5 Questions Boards Should Be Asking About Digital Transformation

Digital transformation is increasing the scope of boards’ mandates, opening up new fronts for risk and competition. Asking the following five questions will ensure that even non-digital directors are focused on the most important challenges: 1) Does the board understand the implications of digital and technology well enough to provide valuable guidance? 2) Is the digital transformation fundamentally changing how the business (and sector) creates value? 3) How does the board know if the digital transformation is working? 4) Does the board have a sufficiently expansive view of talent? 5) Does the board have a clear view of emerging threats?

The CEO of a large retail company recently brought a $500 million digital-transformation-investment plan to his board. The board reviewed the proposal, but after asking a number of questions, they were unable to evaluate it. Was it too costly? Was it aiming too low? Was it focused on the right priorities? One board member admitted he just didn’t know.

Similar scenes have been playing out in boardrooms around the world for years. “I hear lots of digital buzzwords, but I’m not sure how to deal with it,” as the chairman of a different board put it. “I know digital is important, but how do we capture the value?”

Even before the pandemic, 92 percent of companies surveyed by McKinsey believed their business models would have to change given rates of digitalization at the time. Covid-19 has only accelerated that timeline, with estimates indicating we’ve moved three to four years forward in digital adoption in a matter of months. Digital transformation has become a matter of corporate survival and a top priority for boards.

While many board members have told us they know that digital is essential to keeping current business models viable while developing new revenue streams, they struggle to see how they can best add value. The complexity of technology and the speed of digital can make board members feel like they’re always playing catchup.

Discussions with dozens of board members reveal how digital transformation is increasing the scope of the board’s mandate, opening up new fronts for risk and competition. Rising to the challenge doesn’t mean completely reinventing the board model, but it does require a thoughtful recalibration of where to focus directors’ energies. Asking the following five questions will ensure that boards are focused on the most important digital challenges. While some of these questions are more strategic, and others more operational, boards that address all of them can help push companies to achieve the digital transformations essential to today’s competitive advantage.

Building up the board’s digital aptitude isn’t about turning directors into proficient technologists. Rather, the goal is for the board to understand the implications of technology and digital on the business and sources of revenue. Take artificial intelligence (AI), for instance. When thoughtfully applied, it can enable a huge leap over standard approaches in terms of delivery speeds, costs, and quality – often by a factor of 10. This allows companies to test new markets, products, and business models at much greater speeds, and at lower costs. Adding in other technology trends at varying degrees of maturity and applicability — such as quantum computing, distributed IT infrastructures, and process automation and virtualization — means boards have their work cut out for them in navigating potential impacts on the business.

Bringing on tech experts, setting up advisory groups, or visiting tech companies to see how they work are useful but ultimately insufficient steps, because they often reflect a board-level view that digital is merely a sidebar to the core business.

Two practices go further. First, boards can take a more strategic view when bringing on new directors.