Getting serious about corporate digital governance

Now, the word “governance” does not sit well with the freewheeling spirit that innovation implies, particularly when the Internet is involved.  It seems much more relevant for the management and control of old world enterprise technologies such as ERP and CRM. But the kind of digital governance we are talking about is at a slightly different level from the IT governance that is already taking place in companies.

Digital governance is really about the effective management and control of digital assets that are Internet-based and have emerged recently, such as social media, mobile, cloud, analytics, Internet of Things, wearable computing, etc.  By contrast, IT governance is typically about the older and more established systems such as ERP, CRM, etc.  In addition, the kinds of assets considered under digital governance are typically external-facing because they interact directly with customers and partners, while IT governance is much more to do with the company’s internal (and typically backend) systems.

Without such digital governance in place, digital transformation efforts are going to be scattered, uncoordinated, and unlikely to be aligned with business strategies and objectives.

Even worse, lack of digital governance increases business risks in unacceptable ways through what we call a “digital firestorm”.  These firestorms occur when a problem about the company, such an issue with its offerings, gets amplified by the Internet (particularly through social media) and does considerable damage to the company’s reputation and sales.  While the controversy over Maggi Noodles is a prominent example, many other companies have had to face these digital firestorms recently.

But the biggest and most dangerous risk of all is when emerging digital capabilities can make existing business models irrelevant. Hundreds of established companies across a variety of sectors are realising that competitors armed with new digitally-enabled business models are eating their lunch and will soon turn their well-worn business models into dinosaurs.  The rise of online retail in India and the threat it poses to brick-and-mortar retail is only the most prominent tip of an iceberg that will wreck established businesses that don’t monitor if their business is in need of revamping.  This monitoring and management of change too is an important aspect of corporate digital governance.


What is it all about?

The formal definition of corporate digital governance is that it is a framework for establishing accountability, roles and decision making authority for an organisation’s digital presence. Conventionally, this presence has meant websites, mobile sites, social media platforms, and any other Internet and web-based products and services.

Digital governance is really about a framework for structuring decision making about digital presence so that it conforms to organisational roles, regulations, corporate policies and standards.  As digital becomes integral to every business decision in the future, the lines between digital and business governance will get blurred.


An expanded view

The conventional view of digital governance is not sufficient and needs to be extended in two important ways.  First, it defines digital presence narrowly in terms of “hard” external-facing digital assets such as websites, platforms, products and services.  An organisation’s digital presence is manifest not just through these hard assets but also soft assets such as digital strategies, digitally-enabled business processes, and even digital capabilities, mindsets and cultures.

Second, digital governance is not just about governing the company’s digital presence but also about how digital capabilities can lead to better business governance of the company. For example, an effective digital capability can ensure that there is transparency throughout the channel as the company’s products and services move through the distribution and retail outlets and eventually to the customer.  As another example, consider governance mechanisms to monitor social media conversations by customers legally and unobtrusively.  They can tell you about the safety hazards and environmental impacts of the company’s products or services.  They can also tell you about how to improve these offerings to better conform to customer and societal expectations.  As a result, these digital capabilities can make the company more ethical, responsible and suited to customer needs, thereby improving its business governance.


Benefits of Digital Governance

The many benefits of effective digital governance include:

• Business and digital priorities get better aligned.
• Decision making roles are better defined with regard to responsibility and accountability.
• Digital decisions conform to policies, standards and regulations.
• Digitally-enabled products and services are produced and delivered more effectively.
• The customer’s experience with the digital products and services is improved.
• The capabilities of partners are better leveraged.
• Digital Governance and Business Performance.

But do these benefits translate into business outcomes such as profits?  Corporate digital governance is a crucial component of the maturity of managerial capabilities regarding digital transformation. Research shows that high-performing companies indeed are highly mature in their DT management capabilities and digital governance. The benefits are so large that the best companies are 26% more profitable (EBIT, net profits, etc.,) than average performers.

So yes, better digital governance is associated with substantially better profit margins.

In conclusion, it is worth using an analogy. In good weather, the pilot and crew of an airplane can probably fly well with a basic knowledge of its programmed controls.  But when there is flight turbulence, there is even greater need for understanding how these controls work.  Similarly, in times of business turbulence, the pilot and the crew — represented by the Board of Directors and the C-level executives — need to be even more knowledgeable of how to use the aircraft’s controls.  This means that they need to be trained in advance on the nuances of corporate digital governance, so that they are better prepared when the business environment becomes turbulent.

(Nidumolu is Managing Director, Academy for Innovation and Management (AIM), Bengaluru and Chakravarti is Chief Operations Officer, Centre for Corporate Governance and Citizenship (CCGC), IIM Bangalore)