November 4, 2021
November 4, 2021
Today, smart companies across all industries understand the rapid pace at which technological change continues to unfold. The question in the boardroom a decade ago—“Should we invest in digital transformation?”—has transitioned to, “How much should we invest, and more importantly, how fast should we invest, given our accountability to shareholders?”
The simplicity of this new question belies the underlying complexities of prioritizing resource allocation. Strategic conversations around allocation can be challenging, and they have huge implications for the customer experience—driving the company’s ability to generate revenue and sustain its competitive position.
Given that resources are finite, boards can take several steps as they consider digital investment in resource allocation processes:
Make sure digitally savvy and experienced directors are at the table. 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 savvy is present in their oversight processes. Every board should have access to digital experience, whether it’s from a director at the table or a board adviser. That means looking at the director candidate pool for executives who have helped their companies undertake a digital initiative. It also means investigating which candidates have served in a role requiring strong technological acumen, such as chief information officer, chief technology officer, or chief digital officer.
Focus on improving operations and securing the company’s position within the value chain. The board should ask tough questions about what’s really happening with the customer experience, as well as about both how it’s being improved now and how it will be improved in the future. Traditional discussions for understanding the overall strategy (as context for identifying the technology and resources needed to execute it) might be too introspective. Data and metrics around customer satisfaction, customer loyalty, innovation, and speed to market relative to competitors’ may present a more insightful basis for discussion.
Think and act digitally when evaluating innovation performance. The board’s primary interest is ensuring management digitalizes new and enhanced products and services to strengthen customer engagement and relationships. The board should encourage management, as well, to deploy digital technologies to improve operational performance and information for decision-making. This conversation should be grounded in business realities (meaning innovation is bound to the physical, financial, and human capital available), and the board chair should allocate sufficient agenda time to cover innovation strategy and culture while encouraging open discussion on direction and progress. The dialogue should be supported with appropriate innovation-specific metrics that tell the full story on growth-strategy performance relative to competitors’, feedback on the customer experience, return on innovation investments, and the effectiveness of the company’s innovation capabilities.
Focus relentlessly on the customer experience. Today’s customers are buying based on their experiences with a company and whether a product or service aligns with their personal values. Speed to market is paramount in the digital age. Agile organizations and cultures embrace discipline around the customer experience—for example, blending institutional knowledge with digital perspectives in order to continuously improve the customer experience by connecting the decision-making process to customer value. This, in turn, drives resource allocation decisions.
Take steps now to maximize return on investment. Optimizing return on investment 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 chief data officer 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 of swiftly updating software development life cycles and budgetary processes enables organizations to meet the market, customers’, and employees’ need for speed around their most valued features and functions.
Finally, don’t forget the supply side. 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.
This 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 each board—and the company it serves—must meet head-on to sustain the business’ viability.
NACD: Tools and resources to help guide you in unpredictable times.