Understanding the digital revolution

Is your organisation agile?

Are you ahead of the curve or behind it and do you have the capability to take a leading role? Do you as a director understand the convergence of technology that is upon us and the exponential rate of change society is experiencing?

Sue Suckling, Victoria Crone and Murray Strong share their expertise on this topic as boardroom explores the age of digital and why directors need to think differently and prepare for what comes next.

The period of change we are currently experiencing has been labelled ‘the fourth industrial revolution’. Technology is changing the way we live, challenging traditional business models and shaking up the current order of things. Examples of this can be seen in the transport and accommodation industries, where new players are demonstrating their ability to quickly embrace technology to thoroughly unsettle their markets.

“It is about the convergence of technologies which enable services to be provided that once required different people, different approaches,” Sue Suckling explains.

Suckling is chair of Callaghan Innovation, Jade Software and NZQA, amongst other directorship roles. Over her career many of the organisations Suckling has worked with have had grounding in technology and innovation. These skills are not common enough however, and Suckling is pushing for more directors to get their heads in the right space.

“It’s not about silos of technology; it’s about the convergence of technology that is digitally enabled, and the rate of change and the new possibilities that have come about that weren’t there before. As a country we can’t have a view that certain things will impact us and certain things won’t because convergence and the rate of change are creating totally different business models and opportunities.”

As chair of NZQA Suckling recently spoke at the Singularity University New Zealand Summit around the changes needed in the education sector to remain relevant and provide the type of education that students both need and are seeking out to thrive in the modern world. Change needs to start at the top.

“I spoke about education and the people who are hanging on to the bricks and mortar and the existing, [who are] saying ‘without these things you won’t be able to be educated well and won’t have a career’. That’s holding on to the past.

“If you’re around a board table you’ve got to make sure you’re not trapped in the world as it is today and the world that you grew up in and formed your career.”

The capability question

Victoria Crone agrees the board needs to lead the charge in the digital age.

“The pervasiveness of digital innovation and technology into our business is so strong,” Crone says.

“If you want to respond and actually be proactive to the change that is happening you have to seek the capability out. You need to do that at a board level, you need to do that at an executive level and then you need it throughout your organisation. A big part of the journey is making sure you have that capability.”

Crone is former managing director of Xero and currently holds directorships at Contact Energy and Creative HQ, is a trustee of NZ Hi-Tech Trust and chair of Figure NZ. Crone says it is vital that directors understand the technological change we are experiencing and recognise how it will change society as well as business.

The 2016 IoD Director Sentiment Survey shows only 35% of boards say they have the right skills and experience to lead their organisation’s digital future. 28% don’t have the right digital capability and 37% are unsure/neutral. Having that capability is really important Crone argues, as “technology is not going away.”

"It is going to be a fundamental plank. You look at what is coming in the next two decades with the fourth industrial internet revolution, and that’s going to go through our society, our businesses at a speed we haven’t seen before.

“What’s coming at us in the next decade or two will challenge us in ways we don’t even know,” Crone says.

“The more we talk about it the better. Technology is not limited to tech businesses anymore. For example with the Hi-Tech awards, there’s some seriously cool tech innovation in what we would traditionally see as non-core technology businesses.”

Categories for awards illustrate just some of the areas technology is permeating – from medical companies, to agritech businesses and companies looking at technology solutions for the public sector. The convergence of technology and rate of change is transforming the way business is done across industries, not simply the companies producing apps or tech equipment.

Energy companies are part of a traditional industry that is having to adapt to the times. Crone says Contact is taking an organisation-wide approach, transforming the core of its business to embrace technology and digital. That involves working on systems, the culture of the organisation, boosting data analytics capability and, importantly, recognising the impact of technology at a more fundamental level.

Technology and innovation is not just the sphere of marketing, Crone adds.

“You can get some incredible cost advantages, some incredible operational effectiveness by deploying technology deep into your business. You know that an organisation gets it when an organisation talks about it in every aspect of the business.

“It’s not just around the culture and systems; it’s also about how the technology is fundamentally impacting our product and making sure we are trialling things in that space. So we are supporting the roll out of EV* through the electric highway programme, and trialling solar and batteries in terms of potential sources of power that are globally taking off.”

Courage to think differently

Murray Strong notes that disruption really isn’t a new concept, and the limits to being a disruptor have always been “our imagination and our ability and willingness to take a courageous leadership step as a board.”

Strong holds governance and advisory roles in both the public and private sector including CERA, the Ministry of Education and the TSB Trust and is actively involved in the Christchurch rebuild as the independent chairman of three of the anchor projects. He is a facilitator for the IoD’s Digital Essentials course and has a wealth of knowledge and experience with helping boards.

“Directors of organisations that develop and utilise existing digital technologies and apply business models don’t consider themselves to be disruptive, rather that’s the label that’s applied to them. They do however display some common characteristics. They have little or no fear of admitting they don’t know something and set about using an essentially open-source world to find the answers they need quickly.”

Those who will be able to adapt and disrupt do so because “they are able to deal with uncertainty and ambiguity by taking risks that demand a flexible approach to planning and execution timeframes,” he says.

“The pace of change demands more rapid turnarounds which goes against many traditional approaches to business. They use rapid innovation to inform disruption, they accept failure as a part of strategy and they have courage.

“It is a mind and skill set that is markedly different to what many directors possess.” Strong says.

“It is so much a mind set space,” Suckling agrees.

“You’ve got to first be open to it and then be exposed to it and then you’ve got to start thinking What if? What might be? What could be? You can bring in others to help you think through that, and then you’ve got to take a risk on that.”

That risk taking attitude can be difficult, but Crone adds that this is where the collective skills of board members can really be utilised. Making the choice to disrupt your own business rather than be disrupted takes courage but also careful consideration.

“It’s a very informed risk and this is where you need to use the skills of all the board members. It’s not usually a once off thing; it’s a conversation you are likely to have over a couple of years and between the collective skills of the board, the executive and keeping a very good eye on what is happening in the market – innovation, competition, technology, you tend to know when the right time is.

“Sometimes you go too early or too late and then you thrash that out with the board. It’s better to be having that conversation than having your heads in the sand.”

Some businesses will be able to adapt much more easily than others. Suckling suggests that existing businesses operating under the traditional model of incrementally driving improvement will find it harder to change.

“It’s harder for traditional business to carve out and really think what is the disruption and where does that investment need to be made? because that’s foreign territory. It’s easier to be in a start-up to give a new opportunity a go because you’re not constrained by what you currently know.”

The questions those in existing businesses need to be asking are around have we even got the knowledge and if we do, have we thought about how we will resource that and apply that to our business Suckling says.

“The traditional is operating with very different processes than what is required to be agile, to fast fail, to design think. One of the things you will see businesses do is carve out almost a separate group, with a separate budget, who have a different modus operandi, who have a responsibility to be agile, to pilot and develop different stakeholder relationships in a different way to that which the traditional business does.”

Those businesses that do it well don’t consider it a choice Suckling says.

“It’s not ‘can we do it?’ It’s as important as the ways you consider the other areas of the business.

“My view is that our existing New Zealand businesses need to really step up on this. There are some that have really got in the new frame, if you look at the likes of ASB and Z Energy, it's totally part of their frame and its starts with the board and goes right through the organisation.

“Our good companies are resourced well enough (if they’re in the right mind set) to actually invest and look at new ways and actually lead opportunities rather than be caught out by them.

“The market is really different in a global sense and how people participate, because of our digital connectedness.”

Reaching a critical mass

A real challenge for businesses trying to adapt is coming up with new ways of operating, as traditional models become too slow and too expensive.

“You cannot have a forty million dollar investment programme over ten years to have some new services, when you could have a hackathon and have three options up and being tested in a market within eight months for less than a million bucks,” Suckling says.

“A 60 or 90 day turnaround on a business case often means the opportunity is lost,” Strong adds.

“The real value of converging digital technology is the manner in which it enables organisations to make better and different choices about achieving their strategic goals, and possibly recasting them, not if, but when old processes, products and services become obsolete.”

This really does require a whole of business approach, not simply a digital strategy Strong says. A digital strategy almost misses the point and certainly won’t have the desired impact.

“A digital strategy won’t provide the disruption that many think will eventuate. In and of itself, it is of little or no consequence if it’s merely a substitution exercise of digitizing an existing business process – it will only feel digital and probably won’t be disruptive.

“Thinking of emerging digital technologies as merely tools that enable an organisation to re-engineer its business model to allow it to make the old way of doing what they did obsolete is a better approach.

“And are boards ready, willing or even able to have these types of discussions? Of course some are, but many are not,”
he reasons.

“We have got to have this in the rhetoric in New Zealand from the highest level and we’ve got to have the broad exposure,” Suckling says.

As momentum builds in this area we must reach a critical mass of directors and senior leaders who are knowledgeable in this space.

“A number of boards are packing up the whole board and exec and actually going and putting themselves at Stanford, or LA, or in Palo Alto to be exposed and challenged to the cutting edge of exponentially evolving digital developments across multiple disciplines. They are trying to gain an understanding of what is out there, what is happening, what it means. They’re also investing in bringing people in this area into their boardroom. If you look at their agendas, their focus in this area is becoming a standard part of their agenda not a look at it every now and again.”

Both Suckling and Crone mention that there are good people here in New Zealand who can help boards and executives, for example the Future Tech programme run by Frances Valintine’s team. The IoD Digital Essentials course has been revamped to address the key things boards need to be thinking about.

“This is absolutely critical. You’ve gotta be in it and you’ve got to get the ‘wow’ moment. We’ve got a great big gap in governance leadership in NZ in this area but it is possible to close it. Get on this bus. Directors have a huge impact in this area,” Suckling urges.

“It absolutely starts with the board. You cannot have it run by an innovation area in the company. It starts with the board and then secondly you’ve got to have a senior exec that really get this and understand it, and a Chief Exec who really drives the disruptive opportunities while they continue to deliver current services and incrementally improve those while they’ve still got life in them.”

Crone stresses it’s about “making sure you are part of it and you understand it. I do think board members have responsibility to get on the train. It will only get harder and harder to get on.

“The fact that 47% of jobs are going to go should be enough to get boards to start thinking about this stuff; that 93% of breaches of security in terms of cyber-security could have been avoided. These are the stats that need to go in front of boards to ensure they really are thinking about this.”

It’s an exciting time, Suckling urges, with many opportunities. New Zealand directors need to position their organisations to seize these.

“Once you are in the space, it isn’t easy, but one of the things we’re very good at in New Zealand, we can be fast, we can look at opportunities.

“The sooner we have this as a common language the more we have the chance to be a disruptor rather than find our businesses are disrupted.”

Published in Boardroom Feb Mar 2017 issue