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  Responsibility for Today’s Technologies Starts in the Board Room Four Steps to Mitigating Risks and Generating Returns
Responsibility for Today’s Technologies Starts in the Board Room Four Steps to Mitigating Risks and Generating Returns

Tech focus  |  By Barry Libert

 

Digital technologies, including social media, smartphones, the cloud and big data, have transformed our personal lives. They have enabled all of us to connect and communicate with our friends and family, manage our savings, invest and share advice no matter where we are and what device we are using. The bottom line: It’s time to turn those technologies into business benefits, particularly when it comes to corporate governance, organizational strategy and capital allocation. And the responsibility for driving that digital adoption starts (and ends) with the board.
Let’s start with the facts. Every corporation, including commercial and investment banks, is today a digital corporation. Digital isn’t just about connecting employees and customers to improve collaboration regardless of location or device, nor is it about making investor transactions more efficient and effective. At its core, becoming a digital corporation is about delivering real value to all stakeholders – value that adds up to some $1.3 trillion annually, according to the McKinsey Global Institute. This massive opportunity exists because of four key digital technologies.
The result: It’s time for board members and leaders of all organizations, and especially those that handle the finance of individuals, business and government, to reconsider and reinvent their business models as digital enterprises. Commercial boards and leaders that try to avoid a digital transformation risk having their organizations fall prey to the speed and might of companies that make the most of today’s social and mobile networks and the big data they create. The graveyard is growing: Just ask the boards and leaders of Best Buy, Blockbuster, Kodak and the presidents of the countries revolutionized in the Arab Spring.
So what are the four rules for becoming a digital corporation in the banking sector (which applies to all businesses)?

Become Aware of Today’s Digital Power and Potential
The facts speak for themselves. Corporations that actively deploy social and mobile technologies produce 9 percent more revenues, 26 percent more profits, and a 12 percent higher market valuation than their peers, according to research by the Massachusetts Institute of Technology and Cap Gemini. Despite these facts, fewer than 30 percent of CEOs use social media, according to CEO.com. In addition, The Conference Board and the Rock Center for Corporate Governance at Stanford University report that only 7 percent of corporate directors use big data from social or mobile interactions in the course of making decisions. Finally, research from both the University of California at Berkeley and MIT reveals that social media is a leading indicator of stock-price movement, as exemplified by the recent ruling by the U.S. Securities and Exchange Commission legitimizing the use of social media for investor communications and the recent false tweet by The Associated Press, which cost the financial markets $200 billion in less than six seconds.
On Jan. 10, 2013, Kenneth I. Chenault, the CEO of American Express, announced that the company would change its travel-service business strategy and investment in technologies, cutting 5,400 people as it reallocated its capital to emphasize online initiatives. Chenault said that the travel industry had been “fundamentally reinvented” by technology. In support of this change, he noted that more than half of its corporate customers were booking flights online or via their mobile phones rather than calling an American Express representative. “Because customers are using tools directly online, we need less customer-facing people, such as travel counselors who take reservations and bookings,” said Kim Goodman, president of AmEx’s global business travel unit.
Ask yourself: How aware are you and your board members and leaders of these fast-moving technologies and how are you using them?

Understand What Creates Value Now
Boards and leaders have always known that their objective is to create value for their stakeholders. But those sources of value are changing. In the agricultural age, the amount of land owned and tilled was what mattered. In the industrial age, value was based on an organization’s physical assets and manufacturing capabilities. In the services age, it was based on how many people an organization employed and their billable hours. In the information age, it was quantity and quality of the software code written. In the digital age, value is a function of the size and vitality of an organization’s social and mobile networks and their ability to co-create new products and services.
Boards and leaders hold a number of historical and framing biases that make it a challenge for them to see and invest in today’s intangible and often unmeasured sources of value. This is especially critical, given that less than 25 years ago, physical and financial assets constituted some 80 percent of corporate market value. Today, that amount is less than 20 percent, according to research by Ocean Tomo. As such, leaders need to rethink their capital allocation strategies. Recent research from McKinsey shows that most companies invest in the same assets year after year.

Revise Your Attitude about the Wisdom of Crowds
All leaders must fully understand and appreciate that an organization’s next big idea may come from anywhere or anyone – whether insider or not. To insure that an organization’s attitude about this new way of thinking is aligned with today’s realities, corporate directors need to ask their management teams how they are leveraging the collective wisdom of not just their own employees, but also the organization’s crowds, which include customers, prospects, investors, suppliers, and partners.

Implement Digital Business Best Practices
Yesterday, companies focused on internal processes to improve efficiency. That inside-out focus worked in a world in which customers had few choices. But today, consumers can buy from anyone and everyone, both online and off. And employees can work for anyone anywhere – storing their knowledge and relationships in the cloud. As such, boards need to ask management how they are shifting their focus from inside-out to outside-in and implementing digital best practices, regardless of where they originated – be it in their industry or not.
Based on the increasing size and power of social networks, Nike reoriented its marketing processes to outside in in order to capture the capabilities and insights of its fans and followers. To do this, Nike built Nike Digital Sport to develop products that allow the company to be with and where its customers are 24/7/365. This became the focal point of transforming Nike into a social company that has dramatically increased its revenues, while significantly cutting advertising costs. Fortune magazine reports that the strategy has generated a large increase in earnings before interest, taxes, depreciation, and amortization.
Here are the three places that every corporation seeking to become a digital enterprise needs to adopt:
Strategy: Corporate strategy in the banking sector is no longer about products and services. Digital is a strategic imperative for all industries and all job functions. Boards need to play an active role in ensuring that their leadership teams consider these issues and opportunities and present plans about how they are investing in social, mobile, cloud, and big-data technologies. Research from Cap Gemini shows that social enterprises shift market and operating risk to other less-digitally savvy companies.
Leadership: The concept of management as we all know it is quickly losing its power in a world in which everyone has a voice – including customers, employees, partners, and investors. Social technologies allow people to say and publicly share whatever they want about an organization, its leaders, and culture. In the context of increasing demand for accountability, transparency and open approaches involving all stakeholders, corporate directors need to think anew about their board composition and competencies. Although many have done a good job embracing diversity, most still lack members with today’s technology and strategy skills – this according to research by Spencer Stuart.
Governance: The future for boards is less about traditional governance and regulatory compliance, and more about network alignment, capital reallocation to new sources of value and technology, and new strategies. Looking in the rear-view mirror of financial reporting will only go so far. Today, boards and CFOs must understand and rely on social intelligence about the future desires and needs of their stakeholders.
The bottom line: Boards and leaders of all banks (regardless of size and client base) need to join the ranks of Amazon, American Express, Google, and Nike and become winners in their industry by becoming digital corporations. ■

Barry Libert CEO of OpenMatters is a technology investor, corporate director, and strategic advisor to boards and their leaders seeking to make the most of social, mobile, and big-data technologies.


Posted on Tuesday, September 10, 2013 (Archive on Monday, December 09, 2013)
Posted by Scott  Contributed by Scott
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