Topics:   Corporate Governance,Featured,Risk Management,Strategy,Technology

Topics:   Corporate Governance,Featured,Risk Management,Strategy,Technology

February 1, 2019

CES Experience 2019: New Trends and Their Implications for Board Oversight

February 1, 2019

How will smart homes, driverless vehicles, digital voice assistants, robot helpers, wearable technology, 5G connectivity, and other emerging technologies transform your company’s industry?

The promise of these innovations was on display at the Consumer Electronics Show (CES) in Las Vegas earlier this month, bringing together more than 4,500 exhibitors from across the globe and drawing more than 180,000 visitors for a week-long extravaganza.

For the second year in a row, NACD partnered with the Consumer Technology Association and Grant Thornton to host CES Experience, a director-centered program that develops directors’ digital fluency as their enterprises face the implications of new, transformative technologies.

During curated tours, attendees engaged with a dizzying array of new products, some that will launch this year and others that may never go to market. They also heard from experts and entrepreneurs who helped them find the right signals among the many noises heard over the course of the event, pinpointing which trends and breakthrough innovations will matter most.

The program led to rich conversation among directors about how to spark more innovation at their companies, how to address growing concerns about the misuse of data privacy, and how to prepare for the tectonic shifts that technology will unleash in how we work and live.

The most relevant takeaways for the director community are distilled below.

The Major Technology Trends

  • Everything as a device. Every physical product will soon be connected to the Internet, making even cars into what you could classify as connected devices. The distinctions between digital devices and mere devices will continue to rapidly vanish. This accelerating trend will impact how companies develop products, deliver services, and design business models. For example, wearable technologies and remote monitoring and diagnostic capabilities are starting to transform health care. Mirrors can now be equipped with tools that diagnose skin problems while toothbrushes offer coaching tips for better dental care. Or, in the instance of driverless mobility, consumers may subscribe to a service instead of buying a vehicle. As part of the service, consumers could have access to different types of cars, receive continuous software updates, and enjoy entertainment services available in the vehicle.  
Jeffrey McCreary, director of Benchmark Electronics, discusses the interconnectivity of devices.
  • Exponential increases in computing power and speed. A number of exhibitors at CES touted the potential of 5G wireless connectivity, which is exponentially faster than current 4G speed. Many predict that 5G will accelerate the development of driverless transportation, virtual reality, and all types of Internet of Things applications that would require real- or nearly-real-time connectivity. That said, the timing of the arrival of a true 5G network remains unclear.

    More uncertain still is the promise of quantum computing. Developers of quantum computers theorize that these machines may be able to harness the power of subatomic particles to compute at speeds and with capabilities exponentially greater than that of classic computing—and with far greater storage capacities. At CES, IBM unveiled what it is calling its first commercial quantum computer, stressing that this is a first attempt and that companies can use IBM’s cloud quantum-computing tools for their own quantum-computing experiments. Nevertheless, companies that better understand the long-term business implications of these significant leaps in both speed and power will be at a significant advantage.
  • Voice is the platform of the future. Digital voice assistant capabilities, such as Amazon’s Alexa and the Google Home Assistant, are rapidly going mainstream and are on the cusp of entering the enterprise market. Eventually, every office worker could have a voice assistant that can schedule meetings, book travel, or help find information in your customer database, which is likely to boost productivity, but may initially pose a formidable challenge for corporate information technology (IT) departments.
  • Datafication of business. Enterprises are going through a painful but potentially very rewarding transition from being just digital to fully data-driven. Digital sales and marketing will simply be table stakes. Over time, the winners are those companies that can reap major benefits from investments in artificial intelligence (AI) to build more formidable customer experiences, make better business decisions, and achieve massive productivity gains. The ability to collect, process, and analyze large and diverse sets of data is already a key competitive advantage, and will only continue to be a more important informant of strategy. Boards will need to probe whether their enterprises have a clear vision for using AI, and whether their employees are able to organize their data effectively to exploit AI’s capabilities.
Ryan McManus on the news ways that data will dictate business strategy.

Data governance in the next few years will become an increasingly important board responsibility. Recently, the Global Network of Director Institutes (GNDI) published guidance on this growing board mandate.

Strategies for Governing Technology-Driven Innovation

  • Anticipate shifts in customer preferences and how that creates opportunities for innovation. Boards should probe whether management has a nuanced understanding of customer preferences and a point of view of how those preferences may change—and with what speed—as a result of new technologies coming to market. Consider, for example, that consumer expectations about frictionless, on-demand services that allow them to spend more time on professional and personal pursuits are now much higher as a result of engaging with Amazon or Uber.

    These companies display the economic power of new digital platforms. These new platforms will control the customer experience, continuously gather data, and create entirely new market places. And this model is quickly spreading to industries outside of consumer and enterprise technology, including asset management, publishing, fashion, and consumer lending. Boards should assess whether their enterprises are in a position of building and owning these types of digital platforms, or are ready to become a lead contributor to the new business ecosystems these digital platforms are creating.
  • Support the management team through sense making. The ability of directors to recognize linkages between seemingly disparate technology innovations, societal shifts, and new market forces will become an even more important asset in the boardroom. Boards are in a unique position, given the diverse experiences of directors, to spot and clarify emerging patterns, to connect the dots, and to offer management actionable insights about how their companies can continue to thrive in a changing world. But time must be set aside during and between board meetings to focus directors on this task, while ongoing education will be important to strengthen their sense-making skills.
  • Create conditions for innovation to succeed in your enterprise. Faced with the threat of imminent industry disruption, many boards are calling for breakthrough innovation at their companies, but rarely assess whether management has established the right environment for the type of innovation that could reinvent their business, not just improve it. Is management willing to accept failure? Is compensation at all levels aligned with our innovation goals? Have we set the right time horizons for longer-term innovations to develop and get traction? Some directors who attended the event warned about the danger of innovation “theater,” where boards are wowed by high-tech innovation labs which in reality are completely disconnected from the rest of the business.   
  • Fixate on business-model innovations that new technologies may enable. Rather than becoming experts on every new technology trend, directors are likely much better positioned to assess how new technologies could either threaten existing business models or offer the potential to deliver more value to customers and create more profitable revenue streams. For example, in light of the growing opportunity to offer customers not only a physical product but also personalized support by analyzing data generated through their use of the product, do subscription or service-based models offer better economics than traditional unit sales models?
  • Assess human-capital risk and strategy needs in response to technology disruption. The pace and scope of technology change is already disrupting workforce management and planning. In the next few years, companies will need to make critical decisions about what jobs to displace, how to reskill employees, and what new jobs to create. For example, while the recruiting of top engineering talent is now really competitive and therefore very expensive, companies must assess whether in the near future AI capabilities will replace many of the programming jobs they are desperately trying to fill. Or, how does the company envision how workers can effectively partner with non-human counterparts in performing key tasks? NACD recently published new guidance on how boards should oversee this increasingly important governance domain.
Shelly Palmer considers the strategic implications of AI on the future of the workforce.
  • Consider adapting your current oversight structure to govern technology-driven innovation. Finally, boards will need to challenge their own oversight approach. Do they dedicate sufficient time on the board agenda not just for management’s reporting on innovation, but also for expansive dialogue that allows room for outside perspectives? If innovation is so critical to making sure the company business endures, does it make more sense to establish a separate board-level technology or innovation committee or create a separate, non-fiduciary advisory board, at least temporarily, to offer guidance to the full board? Does the CEO evaluation, compensation, and succession planning effectively reflect the importance of technology-driven innovation? Has the board clearly defined its responsibilities versus those of management in the oversight of innovation?

The next blog will share highlights from CES discussions about risk and regulation involving technology, including the misuse of data and the decline in consumer trust.

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