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The digital transformation opportunity

Across industries and geographies, the board members we interviewed see two distinct levels of digital transformation risk. One is the threat that “digital native” rivals from outside the industry will swoop in to disrupt the business. The other is the opportunity cost of neglecting how emerging technology fits into the company's long–term growth strategy. As one director in the financial services sector put it: “Digital transformation is a risk if you miss the boat but it actually presents the biggest opportunity for this bank to leapfrog the competition. It's only a risk if you fail to take advantage.”

Our survey results show that organizations are taking proactive steps to prepare for digital transformation (Fig. 5).

However, these results differ by industry group and company age. Only 27% of energy and mining respondents have hired a director with technology expertise, the fewest of any industry group surveyed. While 42% of companies between 10 and 20 years old have hired a director younger than 40, just a quarter of companies 5 to 10 years old have done so.

Responsibility for overseeing digital transformation risk does not rest exclusively with younger or technology savvy hires. Says Mr. Cooperman of Molina Healthcare: “We've got people who have lengthy tenures. Those folks have a sense of perspective that is very useful to the decisions we make.”

More than three–quarters of survey respondents say their board has brought on a director with technology expertise to navigate the digital transformation waters. Many others rely on senior management or outside consultants for advice on the technology revolution. However, somewhat fewer than half (43%) say they have changed risk management practices to address threats from digital transformation.

That figure may be relatively low simply because some boards do not know where to begin—a potential blind spot, where so–called digital natives from outside their own industry could sneak up on established companies and steal market share. Board directors, having seen this happen to former corporate Goliaths in retail, banking and entertainment, know it could happen to their company too.

…Digital transformation…presents the biggest opportunity…to leapfrog the competition. It's only a risk if you fail to take advantage…

Fig 5: Boards take digital transformation risk seriously

Please rate your level of agreement with the following statements about digital transformation and threats to the company's business from digital disruption.

* Indicative due to relatively low sample size

Board report figure 5

The next wave of momentum for digital transformation is likely to come from emerging technologies like artificial intelligence (“AI”) and robotics. However, while 61% of survey respondents believe these technologies will improve their company's efficiency and performance and 63% say their board has discussed the challenges and opportunities of using AI and robotics (Fig. 6), the reality is murkier. Many companies are taking a wait–and–see approach, carefully assessing the pros and cons of AI before implementing it fully in their business.

Boards are understandably focused on the risks of these technologies, with 42% of survey respondents saying AI and robotics will create new business risks. Our interviews suggest a broad spectrum of adoption and attitudes to AI. While many companies don't expect AI to be used broadly for several years to come, others are forging ahead. The president of one Swiss insurer reports that its board is monitoring advances in robotics, and believe that this technology could actually reduce some risks, as robots make fewer mistakes than humans do.

So how do boards prepare for risks from digital transformation? The chairman of a Qatar–based bank reports that his organization has invested heavily in IT infrastructure, allowing management to automate many functions and increasing its data analytics capabilities. Such changes can perhaps provide a roadmap for other organizations facing digital transformation risks. Rather than simply recommending that their company buy the latest technology, boards should encourage management to leverage existing capabilities, expertise, and data, upgrading internal systems and processes to gain an advantage on the competition.

The aforesaid chairman says that the IT infrastructure moves have helped shift his bank's business model to an open banking system and in many regions of the world, this is the industry's next wave. “It is an opportunity to change mindsets, re–educate the entire team, and create a new entrepreneurial culture in the business,” he says.

Some directors say their boards engage in regular horizon–scanning exercises. And some organizations have revamped their oversight and reporting structures to address issues related to digital disruption. The chairman of one Swiss insurer reports that a special digitalization committee deals with unknown unknowns and more than half regularly discuss potential mergers or acquisitions that could boost their company's digital competitiveness, or form a special committee to oversee digital strategy. These are just some of the best practices boards are adopting to manage risks from digital transformation and emerging technologies.

…boards should encourage management to leverage existing capabilities, expertise, and data, upgrading internal systems and processes to gain advantage on the competition…

Fig 6: AI and robotics are top of mind

Please rate your level of agreement with the following statements about automation and intelligence.

* Indicative due to relatively low sample size

Board report figure 6