Determining the Digital Investment Question in the Boardroom
In the third decade of the 21st century, smart companies and boards across all industries recognize that the pace of technological change continues to unfold at warp speed. The question in the boardroom a decade ago — “Should we invest in digital transformation?” — has transitioned to a different question today: “How much should we invest and, more important, how fast should we invest, given our accountability to shareholders?” The simplicity of this new question belies the underlying complexities of the strategic conversation around prioritizing resource allocation — a conversation that has huge implications to the customer experience driving revenue generation and the company’s competitive position.
Expanding on the question in today’s boardroom about how much and how fast companies should invest, boards should consider:
- What is the business plan, including supporting metrics, that informs us as to whether we are investing in digital transformation of processes, products and services at a velocity sufficient to impact our digital experience and top and bottom lines?
- What are the warning signs relating to customer stickiness and security that tell us on a timely basis that we need to step up the velocity at which we invest?
- What are directors’ duty-of-care responsibilities to shareholders in ensuring the companies they serve remain competitive in the digital economy?
- Are we paying sufficient attention to the supply side — e.g., supply chain management — as we focus on sustaining and increasing demand?
While finite resources often constrain the options available to respond to these questions, boards can take several steps as they assess the level and velocity of digital investment:
Companies supported by boards with three or more digitally savvy directors report higher profit margins, revenue growth, return on assets and market capitalization. Boards should look at the extent to which digital savviness is present in their oversight processes. In addition, every board should have access to digital experience, whether it’s from a director at the table or a board adviser.
The board should focus the digital investment discussion by asking the tough questions about what is really happening in the company and industry around the customer experience and how it’s being improved both now and in the future. The traditional discussion around understanding the overall strategy as a context for identifying the technology and other resources needed to execute it may be too introspective in today’s environment. Data and metrics around customer satisfaction and loyalty, innovation, and speed to market relative to competitors may present a more insightful basis for discussion.
The board’s primary interest is ensuring management digitizes new and enhanced products and services to strengthen customer engagement and relationships and deploys digital technologies to improve operational performance and information for decision-making. This conversation should be grounded in business realities, meaning innovation is bound in a finite way to the physical, financial and human capital available. The chair should allocate sufficient agenda time to discuss innovation strategy and culture and encourage open discussion on direction and progress. The dialogue should be supported with appropriate innovation-specific metrics that tell the full story regarding growth strategy performance relative to competitors, feedback on the customer experience, return on innovation investments, and effectiveness of the company’s innovation culture and capabilities.
Customer experience plays a critical role in a company’s success. Today’s customers are buying based on their experiences with a company and whether a product or service aligns with their personal values, including access, inclusivity, sustainability and trust. Speed to market is paramount in the digital age. Agile organizations and cultures embrace a discipline around the customer experience — for example, blending institutional knowledge with digital perspectives to channel technology initiatives to improve the customer experience continuously by connecting the decision-making process to customer value. This, in turn, drives resource allocation decisions. There are several things directors should look for in this regard, including anchoring the discussion to brand purpose, using customer insights to drive improvement efforts, designing for customer trust, and obtaining comprehensive input across the C-suite.
Optimizing return on investment (ROI) is an integral part of efficient resource allocation. The board should expect to see efforts aligned across the organization, its budgets and its priorities, with a focus on value to the customer and the customer’s end-to-end journey. For example, the CDO or chief product officer should provide a technology road map for customer-facing and growth technology that incorporates data, privacy and regulatory compliance elements depending on the industry. An agile mindset to updating software development life cycles and budgetary processes enables organizations to meet market, customer and employee needs for pace and speed around the most valued features and functions. Once again, these perspectives will help organizations prioritize their digital investments.
There’s nothing worse for a brand than to drive demand but fail to deliver. The board should ensure sufficient attention is given to managing supply constraints and avoiding supply chain disruptions, so that digital investments pay off. This may entail closer attention to inventory management and demand forecasting.
The above discussion will help companies address the challenge of investing at a sufficient pace to transform to a truly digital framework for doing business. This is a challenge that every board and the company it serves must meet head-on to sustain the viability of the business.
For more about how companies can address the challenge of investing at a sufficient pace to transform to a truly digital framework for doing business, read the article here.
(Board Perspectives — Issue 145)