Company Boards Need to Push CEOs Towards Digitization

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Source: LinkedIn

P&G faced a weakening market share in 41 out of 60 countries, along with earnings that were minimal next to their main competitors. Shareholder and Trian Partners CEO and founder, Nelson Peltz requested for a board member position and argued the reason for P&G’s setbacks. In an interview with CNBC, he discussed how although the company has “phenomenal potential,” it has not “lived up to its potential for quite some time.” He elaborated that the company has lost market share in the last 10 years despite having over $20 billion plus brands.

Peltz observed that P&G’s insular corporate culture was holding the company back from responding quickly to both traditional and digital competitors. Further, he noted that the company’s structure isn’t conducive to incubate and acquire new brands that could expand its market share. One example is the Gillette razor that reduced its prices in response to the Dollar Shave Club. P&G, however, instead of working on Peltz’s suggestions, put up a proxy fight and did not agree to have Peltz on board.

Peltz’s observations and attempt at action emphasize how companies need to move towards digitization. Otherwise the current landscape—wherein startups and other new businesses are built on digital platforms—may quickly bring down even well-established companies unable to digitize and upgrade.

Boards must push for digitization to advance and prosper in today’s fiercely competitive, technology-driven business environment. They need CEOs who are able to strategize and are eager to be on top of digital advancements. At the same time, boards must be open to disruptions and reinventions that will enable the CEO to drive business to greater heights. Here’s how boards and CEOs alike can approach their management as digitization continues to advance business models and consumer lives.

Embracing Disruption through Digitization

Adaptation is the key to a company’s stable future. Telecom company Singtel leveraged disruptive advancements to further chart the company’s progress. Instead of staying stuck in the traditional telecom model, they fully embraced the winds of digital advancements. A week in Silicon Valley made them familiar with the intricacies of technology. But they didn’t stop there; Singtel’s board also sat down with industry leaders from the New York City corridor and MIT.

Singtel’s board spent time to understand the nuts and bolts of digitization. By doing so they arrived at strategies that would transform their business seamlessly. At the same time, Singtel’s CEO understood their competitor’s advantages and how the company would have to respond to stay ahead. Apart from imbibing digitization, companies should be open to consulting other industry experts. These individuals include academics and analysts that can provide a bigger picture.

The Main Role of the CEO

Digitization is pervasive, touching even the smallest parts of our everyday lives, both personal and professional. Management has to build the company around such a platform. Digital platforms aren’t just about providing convenient access and quick results. These platforms must adopt cutting-edge technologies such as artificial intelligence (AI) and have the right partners to thrive in the ecosystem. CEOs need to recruit experts on these matters so that the company moves towards a future-ready digital platform.

Apart from working with the experts, the CEO must also be able to explain the intricacies of the model. This includes the platform model’s abilities and company capabilities for building it. The CEO also needs to know the timing of this move and the changes needed for the ecosystem. Milestones must also be determined to ensure the digital transition accordingly.

In determining and guiding the CEO, boards must also keep in mind his/her limitations and discuss different ways to keep digitization on track. A capable team must also back up the CEO, with their skills honed from digital companies.

Choosing an Ideal CEO

None of these plans, however, would be executed or even conceptualized under the wrong CEO. It’s integral for boards to have a CEO who not only enables digitization but also completely embraces it. Digitization is more than just a strategy with the right CEO. It is the chance for him or her to transform the company’s market space, expand the company’s capabilities, and adapt to the ever-shifting business landscape. So how does the board find the right CEO? First, the chosen leader’s actions should speak louder than his or her words. The board has to observe how the CEO is addressing each situation and if he or she is overcoming the challenges accordingly.

Some of these challenges include recruiting the best talent or partnering with a proper consultation firm. But none of these challenges should stop the CEO from performing well and delivering results. If the board is having second thoughts about their current CEO, then they have to ask themselves what would the proper leader do? The current CEO’s past successes don’t necessarily guarantee future successes, given the dynamic nature of the business environment. Boards have to reconsider the company’s future if the CEO is not performing and adapting to digitization.

Supporting the CEO Through Tough Times

Adapting digitization requires significant investments and cost considerations. Established companies must convince their investors about spending significant amounts over discussing earnings through dividends. There are also shareholders who don’t like earnings taking a temporary dip. Operating expenses will be higher than usual as the company will have to hire top experts. The board must support the CEO in discussing the necessity of these expenses. Like any other investment, digitization has its risks. But management should balance these risks with the proper incentives.

Management support isn’t limited to explaining potential financial setbacks. Although some board members will fully support the digital transition, others could be held back by their own hesitations. It’s important for a board to communicate these concerns during each executive session. The board members could also discuss the concern with the chair director.

Digitization is inevitable and company boards need to start acknowledging the reality. Any more setbacks could lead to consequences the company regretting in the future about not addressing these issues in past when they had the chance but not the will.