Category: Risk Management

Disruption or Distraction? Focused Oversight in the Age of Innovation

Published by

Peter Gleason

Over the years, the Consumer Electronics Show (CES) in Las Vegas has featured miles of technology and millions of people—2.75 million square feet for 3,900 booths and nearly 185,000 attendees in 2018 alone.

Under those tents are innovations that will disrupt markets and your companies. The question is, which ones?

Not every innovation is disruptive, and not every market is vulnerable. According to a recent blog by Harvard professor Clayton M. Christensen, written shortly before the most recent CES event in January, “disruptive innovation,” a term Christensen coined in 1995, is “the process by which products and services, often less expensive and less sophisticated, move upmarket until they displace established competitors.”

Displacement is no fun; it generally means downsizing and can mean demise. So directors naturally want their companies to disrupt, rather than be disrupted. That’s why NACD launched the NACD CES Experience in partnership with Grant Thornton. Participants enjoyed a director-curated tour and program that explored the technology trends of greatest relevance to business, helping attendees see implications for their own companies.

General trends highlighted on the tour included the impact of artificial intelligence, machine learning, chip and processing technologies, and sensor technologies on human-machine interface. The small group of directors also witnessed new technologies in voice input and response, image and vision interactions, biometrics, digital assistants, computational photography, shoppable images, virtual environments, and biometric trackers.

NACD inaugurated a similar annual event last July, the NACD Technology Symposium, where directors toured businesses in Silicon Valley, interacting with innovators there. And in April 2018, NACD will host a Global Cyber Forum in Geneva, Switzerland. NACD, working with others, has been providing cyber-risk oversight guidance for directors since the year 2000, most recently with the NACD Director’s Handbook on Cyber-Risk Oversight, 2017 edition. Also our Emerging Issues resource center has a segment on the impact of technology change.

Such programs, encouraging focus amid complexity and change, are models for what board leadership is all about: focused oversight. Based on my own board service, and on my decades of dialogue with directors, I believe that identifying and prioritizing issues for oversight is the single most important value that boards bring to organizations. It’s opposite of the “shiny thing” syndrome, in which our attention darts to whatever is new and interesting.

In a video interview with several directors at the opening day of CES, NACD Chief Programming Officer Erin Essenmacher asked why they came. Lianne Pelletier, whose views on CES were recently featured in the Wall Street Journal, focused on infrastructure, a key topic at Expeditors International, where she serves as a director. John Hotta, a director at First Washington Robotics, focused on the accessibility of platforms like Amazon’s Alexa. Maureen Conners, on the board of Fashion Incubator San Francisco, said that directors should bring the top “three to five” issues to the attention of their CEO to ask for a report on strategic implications.

In short, all the directors interviewed said that they wanted broader horizons but would continue to focus straight ahead.

Seven Insights from NACD Master Class

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Innovation and disruption are now commonplace in strategy discussions between the board and C-suite. Even innovations outside of a company’s own mission are changing everything from customer expectations to business operations. While the board’s agenda has evolved to include discussion of issues such as emerging technologies and workforce disruption, corporate directors must still contend with evergreen oversight tasks. Directors are feeling stretched, and reasonably so.

NACD’s Master Class board leadership forum convened more than 50 directors recently in Miami, Florida, to sharpen their focus on several pressing board oversight matters. The event highlighted lessons in effective board leadership and explored emerging disruptions that affect strategy and long-term value creation in today’s dynamic business environment. The discussions at Master Class revealed the following takeaways:

  1. Review the outlook on the economy. The U.S. is on track to have its second-longest economic recovery, and it may even become the longest on record, according to Constance Hunter, chief economist at KPMG LLP. Unemployment is at an all-time low, and wages are slowly beginning to rise. Barring any global economic shocks, this could signal that the American economy is likely nearing peak growth. Hunter also reminded directors that though all signs point to stable economic growth this year, an economic downturn in the coming years is still possible.
  2. Pay attention to increased complexity. From social and demographic changes to technological disruption, companies are facing increasingly complex challenges. Addressing these issues will require the board to keep up with today’s dynamic business environment. Being on a board is no longer simply about compliance or risk oversight. Fundamental conversations about company strategy and business models need to become regular topics of discussion. The board needs to ask hard questions of its executive team around the company’s data strategy, whether this team has the requisite set of skills to execute on strategy broadly, and how well the management team understands the competitive landscape and challenges specific to their industry.
  3. Approach technology as an enabler of strategy. Board discussions about technology should focus on the current—or potential—application for the company. Directors should, therefore, approach such dialogues within the context of company strategy. The board should ensure that management understands and meaningfully engages with the company’s technology systems and the staff who use those systems, and assesses how the company invests in technology as an enabler of the broader strategy.
  4. Wake up to disruption. Large companies are beginning to wake up to the disruptive players in their industries. Many so-called startup “unicorns” are now backed by corporate venture capital arms, enabling established, large-scale companies to gain a competitive edge with smaller companies leading transformative ventures and creating disruptive technologies. There are more avenues than ever before for businesses of all sizes to engage with emerging technologies, from pilgrimages to Silicon Valley, or attendance at events such as the annual NACD Consumer Electronics Show Experience, to setting up corporate venture arms.
  5. Think outside—or about—the box. The concept of Innovation dos not have to be limited to a firm’s research and development department. A company can innovate in every facet of its business, from financing to product packaging. One director attending Master Class shared how one of her companies modified its package design for products that customers opened to peer inside. By redesigning the packaging to include transparent plastic, customers were able to see these products through the packaging and, thereby, didn’t feel compelled to open it. This helped the company dramatically reduce the number of products that were spoiled from being opened.
  6. Demand better risk reports. Directors need to push management to enhance the effectiveness of risk reports provided to the board. If risk reports received from management look like audit reports, the board may not be receiving the information it needs to effectively oversee risk. Management teams often present so much information that directors may find it difficult to discern which risks demand the most urgent attention. In fact, the 2017─2018 NACD Public Company Governance Survey reports that in the past 12 months, 79 percent of respondents say they communicated with management about the types of risk information that the board requires.
  7. Communicate what investors want to know. Institutional investors want to know whether the board is capable of being not only the board of today, but that of tomorrow. In this regard, the proxy statement is often underutilized as a way of communicating the board’s strengths and skills that will help strengthen their oversight of the company in the years to come. If effectively used, this document can enrich board-shareholder dialogue. More information is available in the publication Investor Perspectives: Critical Issues for Board Focus in 2018.

Register for an upcoming Master Class to add your voice to the conversation.

 

Continuing Curiosity: My CES Experience

Published by

Kathleen Misunas

I first attended the Consumer Electronics Show (CES) more than 30 years ago and have visited periodically over the intervening years. Rest assured that the creativity and sheer volume of innovation exhibited there never ceases to amaze and impress me. While some of it is developed and showcased by global companies such as Samsung and Kohler, the showroom floor is also filled with talent previously working behind the scenes at various brands, or by truly start-up entrepreneurs.

This was the first time that I have viewed the show through the eyes of a corporate director. As I walked more than 10 miles through the aisles over the course of CES 2018, I considered the governance implications of what I saw.

To me, one of the benefits of being at CES is being away from daily routines and taking the opportunity to observe and just let your mind cogitate the possibilities. And cogitate I did. In some cases, I wanted to know not only what the product did, but how it was made. In other instances, I wondered how a product could be marketed or sold, what companies would create its competitor products, and what adoption rate was required to make the product financially successful.

So, what did I find exciting? What made the governance wheels in my head turn? Below are a few themes that stood out.

  • Quantum Computers. From a pure technology standpoint, the quantum computer stands out due to its astounding small size yet incredible processing power. Intel, which is one of the leaders of the quantum computing race, kicked the week off by exhibiting its own advancements in engineering one of the most powerful quantum chips yet. The IBM Research group, on the other hand, displayed its quantum computer as a stunning piece of art.
  • Sensors and the Internet of Things. Sensors—which were imbedded in everything from fabrics to headsets, from vehicles to medical products, and in everything else you might imagine would benefit from being connected—continued to impress due to the breadth of their utility. One clever use of sensors was the ShadeCraft patio umbrella whose electronics and robotics allowed it to automatically raise and lower itself based upon current light and weather conditions. This product not only understood sunrise and sunset, but followed the sun throughout the day to properly tilt the umbrella and gauged wind speed or rain to automatically close the umbrella without human intervention. No more worrying about your expensive patio umbrella being turned inside out, upending your table, or taking off as a projectile when you weren’t available to tend it.
  • Autonomous Vehicles. There was an incredible number of offerings around autonomous vehicles. I use the term vehicles instead of cars because the auto-drive implications are also clear for vans, trucks, tractors, forklifts, campers, and other vehicles. Here again the use of sensors was key, and there is no doubt that many of these machines will perform better than the drivers that we currently encounter on the road, human foibles and all.
  • Medical Aids. Regarding other products, I found so many to be interesting. There was an audio system that not only provided a hearing test but progressed to actually construct an ear bud that utilized the results of the hearing test to produce a customized hearing aid. Phenomenal! Anyone who has gone through the rigor of selecting a hearing aid device can appreciate this speedy, streamlined approach, especially when it is at half the price point of today’s offerings. Next, I liked the Gyenno Co., which developed a special spoon that automatically levels its contents to eliminate spilling. This will provide such a caring and practical solution for those with Parkinson’s or other medical issues that have a problem feeding themselves due to tremors.
  • 3D Printing. Another greatly improved invention is 3D printing. Although the method has been around for a while, it is now not limited to plastics or small items. Printers can fabricate in a variety of mediums and to great scale. For example, there was a camper-type van displayed on the showroom floor that was created by 3D printing. It was produced quickly and at much less expense than a traditional van. It is easy to extrapolate the utility of 3D printing to assist various businesses since it permits specialty solutions that previously did not have the volume to be economically feasible from the producer’s perspective, and were not affordable from the buyer’s standpoint.
  • Odds and Ends. Three fun offerings were related to beer, fingernails, and laundry. Although I am not a beer drinker, the PicoBrew easily allows making craft beers at home and would be a hit with many of my friends. And I know those who would like the fingernail machine that can use any photos to create vinyl nails for application at home. Finally I’ll introduce the FoldiMate, a device that folds your laundry when you feed it into the machine. It could be the next best thing since sliced bread for the lazy among us.

It is worth noting that one of the great joys of CES is that everyone is welcome, and that the exhibitors and subject-matter experts arrive from many countries. CES makes clear that the desire to innovate transcends borders and creeds, and that the glue holding this incredible meeting together is not so-called “geekiness,” but a superior level of creativity, intellectual curiosity, and desire for business success—and, perhaps above all, the desire by many to improve living conditions around the world.

I’ll close by saying everyone should attend this show once their life time. As a director, I suggest setting the goal of attending every three to five years. CES presents a soup-to-nuts view of developments in products and technology that consumers will anticipate. Even if you are not affiliated with what is considered a consumer business, you do serve customers that will continue to expect innovation. As I absorbed the week’s events and considered the possibilities around every corner, CES opened my mind about what could or should be considered in the boardroom related to strategy and risk. It was well worth my time, and would be for you, too.

Kathleen Misunas is a director of Boingo Wireless and Tech Data Corp., two publicly traded technology companies. 

Want to learn more about NACD’s CES Experience? Explore dispatches from the event here