How ‘Digital Savvy’ is your Company Board?

At the recent Dublin Tech Summit this writer was struck by a Ryanair recruitment stand proudly proclaiming its status as  “A data company with 450 aircraft”. 

For a company which physically transports 120 million passengers through the skies each year the data company descriptor might strike some observers as somewhat stretched. However, there is no escaping the fact that even the most traditional businesses are increasingly dependent on digital expertise to grow and remain competitive.

Indeed, the Ryanair story would have been very different without a powerful website capable of scaling up and processing more than €7 billion of flight payments each year.

For many businesses the successful adoption of technology is a must but it might surprise readers to learn that digital expertise at board level is in short supply in a number of sectors.

The MIT Sloan School of management recently published a paper , “It Pays to Have a Digital Savvy Board”, which revealed the findings of a machine learning analysis of the digital know-how of all the boards of U.S. – listed businesses.

The definition of ‘digital savvy’ was based on directors’ understanding, education and experience of the impact of emerging technologies on business success. And, they measured this competency by analyzing data from surveys, interviews, corporate communications and the bios of 40,000 directors.  The results were striking.

Just 24% of listed companies in America with more than $1 billion in revenues had digital savvy boards, and those businesses significantly outperformed other companies on key financial metrics such as revenue growth and market cap growth.

The analysis also discovered the magic number for digital savvy status was “3” i.e. it takes three members of the board to deliver a statistically significant impact. 

The financial metrics speak for themselves; companies with three or more digital savvy directors delivered 17% higher profit margins than companies with two or fewer, 38% higher revenue growth , 34% higher return on assets and……34% higher market cap growth. 

The effects of digital savvy boards were consistent across industries, although the percentage of such boards varied by industry. Think about Ryanair again, and then wonder at the challenges facing retail (just 24% savvy) and transport(8% savvy) in the table below…

It is incredible to think that the extremely challenged retail industry in the Amazon era is so poorly resourced at board level. It is also interesting to note that specific technology knowledge is not the critical assist but rather experienced insights on transformation decisions and trends.

The MIT Sloan report summarizes this type of digital experience in the board room rather well:

“….rather than focusing on the basics of the technology itself, digitally sophisticated board members use their insight about trends and transformation to help managers explore the bigger picture the business is facing competitively. As one of the directors we interviewed put it: “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.”

Clearly, this study was conducted with large businesses but inevitably best practices will filter down to smaller companies. Particularly, venture capital practitioners will tell you how critical the founder is to their evaluation of a funding prospect even ranking higher than a fantastically innovative product or service. Start-ups looking to raise funds on Spark Crowdfunding should take note!  

On the basis of the MIT Sloan findings above it is worth careful consideration for founders of start ups to impress upon potential investors how they access independent digital savvy counsel. 

In fact, what could really impress is a founder who has put together a digital rich advisory board.

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