Data has become the key asset for an increasing number of companies, fueling the emergence of disruptive technologies that drive value creation across industries. At the same time, new regulatory requirements are increasing and posing new governance challenges for many companies. The board has a key role in ensuring that management fully captures and safeguards the future value stemming from data-driven business.
The Data Value Imperative
What do all the disruptive technologies dominating today’s board agendas—the
Internet of Things (IoT), distributed ledger technology (DLT), and artificial intelligence (AI)—have in common? They are all fueled by data. Their effectiveness and value-creation potential depend on the veracity of two key assets: data and the ability of a company to create, amplify, protect, and solidify value from data.
The relevance and impact of data on the economy today can be compared to the
influence of electrification in the late nineteenth and early twentieth centuries when
both people’s lifestyles and industrial development were revolutionized.
Is data the electricity of the twenty-first century? While electrification took almost
50 years to show its full impact across the globe, “datafication” (i.e., the process to
make processes, business models, and products fully data driven) is likely to show
its full impact and potential much quicker because data—and the algorithms used to extract insights from them—can travel the globe instantly.
This easy access provides companies with ample opportunities to tap into new
value-creation sources, but also requires companies and innovators to act quickly
to avoid extinction. As a result, data as key intangible assets drive company valuations. As of April 2019, for instance, seven out of the ten most valuable publicly traded companies are digital platforms whose main assets are data.
Value creation and wealth accumulation bring increased attention and scrutiny.
Consumers realize the data they produce has value and those consumers are more
vocal about the protection of the data that they provide; therefore, data policies and laws are high on the agendas of legislators and regulators across the globe with major geopolitical consequences. The regulation of global data flows are taking center stage in trade negotiations and countries protectionist measures limiting the free flow of data are being introduced as the global AI arms race between the United States and China intensifies. Data has become the key value driver for many businesses, and data-related matters are now topping the agendas of many boards as they become more concerned about technology disruption.
At the same time, the appropriate board governance of data has gained only
limited attention so far. How can we bridge this gap?
Boards that aim for a strategic dialogue with top management on the role of data usually face four common challenges:
Awareness. In many organizations, data-related matters are delegated and managed by the information technology or legal functions. A shared understanding of the nature and value of data across an organization is needed to create real value out of data. In particular, the leadership and the business need to understand fully which approaches are feasible, desirable, legal, responsible and viable when commercializing data.
Bimodality. The value of data is twofold: data can be a unique opportunity for business value creation; however, the mishandling of data can pose an existential risk for companies. Companies need to think in terms of parallel business and resilience strategies, which require close interaction with all parties involved.
Ambiguity. As data-driven technologies such as IoT, DLT, or AI still have to unfold their full potential, many of the opportunities and risks remain unclear. The question of which technologies will prevail and what data will be needed will depend on how society and businesses embrace these innovations and how they are applied.
Execution. The economic value of any data strategy will only manifest itself if the organization is capable of applying new tools and technology. Optimal application requires not only a thorough understanding of the technical skills, but also the mastering of synergic intelligence (i.e., how to make the best, combined use of human- and data-driven intelligence). As with any transformation, it is the role of the board to fully support management in overcoming organizational inertia and ensure effective execution.
The Data-Based Board Agenda
Addressing this challenge must be a joint effort by the board and management given data’s strategic relevance and complexity. In particular, the board and management need to ensure that the company has access to the right data and is not overwhelmed by data overload. The following four steps can provide a framework to encourage, enable, and ensure the organization embraces data-driven strategies.
Create awareness by promoting a data culture. The first step in promoting a data culture is to establish a common data language in the organization. A shared language allows everyone to discuss the benefits and risks that come with the organization’s and industry’s datafication. To help boards all over the world respond to this problem, the Global Network of Director Institutes (GNDI) in November 2018 developed a universally applicable data governance framework. The framework posits an integrated and shared understanding of governance, strategy, and management approaches to data based on generally accepted data principles.
Embrace bimodal thinking by aligning data strategy with the business strategy. To prepare for both the opportunities and risks that come with data, management must create a comprehensive strategy that is not only fully aligned with the business strategy, but also consists of clear, concrete actions related to data technology, data assets, and data-partnership management. The full value creation potential of a data strategy can only work when a company’s operating and collaboration models are adjusted accordingly. Data will be a centerpiece of any future-proof business and resilience strategy.
Minimize ambiguity by requesting an agile datafication road map from management. The datafication of an organization is a long-term journey with many unknowns, so management must create a road map that simultaneously allows for regular modification and short-term action plans. To ensure proper alignment with the overall business strategy, it’s critical that the board and management need to have a shared understanding of the data principles.
Assess readiness of the organization to execute a data strategy. Apart from monitoring the proper implementation of the agreed-upon datafication road map, the board is well advised to ensure that the optimal conditions for the sustainable success of the strategies are present, namely the right capabilities, skills, and processes.
Creating Value With Data
A structured approach to defining and implementing data strategies that are aligned with overall business strategies can lead to key competitive advantages in the data age. Supporting tools and guidelines can help the board have a meaningful dialogue with management and the organization. In the end, the board must walk the talk and consider the impact new data-driven technology on strategy and, ultimately, long-term value creation. Ensuring that the company exploits the full potential of the data revolution will not only lead to better outcomes, but also send a clear signal to the organization: Data rules the world, and how well the organization embraces the opportunities and risks will determine its future.
This article appeared in the Directorship magazine in June 2019.