Digital minds in boardroom common among successful companies

Boards that serve as digital catalysts bring better revenue growth, return on assets and market cap growth.
1 April 2019

Digital nous at board-level gives businesses a financial edge. Source: Unsplash

The high-level discussions held by a business’s board of directors are vital for plotting the route of a company, ensuring it’s resourced and capable of navigating that course— whether that means executing acquisitions, hiring new management, changing organizational structure, or securing additional investment.  

In a business world that now turns online, however, digital nous in the boardroom is proving a financial differentiator.

MIT Sloan Management Review undertook a machine learning-led analysis of the boards of directors of all US-listed businesses— amounting to 40,000 directors— and found that the very presence of board members with experience in digital business can make a huge difference to a company’s bottom line.

When it comes to future-proofing businesses the world over, the research suggests it’s imperative for a company’s leaders to adopt a digital-first attitude towards their commercial goals, with advantages trickling down to improve business models, customer experience and operational efficiency.

The publications found that just less than a quarter (24 percent) of companies with more than US$1 billion of revenue had digitally-savvy boards, with these companies outperforming others in revenue growth, return on assets and market cap growth.

Eighty-one board members were surveyed and 14 interviewed, while chairman and CEO letters were assessed and bios from recent annual proxy statements for US public companies were also analyzed.

From the research, it was found that three factors make a board ‘digitally-savvy’; the background of individual members, the number of members with deep digital experience, and the way the board communicates with management on the strategic role of technology

# 1 | Background of individuals

Members of the board need to have an enterprise-level understanding of digital platforms, AI (artificial intelligence), big data, mobile and digital processes for better business models in the long term.

Since business models can change quickly, board members with c-level experience will have a sense of when to commit, when to experiment, and when to partner.

# 2 | Three is the magic number

The survey found out that three members of digitally-savvy directors are needed as the bare minimum for a company’s financial performance to be significantly impacted in a positive way.

Companies with three or more digitally-savvy directors had 17 percent higher profit margins than those with two or fewer directors.

Thirty-eight percent of them had higher revenue growth, and 34 percent had higher return on assets and higher market cap growth.

On average, 57 percent of company boards in the information industries were digitally savvy, 24 percent of company boards in retail and less than 10 percent in transportation, construction and mining.

# 3 | Hard questions on technology and strategy

For non-savvy companies, managers typically turn to technology when they are ready to implement, and not when they’re still deciding the next course or direction.

On the other hand, digitally savvy companies and their boards are always looking for ways to delight customers and be more efficient.

They are open to testing and learning approaches with regards to strategic planning and experimenting to see what works and then scale the success.

Going digital at board level

“Digitally savvy directors change the risk conversation from evaluating the project risk of particular initiatives to the business model risk of not doing something new,” said one of the respondents.

The report recommends that companies add new members, alter board agendas and encourage educational opportunities for current members.

Ultimately, it is not about advocating that boards set digital strategy, as this is the role of management. It is about boards serving as a catalyst towards encouraging and pushing for change and progress in terms of the big picture.

All in all, as companies of all sizes struggle with the needs for digital transformation, a savvy board could give corporations a performance edge in an ever-evolving marketplace.