Digital skills gap

A new report examining NED appointments to the largest companies in UK and Europe has found that the level of digital expertise on Boards is failing to match the rapid growth in the size and importance of the digital economy.

With the digital revolution transforming the lives of consumers, disrupting business models and creating new risks and opportunities across business sectors, the need for deep insights into digital technology around the Board room table has never been greater. Navigation of this shifting landscape cannot be left to the executive team alone.

The report found that Digital NEDs – defined as those executives that have spent the bulk of their careers either in companies where the Internet is central to the business model, or in strategic roles focused on leveraging the Internet – have a critical role to play in helping Executive Boards spot the new opportunities and identify the threats in this digital era.

Being on average both younger (46 years old compared to 56 for the rest of FTSE 350 NED appointees in the last five years), more female (25% versus 15% for non-digital FTSE 350 NEDs appointed in the last five years), more international (33% of the digital appointees were born outside the UK, as opposed to 26% of other NEDs) and often from the second tier of executive ranks, Digital NEDs are also helping to increase diversity in the Boardroom.

However, the report shows that only one digital NED was appointed to the FTSE 100 in the whole of 2012 and that just 1.7% of FTSE 100 NEDs would qualify as digital1. The situation was only marginally better in the FTSE 350, with eight such Digital NED appointments being made in 2012 — a pace that hasn’t picked up in five years. Companies have added executives with marketing, human resources, and legal backgrounds to their boards at a much faster rate than they have appointed those with digital expertise.

According to a forecast by Boston Consulting Group, if the Internet were a nation, by 2016 it would have a GDP of $4.2 trillion and be the world’s fifth-largest economy. Nearly half the world’s population, three billion people, will be Internet users within the next three years (Dean et. al. 20122) and The World Bank reported in 2012 that three-quarters of the world’s population now had access to a mobile phone.

Many Continental European and UK companies have been world leaders in embracing these revolutionary opportunities. The UK, for instance, now has the largest digital economy in the G-20 by proportion of GDP (Dean et. al. 2012); by 2010, its Internet economy accounted for 8.3 per cent of GDP. Venture capitalist Saul Klein projects that by 2016, that could grow to 12.4 per cent of GDP, or £225 billion (Schofield 20133). But he also asserts that UK investors aren’t backing digital industries sufficiently and that revenue generated from digital remains very uneven across sectors.

The paucity of digital expertise on boards identified by this latest report raises important questions about whether such growth can be sustained. If digital comprises 8 per cent of UK GDP, then FTSE 100 Boards would need to appoint a further 100 Digital NEDs right now to match the scale of the digital opportunity – a fourfold increase on the current number.

Commenting on the results of the survey, Mina Gouran Korn/Ferry said: “As the business world moves to adapt to the new opportunities and threats of the digital era, the role of the Digital NED has come into increasingly sharp focus. These individuals, whose executive careers have put them at the heart of the digital revolution and who embrace these technologies within their own lifestyles, can bring critical insights and competitive advantage to their Boards.

“These individuals are, however, in short supply and come from beyond the traditional NED talent pool, and our report shows that a digital NED talent gap is already a reality. The UK is home to many of the companies leading the digital revolution and is the most digital economy in the world by proportion of GDP but appointment trends identify a clear risk that this advantage will be lost if Boards fail to take action to greatly expand the depth of digital knowledge among their NEDs. Identifying, attracting and retaining this new breed of Digital NED will be a critical to the high performing Board of the future.”

Highlights from the survey include:
· The ‘digital’ NED need is great. There is a shortage of individuals who combine digital expertise with deep executive experience in general, and not everyone in that small group is looking to join boards. Boards must search more broadly, looking beyond pure-play Internet and e-commerce companies into platform providers, consultancies, mobile, hardware, software, or general retailers with strong e-commerce platforms. Talent may also reside in utilities, new media, and academia. Boards should also look deeper into functional executive ranks than is typical.
· Digital NEDs value comes from more than their work. The pace and breadth of technological change is such that boards need digital NEDs who haven’t just had a digital job, but thoroughly live in the digital culture. It is that personal immersion that helps the digital NED see ahead in the consumer demand-new technology cycle.
· Boards need to understand what motivates digital NEDs. These executives — who are generally younger and often from fast-growth companies — want to know that they are having an impact and getting specific things accomplished. They also seek to gain professional breadth through their NED work, whether related to governance, finance, regulation, new markets or mergers and acquisitions. Most can afford to be choosy.
· Integrating digital talent can require focused effort. Inductions for digital NEDs are too often geared to connecting them to technical executives. That can wait. First educate them on the other board agenda items: finance, risk, strategy.