Ask directors what keeps them up at night—as we did, in the last issue of this magazine—and digitalization doesn’t crack the top five topics. If that sounds overconfident, there is one potentially sound reason for the sentiment: they’re already working on it. Throughout the past decade and accelerated by the Covid-fueled transformations of the past two years, boards and management teams have spent lavishly and continually on bringing their operations into the age of Amazon.
But that doesn’t mean it’s easy or going particularly well. Far from it. In a new survey of 227 directors we conducted in partnership with RSM US, we dug deeper into where boards are with their “digitalization journey” and found that while many of the goals for transformation appear clear, the road for getting there remains rocky, despite more than a decade of efforts.
“The biggest roadblock that we worry about,” says Ed Glotzbach, chairman of the board for NYSE-traded gas company Spire, “is probably what’s going to be out there in nine months that we’re not thinking about that will be a disruptor to the industry. And again, that’s why we’ve reached out far beyond the board and the company to try to get more input. You go to a lot of conferences and sometimes you don’t learn much at them. But sometimes you do, and sometimes you make the right contact. So, the biggest roadblock isn’t execution, it’s knowing exactly what needs to happen and then being able to bend and modify as you move toward it with what changes.”
Place Your Bets
Most of the companies we surveyed are betting on developing new products and services to deliver growth in the years ahead. Fifty-five percent of directors say that is the most important aspect of their company’s strategy—followed by expanding into new markets and onboarding top talent (each at 44 percent). And the majority of directors (58 percent) say achieving this outcome will be reliant on their company’s ability to leverage new technologies. At least 50 percent of the goal, they say, rests on that capability. “Companies looking to devel op new products or services and leverage new technologies will need the capabilities and, ultimately, the right talent to execute. So, it’s good to see onboarding top talent in the top three on the list,” says Bill Kracunas, principal at RSM US. “Getting the right talent and digital perspective combined with forward-thinking business leaders can help to accelerate results of the efforts.”
Bill Dozier, who also sits on the board of micro-cap Evolution Petroleum Corporation, says those all factor into the company’s energy transition conversation. “It requires thinking about products or services that don’t exist yet, which is a completely different way of looking at strategy,” he says. “If it’s not wind or solar, and it’s not oil or gas, and, heaven forbid, it’s not nuclear, then what is it?”
He believes a big part of the solution entails investing in R&D. “Can you develop and extend whatever to develop this new energy that doesn’t exist today and be the frontrunners out there doing that? That’s the challenge,” he says.
Finding out directly from customers what they really want is the essence of the digital transformation conversation for most boards, according to our survey: Two-thirds of directors (65 percent) say they leverage new technologies primarily to improve the customer experience and collect better data (54 percent). In fact, 54 percent say among all technological capabilities available today, from AI to automation to IoT, “data analytics” is most important to their organization.
Without the right sets of skills or the right technology, data can bring about even greater challenges for many companies, especially those that have been around for a long time, says George Corbin, who serves on the board of Edgewell Personal Care Company and as Mars’ chief digital demand officer.
“You’ve got data that is in puddles, all over the company and often in proprietary systems and crusty, old infrastructure,” he said. “There’s always been a lot of effort around saying, ‘Well, first, we’ve gotta clean it up,’ and then there are all these operations that need to take place before it’s even usable.” Instead of attempting to glean every possible insight from the data, he says, companies should be clear and purposeful in the questions they want answered. “What are the three things that will move the needle on the business—focus there,” he says.
Glotzbach agrees: “Digital transformation is two things. It’s the providing of products and bills and all that in a friendly way—and making yourself more amenable to tech for the customers. But it’s also gathering all the data that you need to determine, for us, what time of day we have maximum flow through the pipes, for example…. So, there are actually two big efforts: One is making the data that we have actionable, and the second is trying to determine what of that actionable data would be pleasing to customers, whatever size they are.”
What’s the Plan?
None of that, of course, is simple. And directors report that their companies have been doubling down on their ability to utilize data to inform strategy. Fifty-eight percent say their company’s efforts to collect customer insights is “important” or “substantial,” and 64 percent say that’s increased over the past two years—to varying degrees. Among the changes brought on by the pandemic, directors say they’ve boosted investments in data technology (55 percent) and improved data transparency (46 percent).
To Corbin, the fact that 36 percent of directors say their companies’ efforts haven’t changed in the past two years is alarming. He says the pandemic has brought about so much drastic change in customer behaviors—where they shop, how they shop, where they see companies advertised or not—that changes to strategy have become imperative. “Online has jumped three times in things like grocery. Streaming now makes up 40 percent of entertainment views. So it brought changes in three months that would’ve taken 10 years. If boards don’t think that’s having an impact on their strategy, I think they need to be asking tougher questions,” he said.
He cites three questions he says any board should be asking: How has our customer path to purchase changed; is digital now a part of that and should it be? Who are we losing to and what are our competitors doing? And finally, are our business and operating model fit for purpose for this new reality?
“The pandemic has sharpened all the functional substitute risk that’s out there. So, boards have to go up a level,” he says. “When I’ve been involved in asking those questions, it has spun up a whole new set of considerations and the type of debate and discussion that should be had because the chances are, a digital-first or a data-first company is what’s driving changes.”
There have been no shortage of growth challenges in recent months. Of those that impeded growth, talent tops the list, with 55 percent of directors surveyed listing it as a barrier for their organization in the past 18 months. Forty-two percent say the skilled labor crunch has, in fact, delayed their timeline. Another 28 percent say that while it has not delayed them, it has posed a significant challenge.
“One of the more difficult aspects of getting the right talent is aligning the type of talent to the business needs,” says Kracunas. “Depending on the situation, that can be someone who’s good at efficiency and automation, or someone who’s more innovative, idea and digital experience focused, or maybe a data, information and reporting expert, or maybe an architect to help put it all together. The reality is the type of talent needed depends on what the business is looking to accomplish and how much or little of a technology and digital plan and roadmap is in place.”
Corbin says companies that can’t find the talent they need to progress may want to consider “free agents” instead of looking to onboard the traditional way. “Because of the mass resignation, there are a lot more people who want to control their own destiny. They still want to do what they were doing… They just may not have wanted to do it for that company. So, there’s a bit of a free agent talent pool out there,” he said, adding that companies need to also think differently about compensation. “While companies may have thought, ‘If you’re at grade seven, this is your pay package.’ It’s like, no, if you’re looking for somebody to build this, throw that out, think differently about it. You need a set of intrapreneurs to build this out.”
Another way companies can accelerate their digital transformation despite the talent shortage is through M&A and partnerships. Glotzbach says his company has worked with smaller firms to unlock new ideas and new ways of operating. At its annual strategy session, the board also discusses any potential development and what it means in terms of capital deployment and partnerships. “It’s very much something you cannot do by yourself,” he says. “We’ve got some really good innovative people on our committee and our board, but it has to go way beyond that.”