The Role of External Insights in the Boardroom

The Role of External Insights in the Boardroom

The way we make decisions has not caught up with our new digital reality. Despite the immense amount of data available today, there are still major company decisions being made which rely on intuition. Board members who bring insights from unbiased, competitive external data into the boardroom can significantly change the conversation, enabling more informed and data-driven decisions.
Philippa Dods
10 December 2018

According to Gartner, through 2020, “over 95% of business leaders will continue to make decisions using intuition…and will significantly underestimate risks as a result.”

With what certainty have some of the most significant decisions been made in the past? We’ve seen time and time again, “success breeds conservatism and hubris”. Kodak’s confidence in the success of its film business. Nokia’s inability to anticipate a competitive shift from one that’s driven by product to one focused on platform. Borders Books’ focus on retail expansion at a time when digital was taking off in leaps and bounds.

In a world where we’re producing 2.5 quintillion bytes of data everyday, there is just no excuse for major board decisions to be made based on gut feeling or internal information alone, rather than taking into account the plethora of external and market factors that will impact a company’s future performance.

Armed With Information

In a report for the Korn Ferry Institute, head of CEO Learning Network and former EVP at Kodak Martin Coyne illustrates an experience he encountered when serving on the board of a multinational manufacturer – a scenario he’s witnessed time and time again.

When a new “industry expert” CEO was appointed to turn around the company’s poor performance, he proposed a major acquisition to capture market share in new customer segments.

Then “the CEO convinced the board chair of the deal’s value and together they set out to convince the remaining board members. The CEO presented only facts that supported the deal. He had based the deal on his expert knowledge and made the business case based on older assumptions of market growth that the board had already reviewed nine months earlier. Basically, his approach was: ‘Trust me because I’m the expert and I know more than you do.’”

The board was convinced of his request, and agreed to move forward. Ultimately, the deal was a failure, missed revenue and earnings projections, and distracted management and the board. After a major decline in market capitalization over several years, a competitor acquired the company for a fraction of its previous value.

From HP’s failed acquisition of Compaq, to Kodak’s failure to embrace the digital revolution, to Blackberry’s overconfidence in executives’ preference for a physical keyboard, decisions like these were approved by a board of experts, despite the availability of data and competitive insights that may have indicated a better path.

Today, the way these boards operate has not significantly changed. Founder behavior has not changed. The decisions they must collectively make more or less have not changed. What has changed, however, is the volume of external information they have access to which can and should inform their decisions.

Where they may have once relied on due diligence and reports provided by the company executives they support, today boards can come to the discussion armed with an overview of everything happening in the industry and an unbiased, 360 degree view of the company’s position in the market.

AI-Driven External Data Analysis: Another Opinion in The Room

A 2015 study by McKinsey showed that only 16% of boards “fully understood how the industry dynamics of their industries were changing.”

The solution, according to MIT Sloan Management Review, is to incorporate AI in order to augment business decisions. “Artificial intelligence for both strategic decision-making (capital allocation) and operating decision-making will come to be an essential competitive advantage, just like electricity was in the industrial revolution or enterprise resource planning software (ERP) was in the information age.”

Executives today have already begun bringing an AI opinion into the boardroom. Salesforce CEO Mark Benioff asks the company’s AI, Einstein, to evaluate trends and patterns, answer questions and settle disputes among others in the room. It’s an objective third party voice with the capacity to evaluate facts better than any analyst’s due diligence, and today it’s getting votes at investment firms and guiding boards toward better decisions.

Stepping Back: An Unbiased Industry Perspective

Even the most well-intentioned of company executives will find it in their best interest to share the statistics and information that shines a positive light on their efforts and supports the agenda or initiative they’re looking to push through in a board meeting. It is the role of board members to come to the table with their own informed opinions.

Here are some of the external data points boards at an automobile manufacturer, for instance, can look to in order to understand where there are opportunities or threats in the market that might impact a pending strategic decision.

A look at open job listings in competitor companies indicates where they’re investing in human resources and new skills. Significant discussions in the media or on social can indicate customer feedback or new buzz, while financial changes indicate gaps in the market or new opportunities to take market share. Each of these factors and more demonstrate the wider position of the market and can help boards predict the impact of any future decisions.