To what extent do you want, or need, to be educating your broader ecosystem on the need for change? Are there new partners who can be peers on this journey?

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