Corporate Governance goes digital
The fact, that digitalization and regulation vastly change work of executive boards and supervisory boards is no secret anymore. However, the scale of these changes is bewildering even for experts. It is against this backdrop that WU Executive Academy has reviewed the Governance Excellence programme and extended its curriculum by adding a whole module with the focus on digitalization. In the following interview, Prof. Werner H. Hoffmann, the programme’s Academic Director, and Prof. Alfred Taudes, the supervisor of the new module and the Head of the Institute for Production Management, explain how digitalization changes the roles and functions of supervisory directors and what skills will be indispensable for them in the future.
Digitalization concerns virtually any company of virtually any branch. What challenges of digitalisation do supervisory boards have to meet?
Alfred Taudes: Digitalization fundamentally changes the rules of competition: network effects and platform strategies lead to swift market dominance, and through disruption, there is competition with the companies of totally different branches. Digitalization is not a project, but a programme that should be gradually developed. All new products and services will have some digital component, internal business processes will require integrated solutions and enterprise environment will be coordinated digitally.
Werner Hoffmann: Today digitalization is definitely the biggest strategic challenge, since it very often questions conventional business models and at the same time opens up multiple strategic opportunities. In this context, the supervisory board does not have to develop a digitalization strategy. But it is the responsibility of the supervisory board to consider this factor and make sure that the executive board, firstly, takes into account the opportunities and risks that accompany digitalization, when enhancing the strategy of the company, and secondly, provides necessary cultural, personal and structural prerequisites for its efficient implementation.
What should supervisory boards be primarily aware of with the digital transformation of the company?
Alfred Taudes: Strategy and culture. Very often, when it comes to digital transformation projects, only hard factors are calculated, such as timely software implementation, number of website visitors, etc. However, soft factors, such as knowhow and standpoint of employees, are extremely important as well. Every now and then, I hear conventional enterprises say “We should become a software company in five years”. But software and software developers alone are not enough to achieve this objective. Digitalization should not be a goal in itself, but has to serve and contribute to the strategy of the company. Here, it is a job of the supervisor board to caution against such arguments as “All the others in the industry are doing the same thing”.
What role does the supervisory board play in digitalization – a regulatory body or an active idea giver?
Werner Hoffmann: To me, the supervisory board is neither a reactive regulatory body, nor a “super executive board”. It is the executive board that should be the main generator of ideas to implement concerning the company’s compatibility with digitalization. And the supervisory board’s role is to be a sparring partner of the executive board, which comes up with strategic ideas and initiatives and tests them on plausibility, prospects, risks and feasibility, and then keeps an eye on their implementation.
Alfred Taudes: I see it the same way. The supervisory board has to understand these new phenomena, analyse business aspects of digital technologies and support the executive board as a coach and supervisor in development and implementation of the digitalization strategy. The point of departure here is the vision worked out together with the executive board in which the prospective digital product and process landscape is created as a basis for competence building, business matching and project execution. The supervisory board provides, first and foremost, the company’s necessary external knowledge which is very important, because IT-projects are often a risk and there can be a lack of project management, which can gravely affect the customer relationship and economic efficiency. Apart from advisory functions, the supervisory board has to take on strategic project controlling. And here, it is not about micromanagement of certain measures, but about asking questions, such as “Do the technologies introduced increase efficiency of the project?” or “Can we achieve sustainable competitive dominance?”.
What skills should tomorrow’s supervisory directors be masters of, above all in respect to digitalisation?
Werner Hoffmann: Against the backdrop outlined above, digital and strategical competence are going to be two key fortes and qualifications, which are an absolute must for tomorrow’s supervisory directors. It’s also vital for board members to contribute their personal operational experience into digitalization of business strategies and successful implementation of business models. This experience may be gained in a completely different context of the industry. For example, it could be very useful for a bank supervisory board if its members had experience seeking digitally savvy customers and attracting them to the company.
How can supervisory boards tell sustainably successful strategies from hype?
Alfred Taudes: The model of the digital innovations introduction goes like this: niche awareness, inflated expectations in hype, disillusionment and then real productive use. Hype per se is not a negative phenomenon. It gives the impetus to try something new. But it is up to the supervisory board to duly recognise the real potential of the new technology for this particular company. To ensure this, the supervisory board should balance the company’s existing business processes and strategic orientation against application potential of the new technology, try it duly within prototypes and proof-of-concept in this company and find out which defects are just teething problems and which ones are fundamental.
Can digitalization somehow facilitate work processes of supervisory boards themselves?
Alfred Taudes: Today supervisory board members have to successfully cooperate at a distance and handle loads of information. Information systems of supervisory boards, the so-called Board Management Systems, allow safe distribution of documents and ensure effective conduction of meetings. Business Intelligence, Performance Management Systems and Cockpits process the data and help supervisory boards to analyse the latest figures and do the planning.
What consequences of digitalization will supervisory directors face in the future? Maybe job cuts?
Werner Hoffmann: From the perspective of supervisory boards, it is risk/reward ratio that should be in the focus of attention in this context. It means realistic assessment of appreciation potential and entrepreneurial risks associated with it. Besides, one definitely has to take into consideration negative consequences for employees. In my opinion, the key issue here doesn’t lie in possible job cuts. It is rather about qualifications and competence profiles, as well as training programmes and recruitment strategies of the executive board responsible for HR-management, which will be necessary to avoid staff shortage in the future. Instead of getting rid of undesirable employees, many companies concentrate on increasing their qualification and, therefore, their aptitude for new work reality and, most importantly, gaining new ones with increasingly indispensable digital competence and business stance. But one thing is sure: digitalization is much more likely a business asset, rather than a threat. Only the companies realising it are going to succeed in the future.
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