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Digital Disruption and Its Effects on Businesses

April 4, 2017

Digital disruption refers to the changes that accompany the introduction of new digital technologies and applications. These shifts can affect the value proposition of existing goods and services in far-reaching ways. Such disruption also has the potential to reorder existing business models.

Digital Disruption Definitions

Many feel that digital disruption has already occurred and has already gone through several evolutions. More broadly speaking, Boston Consulting Group defines “digital” as a business’s ability to: 

  • Build new businesses and ventures rapidly
  • Digitize offerings to, and engagement with, customers
  • Transform operations such as manufacturing and supply using digital tools and solutions
  • Build digital enablers (digital talent, ecosystems, accelerators, etc.)

Businesses would do well not only to embrace the full breadth of these digital factors, but also to coordinate and orchestrate their growth around them. Digital disruption is affecting the role of key executives, as well as the aims and functions of entire boards. 

The Rise of the Chief Digital Officer Role

The rise of the Chief Digital Officer (CDO) role became necessary with the intersection of the digital world with people and production. As an initial response to digital disruption, CDOs typically concentrated on immediately pressing issues such as software and connectivity. However, the role of the CDO has expanded tremendously to encompass complete digital transformations of companies. 

CDOs are now innovators and storytellers, reinventing the fundamental business models, processes, and value propositions for organizations. They are becoming more and more responsible for interpreting how digital evolution will affect the company and how to best use technologies to propel them to the next steps.

Rather than dealing with the complexities of single apps or software platforms, CDOs are now orchestrating entire systems composed of multiple information networks all interacting with one another. As each new wave of digital disruption brings new installments, these work in tandem and in collaboration with existing systems rather than replacing them fully

The result is a continually growing network of information that must be managed by CDOs. As digital impacts continue, CDOs will become increasingly valuable as decision-makers to ensure that the right technological resources are being utilized in order to deliver value to customers. 

Boards and Governance in Light of Digital Disruption Trends

Boards are not generally responsible for instituting new mechanisms that involve or address technology. However, they must:

  • Assume responsibility for understanding how technology trends might shape the future of their companies
  • Evaluate how business strategies are interlinked with digital strategies
  • Anticipate future innovations based off current trends
  • Learn how digital technology can provide maximum leverage for efficiency and output

In particular, boards should be able to identify how technology is affecting operations. They should also be able to assess which technological skills and assets would add the most value at the board level. 

Sectors where digital technology is at the core of the business, or is affecting the core, include:

  • Consumer goods
  • Retail
  • Hospitality
  • Finance
  • Distribution

Digital Risks and Social Media

Boards must also take into account various risks of a digital or online nature. Specifically, social media networks have grown to the point where they can present serious risks to corporate reputation and operations. Stanford Business School released a paper entitled “Monitoring Risks Before They Go Viral,” which suggests that information gathered from Facebook, Twitter, LinkedIn, and other sources is valuable. 

Such information could be used as “early warning” data to improve risk management, and to supplement traditional metrics used to monitor corporate operations. These types of precautions can help to provide additional layers of transparency for shareholders. 

Board Composition: A Focus on Age Diversity

The consideration of digital knowledge in a board setting also has effects on other issues such as board composition and diversity. For instance, digital skill now introduces diversity issues in terms of age. Younger professionals may have a more intuitive understanding of digital technologies and their general trajectory, since they have grown up around these changes. However, they may not always have the requisite levels of corporate experience. 

Thus, when selecting boards, it has become necessary to balance digital know-how with wisdom and maturity in an executive setting. Board governance and succession strategies need to incorporate digital disruption considerations moving forward. When recruiting for expertise based on digital skills, boards will likely have to utilize tools to find talent in demographically younger experts, and conduct their searches in broader ranks that include Chief Marketing Officers (CMOs) and Chief Information Officers (CIOs). 

Digital disruption trends have dramatically shifted distribution channels and business models by placing more power in the hands of the consumer. Moving forward, boards and executives must deal with more complex systems of information and be able to interpret the effects of these on shareholders. If you have any questions regarding corporate governance or other related issues, contact us today at Kessler Topaz. We work closely with governance experts to ensure that boards are independent and transparent to help increase shareholder value and prevent fraud.