At the height of its success, Blockbuster Video turned down an opportunity to purchase Netflix for $50 million. Ten years later, Blockbuster was bankrupt and Netflix was on its way to today’s market cap of almost $70 billion. The decision is now remembered as one of the biggest missed opportunities in the boardroom.
“The most interesting thing about companies like Netflix, Uber and Airbnb is that traditional businesses didn’t see them coming,” says Sue Johnston, an IBRS advisor on strategy and governance of information communication technology (ICT). “The more comfortable you are with your income stream the more likely you are to have a blind spot when it comes to the risks and opportunities of digital disruption.”
Another example of missed opportunity is playing out in the global car industry. “Artificial Intelligence (AI) is being used to develop self-driving vehicles, and now the boards of many traditional car companies are wondering whether they will be financially viable in a few years’ time,” says Terry Michael MAICD, chief executive officer (CEO) of TLM-CyberStrategy. “For some, it’s already too late to start developing new products using these emerging technologies.”
Johnston believes that outdated culture is the biggest barrier to positive change. “The majority of directors in Australia came up through the ranks as managers, or they have a background in law or accounting, so they might not be tuned in to the wide-ranging impact of technology,” she says. “Businesses will continue to be vulnerable to disruption until there’s a fundamental shift in this boardroom culture.”
Every director needs to understand where and how disruption might materialise. “We must set ourselves the task of acquiring digital intelligence and figuring out the extent and reality of the digital challenge,” says Susan Oliver FAICD, chairman of Scale Investors.
“Technology is only one aspect of disruption. Uber, for example, isn’t a technology story, it’s the story of applying an existing technology to a new market.”
Cloud and big data technologies now offer a fast, cheap pathway to scale.“Technology entrepreneurs no longer need to make a large investment in infrastructure,” says Michael. “A startup can launch a new or improved product or service into global markets and compete immediately with large and established companies.”
Nigel Phair GAICD, director of the Centre for Internet Safety at the University of Canberra, believes that many boards are still struggling to incorporate technology into their strategic thinking.
“First they need to establish where their organisation stands in terms of adopting technology, as well as the maturity of the sector in which they operate,” he says. “They then need to determine what they would like their strategic governance to achieve – for example, to respond successfully to changing market dynamics or the entry of a new competitor. Once the challenge is clear they can start to plan the response.”
This doesn’t mean drilling down to the bits and bytes. “The most constructive boardroom conversations are about business intelligence, which is familiar territory for directors,” says Oliver. “But they may not be so familiar with the fact that the digital world has created information resources and online environments on a scale and at a pace that we have never seen before.”
Exploiting the benefits
Technology isn’t only about risk. In fact, cloud services can help to mitigate risk. “The recent British Airways meltdown that caused worldwide flight cancellations and congestion over a two- or three-day period was the result of IT infrastructure failure,” says Michael.
“Analysis suggests that, if British Airways had used cloud services to back up and run its operations, the disruption could have been reduced to 24 hours or less and done much less damage to the airline’s reputation.”
Cloud technologies can also minimise ICT capital expenditure, while big data enables organisations to share, analyse and report on data quickly and cheaply.
“Digitally-networked organisations can be more agile, involve more stakeholders and provide more external transparency,” says Phair.
“Real-time situational awareness increases and so do the market benefits. However, for optimal decision-making, management must have the skills and cultural temperament to exploit these benefits.
“Also, when you have visibility of data at all levels of the organisation, you need to re-think who should be making key decisions for maximum efficiency and effectiveness.”
The benefits aren’t limited to large organisations. “Small to medium-sized Australian businesses are increasingly turning to cloud and big data services to drive revenue growth and scalability,” says Michael.
“Family agribusinesses, for example, are finding it much easier to export to countries such as China and India. Ten years, ago this type of expansion was painfully slow and more capital fund intensive, with a much longer wait for financial benefits.”
In the boardroom, cloud and big data complement each other. Big data can help directors to analyse opportunities and make faster, more intelligent decisions while cloud technology provides a cheap and easy way to store and access the information.
“This is where ICT and business strategies converge, providing boards with the means to collect, analyse and store data on everything from new global market opportunities to customer behaviour,” says Phair.
“Quality data visualisation tools can help boards to harness this immense and cost-effective power – decision-making is vastly improved by the ability to get up-to-date information and slice and dice it according to the topic under discussion.”
Keeping pace with social media
Other online resources can help directors keep up with news and trends. “Most directors work on boards in different industries so they need to stay abreast of a wide range of topics,” says Dr Monique Beedles FAICD, founder of Teak Yew consultancy and author of Asset Management for Directors. “I’m always surprised by how few know about simple tools like Google Alerts and RSS feeds.”
Google Alerts notify the user when a key word, name or organisation appears in the media. RSS feeds such as Feedly or Panda report changes to selected websites.
“They’re either free or very inexpensive and, when you tailor them to your needs, you can receive broader or more specific information than you would find in newspapers or the television news,” says Beedles.
“For example, you can know as soon as someone mentions you or your organisation. You can keep track of what your competition is doing. And you can also find out when your customers or clients are commenting, which is particularly important when they’re saying something negative.”
Social media can be used to glean information. “Some directors hold back because they are worried about privacy but you can use platforms like Facebook or Twitter as an awareness tool without posting anything, or even having an account,” says Beedles.
Phair is concerned that even directors with an account on every platform can be too passive on social media. “Some think that ‘engagement’ means sending out media releases or trying to spin an issue,” he says. “In fact they should be driving conversations and creating meaningful interactions around information which is valuable to individuals and also broader society.”
Social media can also be a way for organisations to dip a toe into big data analytics. “Correlating demographics such age, gender, marital status, geographic location, income and education levels, for example, can provides valuable insights into the people you’re engaging with,” says Phair.
While boards are rightly concerned about security, Phair is confident that security around data held in cloud applications is rapidly improving. “Organisations can also tailor security to the applications it uses and the types of data it stores by using a cloud-hybrid solution, where non-critical data is hosted in cloud and critical data is hosted on premises,” he says.
In making their decisions, boards must take statutory and legal risks into consideration.
“Under the Privacy Act, all Australian companies storing customer data are legally responsible for the safe storage of that data, even when the cloud service providers are off shore,” says Michael. “And, from February next year, it will be a legal requirement to report any loss of customer data. Ultimately, the intention is to protect all Australian individuals’ privacy and ensure that they suffer no financial or personal harm from the loss of their data.”
Linking technology and strategy
Boards are responsible for strategy, so as technology intrinsically informs strategy, how can they be sure of getting it right? Susan Oliver FAICD shares 12 key points.
- Digital intelligence is not optional. It is every director’s duty to understand what is happening in digital technologies and how they are being applied innovatively in the digital consumer world.
- Directors must learn to ask the right questions and be willing to say: “I don’t understand that. Please explain it to me again.”
- It takes more than one person to have a conversation about digital disruption. Everyone on the board must have the confidence to hold a view.
- The board should be prepared to challenge their organisation’s strategy and thoroughly test the advice they receive from both management and vendors.
- Directors should challenge and guide the management team to anticipate and prepare for future challenges, opportunities and new ways of conducting business.
- Information is the new asset. Continuing to think in terms of physical assets, or the assets within the organisation’s processes and systems, could be a liability.
- Scenario planning is the only way the confluence of social, technological, economic, environmental and political forces can be investigated and anticipated to provide a view of where the future lies.
- Don’t allow any expensive ICT mistakes made in the past to make you over-cautious. The bigger risk is failing to invest in the latest and most creative thinking.
- Diversity in education, experience, gender, age and culture are shown again and again to deliver more ideas and bigger profits.
- Failure is not a comfortable experience but it cannot be avoided completely.
- The dotcom crash taught us that early adoption is risky – but that was over 15 years ago. Today, we must be willing to be first to market.
- Think like a technology company. Rather than relegating the ICT and information engineers to implementing strategy, invite them to lead it.
Adapted from ‘Directing Change, the strategic role of the director in the digital world’, Susan Oliver’s chapter in the The Future Makers in Digital Technology, to be published in July.