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The absence of digital understanding among senior directors leaves big companies dangerously exposed in their battle for markets and share, says Peter Williams

This article was first published in the November/December 2013 UK edition of Accounting and Business magazine.

We all know we have the privilege of living through a societal shift as profound as the Industrial Revolution. Pick your favourite analogy – railways, internal combustion engine, electricity transmission – the digital-driven transformation is as hugely significant as any of them.

For directors of large companies – who mostly entered the workforce before the PC did – this is hard stuff to get their head around. At the moment there is a complete absence of any hint of digital nous among senior directors.

A report by head-hunter Korn/Ferry estimates that among the FTSE 100 only 1.7% of non-executive directors (NEDs) would qualify as digital – that is, have spent the bulk of their careers either in companies where the internet is central to the business model, or in strategic roles focused on leveraging the internet. Even if you think the figure is an underestimate, it suggests that the biggest companies are dangerously exposed to a fundamental shift in business models that is empowering new competitors, creating new risks and opportunities.

Digital has altered so much in our lives: how we consume news and media; how we buy groceries, holidays and presents; and how we communicate with the world. That alteration has to be reflected in the strategic discussion around the board table. While retailers are reacting, some sectors are slow out of the blocks: insurance, for instance, doesn’t appear to be super-innovative away from home and car.

The slow reaction is partly because of a shortage of digitally savvy NEDs. But boards – and those who help them to recruit – have to look beyond the traditional self-limiting and cosy networks to recruit the right talent. It is also a question of who is being chosen: finance, legal, HR, marketing experts are, according to Korn/Ferry, getting to the boardroom ahead of the digital champion. If a company’s senior management can’t start to focus the board on the seriousness of digital as a disruptive model, then it is a fair bet that the company is struggling with digital altogether.

This is about more than directors creating their own personal Twitter account. What does matter is that they allow the rest of the company to respond in the most appropriate way. Companies must stop hiving off responsibility for digital strategy and infrastructure down the chain of command in the mistaken belief that it’s something for the IT department to sort out. If that happens then the company will move at the pace of the IT department, which is usually struggling to keep the day-to-day stuff going and lacks both knowledge and resource to support the new torrent of initiatives that frustrated staff know is required.

Digital is reshaping how companies should look at issues such as collaboration and competitiveness. The recent announcement of a tie-up between Argos and eBay – where shoppers can collect certain eBay purchases from Argos stores – is one illustration of how digital continues to alter retail and the high street.

Because the pace of change is so great, boards need experts who are immersed in this. One of the great dangers for companies is to go out and hire a ‘digital director’ and then imagine the job is done. It’s no use relying on knowledge that is less than current. This goes beyond understanding IT in the old sense – digital is a multifaceted issue. You could be an expert on the human behavioural aspects of, say, the use of mobile technology without having a clue about the server capacity that your business needs.

For business, the rapidly dawning digital age spans a wide spectrum: e-commerce, mobile technology, security, social media and the smart use of big data. As one commentator said: if you can find an individual who understands all that lot, don’t offer them a non-exec role, make them chief executive instead.

Peter Williams is an accountant and journalist

Last updated: 5 Nov 2013