Digital directors in industrial boardrooms
The rise of the Industrial Internet and the Internet of Things (IoT) has meant that companies are facing significant business model, organisational and talent management challenges. In our previous Manufacturing Global article, we shared how companies can overcome these challenges and harness new opportunities from a talent perspective. This time we focus on the role of digital directors, the value they bring in the boardroom, and how to identify and attract them.
What is a digital director?
Non-executive leadership plays an important role when it comes to strategy, investments, and risk management related to an industrial company’s digital transformation. Having someone who asks the right questions and challenges management in a constructive fashion can be a powerful catalyst for change. In our opinion, traditional industrial goods companies should ensure the participation of at least one board member who has a digital background. This will help digital stay near the top of the agenda in the boardroom.
In the context of industrial manufacturing, a digital director can be defined as someone who has had recent executive experience in a company that develops core technology, a digital web-based company, a digital/IT consultancy, or has been in a digital leadership role in a non web-based company. We analysed the boards of 50 of the leading global industrial manufacturing companies to understand the extent to which new digital directors have been appointed in the past two years. Of 102 new directors appointed since January 2015, only eleven met our definition of a digital director. This is somewhat alarming given the imminent need for digital transformation in the industry.
Of course, it is important to recognise that boards have a limited number of seats and that director appointments must often cover several areas of expertise. Ideally, all board members, including those with digital expertise, bring broad perspectives rather than “single issue” focus.
Ensuring the right fit
When appointing new board directors, companies typically look for proven leadership capabilities, ability to engage in constructive debates, and experience and skills that fit the strategy.
Digital directors should be able to provide general management qualities as well as digital expertise. This combination can help to shape the vision, strategy, and business model in unique ways. Typically, digital directors can add value in four distinct areas; setting the scope of the digital strategy, designing a framework to support leadership and culture, advising on data and analytics, and finally, helping to determine the right level of digital investment needed.
Digital directors add value when they are able to offer a new perspective on changing market dynamics and on impact to current business model, as well as on the transformation of the customer experience. They can add perspective on how to streamline customer relationships, and what might be the impact on manufacturing, supply chain, support and service capabilities. They can help ensure the business is developing a pipeline of digital talent and a culture to support it, advising on transformation and CEO succession from a digital viewpoint.
Digital directors must bring fresh thinking to the board and question the status quo while helping to maintain a sense of proportion about the potential of digital.
Overcoming the challenge of talent shortage
Finding and appointing digital directors to industrial boards can be challenging, as the demand currently exceeds the supply of qualified and experienced candidates. Individuals with deep digital experience are in very high demand, both working in executive digital transformation roles and serving on boards.
One solution to the shortage of suitable digital directors is the creation of a digital advisory board. This is an effective way to gain insight from multiple individuals with a wide range of relevant expertise. It is important to ensure that a digital advisory board has the right charter and composition to address the full range of digital and technology governance and risk management issues.
In addition to digital directors, some companies have begun appointing Qualified Technology Executives (QTE) to their boards. A QTE’s role on the board of directors is to give vital input on key technology decisions that require board-level attention, ask the right questions and provide appropriate perspective, as well as mentor leaders of the technology functions (CIO, CTO, CISO). Our 2016 study, The Rise of the Qualified Technology Executive in the Boardroom, found that 26% of the Fortune 500 industrial and natural resources companies already had a QTE on their board.
An effective board is comprised of balanced views and multiple perspectives and experiences. Its members are willing to constructively challenge management, when appropriate, and possess independent perspective, avoiding "groupthink”. The better operating and successful companies and their boards are, the more attractive they also are to high-calibre director talent.
The role of a digital director is important for the success of industrial companies as they undergo major transformation in the coming years. Where does your company stand in terms of adding digital expertise to its board?
Jens Thomas Pietralla is a Managing Director and a leader of Industrial and Natural Resources Sector, and David Finke is a Managing Director and a leader of Technology sector for Russell Reynolds Associates