June 29, 2023
June 29, 2023
The metaverse has the potential to be a disruptive, expansive, and transformative force, even to the point of spawning its own economy. Every board has a fiduciary duty to evaluate that potential for its company’s future.
We define the metaverse as “a collective of virtual-reality shared spaces, where users interact with a computer-generated environment as well as other users… in an interconnected network of 3D virtual worlds.” Much more than connecting people to information, the metaverse in the future connects people, places, and things, sometimes in a fully virtual environment.
According to a global survey of 250 global business leaders, the metaverse has the potential to dramatically impact the future of the human experience. Almost all survey participants expect a “moderate to significant impact” on the global economy 10 years out and believe that the metaverse will be “moderately to extremely important” to business success. While views of the metaverse may vary, more than two-thirds of business leaders across the globe believe that something impactful is emerging in the market. It might even be a technological and societal shift similar to the advent of the Internet age.
According to the survey, a majority of organizations (55%) are already deploying the metaverse in various areas of the business such as marketing and advertising, conferences, trade shows, human resources functions, and immersive shopping and product simulations—commercial applications that are well past mere gamification, which was the focus over the last decade. Almost all organizations believe that, over the next 10 years, the metaverse will prove to be “moderately to extremely important” to the customer experience and to sustaining customer loyalty. Metaverse technologies that organizations are most excited about include augmented, virtual, and extended reality, as well as artificial intelligence (AI). (Note: AI plays a key role in creating the metaverse as it enables a more immersive and engaging virtual experience as well as greater diversity and accessibility.) The research also indicates that more than a few organizations across multiple sectors are giving the metaverse close attention.
What is the board’s appetite for this new age thinking? Detractors point out that no one can say for sure what the metaverse will look like in 10 years and that a fully realized metaverse—however one chooses to define it—requires orders of magnitude more computing power than what is currently available. Networks need to become much faster, with less latency, so that experiences are not impeded. Skeptics also question how much a company can prudently invest given the uncertainty over the length of time it will take for the metaverse to become commercially viable.
Proponents counter that at the turn of the 21st century, no one could have predicted the full impact of today’s Internet. Projections of the potential dollar value of metaverse-related activity vary wildly—in large part due to the unknown ways the metaverse will mature over the next 5 to 10 years. Yet, estimates of the size of the overall global impact tend to be massive, ranging from $5 trillion to $13 trillion, averaging around $8 trillion. Even if the metaverse generates just a fraction of these projected values, it merits attention in the boardroom as powerful use cases continue to appear across multiple industries.
It is the classic “too big to ignore” dilemma compounded by uncertainty over the time horizon for evaluating return on investment. These business realities present a challenge to any business case, particularly for companies averse to moonshot projects. The good news is that companies don’t have to be first adopters; boards can learn from the following relevant action steps.
Get up to speed on emerging technologies. This is square one for all directors as they engage the digital world. Bring outside experts into the boardroom to keep the board apprised of relevant technology trends, how they affect industry fundamentals, and specific market opportunities and use cases germane to the company. Identify and lean on expert resources inside the organization regardless of the function they support. When seeking guidance, insist on getting it in plain, practical terms. Also, share relevant articles from publications with strong technology content presented in practical ways.
Address technical debt with intention. With emerging technologies driving the need for agility, a focus on technical debt is a safe play. For many organizations, technical debt has accumulated slowly and insidiously to the point where it has become the proverbial ball and chain that constrain an organization’s ability to keep pace with agile and “born digital” competitors. Protiviti’s research indicates that seven in 10 organizations (69%) believe technical debt has a prominent impact on their ability to innovate. Accordingly, directors need to understand the nature and extent of technical debt and ask management where they stand in modernizing legacy applications.
Begin with the right mindset. Directors should keep an open mind in focusing on the metaverse as an integral part of a strategic conversation in which long-term goals, the technological innovation needed to reach those goals, the capital deployment ramifications, and the related upside opportunities and downside risks are all considered. The risk equation is as much about the risks of late entry and opportunity costs as it is about innovation failure and lackluster returns.
Understand the strategic implications of metaverse technologies. No company can ignore the possibility that the metaverse offers an opportunity to participate in the construction of the future. The board should engage management in strategic conversations regarding the playbook for seizing opportunities as marketplace-disrupting technologies emerge. The strategic emphasis will vary by industry. Directors should focus on potential use cases in the industry, how the metaverse can affect the customer experience, the level of investment required to make an impact in the market, the governance structure needed to manage the investments made, and the talent needed to be successful.
Apply a risk lens. In approaching the future, risk management is key in evaluating potential use cases. The risk of investing in metaverse technologies as well as the risk of late entry and missing the wave of opportunity are relevant considerations. As for the metaverse, boards can expect the usual cybersecurity, data privacy, and regulatory discussions. It will spawn new threats such as the cloning of voice and facial features, the hijacking of video recordings using avatars, and invisible-avatar eavesdropping. No doubt, there will be issues around disinformation and protecting children. Additional risks to the strategy will also arise if the metaverse is akin to the “Wild West” without rules, regulators, or guardrails.
In summary, boards should evaluate the potential of the metaverse to the organization with a focus on management’s capabilities for monitoring emerging technologies, evaluating potential threats and opportunities, and developing use cases to reality-test opportunities and identify risks. With the significant market opportunity of the metaverse and the sizeable amount of investment capital flowing into the space, this is a smart thing to do. Directors should invest time with senior management to understand and envision the possibilities and prepare for the future. Even if the metaverse does not fully materialize to what some believe is its full potential, it will open up many new possibilities and encourage companies to consider different and creative ways to engage markets, customers, and employees.
Jim DeLoach is managing director of Protiviti. DeLoach is the author of several books and a frequent NACD contributor.
Protiviti is an NACD partner, providing directors with critical and timely information, and perspectives. Protiviti is a financial supporter of the NACD.
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