How boards can have maximum impact on digital strategy: before embarking on transformative strategic changes tied to digital technologies, companies should take steps to create more agile cultures.

• Author: Sanders, Jeff
• Position: HEIDRICK & STRUGGLES GOVERNANCE LETTER

The digitization of global business has created a winner-take-all world where leaders and laggards alike can be upended quickly. As a result, digital capabilities play an outsized role in many of the key activities of the companies that directors oversee. Strategically, digitization enables companies to create new markets and business models, potentially disrupting entire industries. In marketing and sales, businesses can now reach customers in new ways, automate customer interactions, and aggregate a previously unimaginable volume of information to better understand--and influence--individual consumer behavior. In operations, digital technology powers everything from the supply chain to manufacturing to distribution and service. In human resources, digitally empowered employees enable nimble companies to do things faster, cheaper, and better.

A recent study from the McKinsey Global Institute found that companies with advanced digital capabilities are outperforming their competitors. These digital high performers are winning more market share, capturing a disproportionate share of gains, and in some cases transforming industries to their advantage. For example, says the study, the industries with the fastest growth in profit margin typically have the fastest growth in digital capabilities. In fact, the top-performing companies in those sectors enjoy margins that are two to four times higher than those of the lowest performers in other sectors. The gap between the digital "haves" and the "have-mores" is growing. (See "Digital America: A Tale of the Haves and Have-Mores," on mckinsey.com.) Nevertheless, even a market-leading "have-more" could be overtaken by the next round of digital innovation.

For boards, overseeing a digital strategy is particularly challenging for at least three reasons. First, the word digital covers such a diffuse set of technologies and activities, permeates so many disparate organizational functions, and offers such a wide range of opportunities and dangers that it affords no single, obvious point of entry for board oversight. Second, meticulous consideration of each of those facets of digitization could consume all of the board's time. Third, even if such a comprehensive consideration of digital were possible, it could take directors well over the line between overseeing the company and managing it.

Unsurprisingly, this digital dynamic has left many directors at a loss as to how they can help ensure that the company...