Competing with “born digital” organizations has become a top risk for boards and C-suite leaders. According to Protiviti and NC State University’s seventh annual “Executive Perspectives on Top Risks Survey,” business leaders across the globe are most concerned about their company’s ability to transform their operations and infrastructure going into 2019 to compete with organizations that are “born digital.” The term generally refers to organizations founded from the mid-’90s on, with Internet-era information and digital technologies at the heart of their operating models. FEI Daily spoke with Protiviti managing director Jim Deloach for his perspective.
FEI Daily: How are older, more traditional organizations attempting to compete with those that were “born digital”?
Jim Deloach: I think there are several things they need to be focusing on. First, take stock of their digital readiness. Where are they on the digital maturity continuum? Look at the skill sets and the competencies that digital leaders have, and use that to construct a continuum ranging from skeptics to beginners to followers to leaders. If we’re not at least an agile follower, what improvement do we have to make?
Secondly, when you look at the capabilities you need to have in place to compete, do you have the talent to do so? And, thirdly, you need to have the right leadership. That requires a blend of skills. You just can’t have people who grew up in the analog age. You’d be like a tiger changing their stripes to assume leadership without an infusion of a digital perspective. There needs to be a blend of institutional knowledge of the organization and the infusion of fresh ideas from a digital perspective as to how to transform customer experiences, digitize products and services, improve productivity, and improve information for decision-making.
Finally, a fourth point is being able to break down the barriers to change within the organization. Resistance to change in a digital era for established incumbents can be lethal. The pace of change now is too rapid. The half-life of business models is compressed considerably and continues to compress. Making sure that the organization is resilient and agile to respond to the market is extremely critical.
I think those are four things that established incumbents are doing to better position themselves in these rapidly changing environments.
FEI Daily: Digital readiness is a top concern for board members and executives. How are companies benchmarking themselves against others?
DeLoach: At Protiviti, we have a digital maturity continuum model that articulates over 30 competencies that we see as part of a digital organization, particularly organizations that are successful in the digital space. There are some 36 competencies we’ve identified arrayed along six different groups. Vision, mission, and strategy is one, and management/employee culture is another. Organization, structure, and process is a third. Communication, marketing, and sales is a fourth. Technology, innovation, and development is a fifth. Last is Big Data, analytics, and automation.
If you are looking at vision, mission, and strategy, for example, what lies underneath that is the visioning process. How effectively are your leaders crafting a compelling vision for digital and articulating that to the organization? That’s an example of one competency.
Another one is how effective is your process for disrupting yourself? Digital leaders disrupt themselves. They live by the mantra of “disrupt or be disrupted.” It is a constant reinvention philosophy. Then the strategic planning process not only embraces digital but focuses on thinking digital. Looking for powerful ways to transform the customer experience, leapfrogging competitors in the process. Those are examples of competency lying underneath the vision, mission, and strategy.
The whole point here is that digital leaders think and act digitally in all aspects of their operations. What we see with many established incumbents is that they might embrace the digital channel. They might embrace a digital platform. But it’s really just a digital veneer. It’s digital around the edges. It’s not an organization that’s digital at the core, meaning an organization that thinks and acts digitally in every aspect of what they do. That’s the key distinction.
When organizations benchmark themselves against digital leaders, that’s where they’re going to see a lot of the distinctions and differences. It gets back to having the leadership that’s got an infusion of that digital perspective that views the world through a digital lens and looks for ways to reinvent all aspects of the business constantly. I think that that’s a way of thinking about what organizations have to do if they benchmark themselves to try to focus on how they can make themselves more competitive, more nimble, more agile, more resilient in this rapidly changing world.
FEI Daily: How have you seen the survey results evolve over the last seven years?
Deloach: I think that one way of looking at it is there are a lot of similarities among the years. For example, when we first started doing this, regulatory risk was number one for the first four years or so. Then you had cyber-risk, you had economic risk, you had succession and talent acquisition and retention risk. Over the years, cyber crept up.
What’s been very interesting to me as I reflect on your question is the emergence of digital and industry disruption and the impact on a company’s business model. Last year the message was industry disruption, and the number-two risk was resistance to change. That was a powerful narrative. You’re concerned about the disruption that’s taking place in the industry, and you’re also concerned about whether your company can change with that disruption.
This year, industry disruption fell to number six. Resistance to change fell to number five. Then the current number-one risk shot up from the tenth spot, and that’s the concern over born digital, low-cost-provider competitors, or just competitors knocking your teeth out with superior business performance. That shot up to number one. I see a compendium of factors that drove that. Number one would be the company’s digital readiness. Second is lack of resilience and agility and staying abreast of or keeping pace with changing realities. Three, the restrictive burden of significant technical debt, which your readership is very aware of because of the restrictions it places on digital transformation within their organization. The lack of out-of-the-box thinking. And the threat or existence of more nimble competitors. Those factors have slowly but surely emerged over the last two to three years.
I think it’s been fascinating watching these risks transitioning over the years. This is the first year where no single risk in the top 10 is ranked at the same place as last year.
FEI Daily: Looking forward, do you have any predictions?
Deloach: I think that’s shareholder expectations; impact investing; environmental, social, and governance; and the impact that is having on driving organizations to multiple bottom lines. The so-called integrated reporting: I think that’s going to rear its head over the next several years. There have been signs already.
I’m working with a major oil company right now, and let me tell you it reverberates in the halls of all major oil companies when a company like Royal Dutch Shell announces that its 1,300 top executives are going to be measured against a companies’ success in reducing its carbon footprint.
Then you look at the BlackRock letter Larry Fink sent out to CEOs, saying that acceptable financial performance is no longer going to be enough; you’re going to have to focus on environmental, social, and governance factors as well. I think that’s a shot across the bow. CEOs can’t help but notice it because BlackRock, along with State Street, Fidelity, and Vanguard, own around 20% of the S&P 500. When they speak, you better listen.
Then you have the dynamic aspects of impact investing. It’s still got a way to go, but it’s making its way. Every time I talk with a director, I ask him or her about this. It’s not quite real yet. I think it’s getting there.
I think all the risks that you see in our top 10 in this year’s survey are all going to continue to play out over the next several years, but I also think shareholder expectations, broadening the focus beyond financial performance – I think that’s a trend line that’s going to be of high interest to your readership.
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This article originally appeared in FEI Daily and is republished by permission.