The board of directors is the captain of a Swiss corporation (AG). He is responsible for the ship. But how is he supposed to navigate a modern high-tech ship safely into port if he has only learned to turn the wooden steering wheel? In order to be prepared for Industry 4.0 and change in companies, the board of directors needs digital competence.
Equipping the Board of Directors with digital competence
As I said, the captain is responsible for the company. He gives the direction and determines the measures necessary to reach the goal safely. Wrong decisions in the upper management affect the entire operation, and this can quickly lead to a company running into financial bottlenecks. The enormous pace of digital transformation accelerates this process many times over. It is therefore the duty of the Board of Directors, as the highest management body of a public limited company, to keep pace with technological change in order not to miss the boat. Leading by example. The Board of Directors needs to pull the lever.
Board of Directors according to Swiss right
According to the Swiss Code of Obligations (OR) (Art. 716a para. 1 item 1 OR), the Board of Directors (BoD) is responsible for the overall management of the company, issuing the necessary instructions and determining the organization. These duties are non-transferable and irrevocable.
The General Assembly (AGM) elects the Board of Directors, which consists of one or more members. It is chaired, with equal rights, by the Chairman of the Board of Directors, who is elected by the full Board of Directors or by the General Meeting in accordance with the Articles of Association. The Board of Directors votes on resolutions, with the Chairman having the casting vote unless the Articles of Association provide otherwise.
The duties of the board of directors of a Swiss stock corporation are not comparable to those of the supervisory board under German or Austrian stock corporation law. There the supervisory board is only a controlling and supervisory body, the management is in the hands of the executive board. Under Swiss law, a management board can be appointed, but is not mandatory. A special position is held by the delegate of the board of directors, if he is appointed. He is a member of the Board of Directors as well as the Executive Board.
However, regardless of whether an executive committee is appointed or not, by law, the overall management remains with the board of directors. The captain is clearly designated.
This makes it clear who is setting the strategy in the company. In a time of digital transformation, boards of directors therefore need appropriate digital skills.
What does digital transformation mean?
The digital transformation is unstoppable, and no ostrich policy will help. Burying one’s head in the sand to solve problems is not an option in our fast-moving times.
Transformation in companies is nothing new. This has been going on for half a century. Starting with the first mainframe computers in large companies, devices for industrial process control, personal computers and the Internet have long since moved into factories and offices. But what is different about Digitalization 4.0 or digital conversion?
The term 4.0 is derived from the German term Industrie 4.0, a future project to be prepared for the fourth industrial revolution. The term is less common in the USA or Asia, where the focus is more on the Internet of Things (IoT), the Internet of Things and its networking.
The difference between digital transformation and conventional information technology lies precisely in this combination. Things and services are globally networked. This provides an enormous amount of data that can be evaluated and related to each other. This information and knowledge can be used in a target-oriented and thus profitable way.
The “cyber-physical system” (CPS) plays a central role here. The combination of software components with mechanical and electronic parts via the Internet offers undreamed-of possibilities.
Areas of application are, for example, the linking of medical equipment and rescue systems (e-health), assistance systems for the elderly (AAL), traffic control and traffic logistics systems (Smart City), the use of artificial intelligence (AI) in the manufacturing industry, but also intelligent energy supply management (Smart Grid), military system networking, infrastructure systems for communication and culture, and early warning systems for all possible areas, including tsunami warning in the Pacific region. Not to mention the current Covid-19 pandemic, to contain its spread with appropriate tracking options via Bluetooth, mobile communications and the Internet.
These are just a few examples of the complex tasks that digitisation 4.0 will bring us in the future. Anyone who is still burying their head in the sand in this rapid social upheaval will miss the boat. As Mikhail Gorbachev said: “Those who are late will be punished by life.”
What connects the board of directors with the digital transformation?
What can the board of directors do in concrete terms to ensure that life does not punish them? The change that is taking place in the Internet age is also reaching the management floors. However, there are still problems with implementation. It’s not enough to digitize any processes in the hope that it will bring something positive for the company, that’s counterproductive.
Digitisation is not an end in itself. The task for the Board of Directors is to make the company fit for the future. This means Board of Directors 4.0, which is about developing strategies as a healthy basis for the digitalization that is coming with giant strides towards society and companies.
The first step is to analyse the own business model, this also applies to companies that have been successful so far. What was good yesterday may be completely different tomorrow. The high-tech companies and start-ups from the states and China are either in the starting blocks or have long since reached the home stretch. These companies are not sleeping, but are able to quickly adapt to new customer needs and technological developments.
Their way of thinking is different, they focus on the users, because their success depends on them. They use innovative methods such as Design Thinking or Lean Start-up for implementation. SAP also uses design thinking as an approach. At the same time, a flexible and dynamic culture is lived throughout the company to respond quickly to change. This makes the German software company from Walldorf one of the global players in the IT industry.
Design Thinking enables a team to try out new ideas or prototypes within a short time. If it does not work – no problem. This makes it possible to identify at a very early stage what is promising and what is not. What seems promising is developed further with Lean Start-up. This enables new innovations to be implemented quickly and close to the customer. The aim is not to develop a perfect product immediately, but to prove its marketability.
This is a completely different way of thinking in order to act at the operational level. Other approaches are Lean Start-up or Scrum. All strategies to ensure the success of the company.
This in no way corresponds to the traditional Swiss engineering approach. Research is done behind closed doors, budgets are drawn up over several years and only then is the perfect product presented to the customer. This requires a complete reorientation in the future.
Digital transformation means networking, the linking of people and machines. To achieve this, the entire company must first be put to the test. It is important to understand the new digital developments, to examine the benefits for the company and then to implement them in the business. This approach is absolutely essential if the company is to survive in global competition in the future. However, digital transformation is often misunderstood. Often attempts are made to optimize the current business or IT.
Well-known companies in the Silicon Valley exemplify success. They use management strategies to stay on the profit track. Google relies on Objectives & Key Results (OKR) to achieve its corporate goals. This involves a strong involvement of the employees. The teams formulate their objectives and the corresponding performance review on their own responsibility. The OKR cycle with its short duration of three months enables agile corporate management at the operational level. Those who quickly recognise undesirable developments or market changes and react to them immediately have good chances of surviving in the market.
The terms change management and transformation often fall in the same breath, are often used as synonyms, which is not quite correct. Change Management does not have to be a transformation. Change means change, whereas a transformation is a transformation. A caterpillar changes by eating – it grows. The transformation takes place via the pupa to the butterfly.
Transferred to the company, a transformation means a reinvention, the company develops a new identity. This refers to the corporate strategy, the lived corporate culture and the structure of the company. It is a transformation of the entire company, i.e. the employees must be involved accordingly.
This is a clear task for the Board of Directors. It has overall responsibility and issues instructions. The Board of Directors determines the organization. The Board of Directors sets the pace, it must drive the change to the digital age and overcome resistance. And it is precisely the digital transformation, the metamorphosis, that requires us to keep an eye on costs with a sensible reporting system and to act accordingly and in good time. This is the responsibility of the Board of Directors 4.0.
Is the board of directors fit for the digital transformation?
There are currently over 218,000 public limited companies (AG) in Switzerland, and it is the most common legal form for corporations. And every AG has a board of directors, which is elected by the general meeting of shareholders. But who receives the mandate? What criteria are used to fill board positions?
Traditionally, leadership competence, industry experience, product knowledge, expert knowledge, a functioning network of contacts, an academic background and entrepreneurial vision have determined the criteria. Digital competence is completely missing on the list of qualifications. Naturally, junior employees do not meet these points, they lack years of experience. Consequently, the Board of Directors is composed primarily of people aged 60 plus.
Digitization has been around for half a century, but many managers have shied away from it or have not found the time to acquire the necessary skills.
So how is this supposed to work with the lack of digital competence? This complex knowledge cannot be taught in a crash course, even if the board members were willing to do so. And it is precisely the lack of competence in the direction of Digitalization 4.0 that can endanger the company. So what can be done to eliminate this deficit?
Board 4.0 – how to get fit for the digital transformation
The board of directors must take a pioneering role in the implementation of the digital transformation; it is its task to demand this from both management and employees. Of course, he can only do this if he himself has a certain digital competence. It is difficult to do this with an existing board of analog-minded individuals.
Of course, the board of directors can call on external consultants, but even this already requires a certain digital competence to understand the concepts proposed by the management consultancy and to assess them professionally.
Since digital expertise will be an absolute must on the Board of Directors in the future, the only option left is to expand the Board of Directors with a member with digital expertise.
When awarding directorships, care must be taken to ensure that they are up to the demands of the company and are able to meet them. This applies to training, expertise and experience. Do not look for just any specialist in digitisation, but rather for a personality who can implement your corporate strategy in your business environment with competent specialist knowledge. The right composition of VR with the right skills is the key to success.
To ensure that the captain can steer the modern high-tech ship safely into port in the future, the Board of Directors needs digital competence. The Board of Directors must be a role model and pioneer, it must provide the impetus for the digital transformation – the mouse doesn’t bite off a thread – that is the responsibility of the Board of Directors 4.0.
Since implementation in the existing board is often not very promising, the composition of the board must be changed in the future. At least one board member must have the necessary digital competence to successfully master the challenges of the future.