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The Digital Epidemic

September 22nd, 2020

The Digital Epidemic

The digital evolution of business and the necessity to ‘shift online’ was a well-established fact long before Covid-19 made it into our daily lexicon. Companies have been grappling with the challenges of transitioning to digitally led operating models for at least a decade, especially in the consumer space. However, the coronavirus crisis has resulted in a significant shift towards online shopping channels as physical stores close and consumers found themselves shopping mostly from the comfort of their own homes. Indeed, at the start of lockdown data from Nielsen found that online retail sales in the UK increased by 103% in the four weeks leading up to the 16th May[i].

Whilst this is of course positive news for e-commerce and retail digital transformation, the suddenness of this shift has left many brands scrambling to adapt their digital strategies to cope with a surge in e-commerce demand, bringing digital transformation to the very forefront of the minds of investors and management teams once more.

McKinsey released an article in May 2020[ii], detailing amongst other topics, the extent to which consumer’s purchasing trends have changed in just a few Covid months:

“First, customer behaviours and preferred interactions have changed significantly, and while they will continue to shift, the uptick in the use of digital services is here to stay, at least to some degree. 75% of people using digital channels for the first time indicate that they will continue to use them when things return to ‘normal’. Companies will need to ensure that their digital channels are on par with or better than those of their competition to succeed in this new environment. If China offers us any lessons, digital laggards will be substantially disadvantaged during the recovery.”

There are still a significant proportion of UK headquartered businesses that are wrestling with how to become more technologically and digitally effective. For those that do not take the opportunity to pivot their businesses to reflect consumer demands, many won’t survive.

DIGITAL TRANSFORMATION

So what can companies do to realise the digital potential in their business and for investors and what does ‘digital transformation’ really mean?

The broad church we refer to as digital encompasses:

a) technology infrastructure
b) marketing and demand management
c) product management and user experience
d) data and analytics

Bringing in senior technology and digital leaders can be an expensive and time-consuming process; but to not act will mean “digital laggards will be substantially disadvantaged during the recovery.”

Some of this hiring is direct into the management team as Chief Customer Officers, Chief Digital Officers or Chief Technical Officers. The latter role is evolving quickly across industry, with demand for expertise rising at stratospheric levels. In order to support our clients with this critical role, we have established a CTO practice within Drax.

THE DIGITAL NED

Another way of bringing digital expertise into a business, or even a PE firm as a whole, is via Digital NEDs; again, this is an area where we have seen increased demand in the market.

At Drax we understand that NEDs add value across portfolios in a myriad of ways. Our proprietary research clearly demonstrated that the best performing businesses are significantly more likely to have a Chairman, indicating the important role they play in facilitating value creation. Notably, Independent Chairs drive significantly better returns than those with a pre-existing relationship with either the fund or the portfolio company.

However, Chairs who exhibit the relevant skillset that we know is important to our clients (PE exit experience, prior Chair experience, extensive industry experience) don’t always have the most nascent digital experience from best-in-class digital organisations.

Hiring a NED, therefore, with current ‘at the coal face’ digital expertise, can represent a cost-efficient way to augment a board with the necessary digital talent to drive change and value creation.

We believe these NEDs fall into 6 key categories, as shown below:

One such Non-Executive is Streisan Bevan, who, following 10 years at Facebook (where she joined as the 20th employee in the UK) is now pursuing a plural career supporting the digital evolution of businesses.

“Since going plural in January 2019, I have been given a seat at the board of directors table as an independent non-executive but more specifically as the digital expert. The company size and industry may vary but my role on the board remains the same, to be the digital evangelist. I came into this career at a time when boards were starting to look around the table and admit to themselves that they all looked and sounded the same and when it came to digital transformation, they didn’t have the expertise to know what good looked like. What they did know, by bringing someone to the table that grew up and worked extensively in the digital era, who could paint a picture of what good looks like from a customer centric, digital first organisation, then they would be in a better position to win.

As a speciality NED focused on digital, my role goes further than just showing up to a monthly board meeting. I need to be prepared to take the time (outside of contracted hours) to get to know the company, the key stakeholders and willingness at the CEO and Board level to shift the organisation to a new way of thinking and investing. For example, if the company’s growth plan is focused on opening new sites, then investing in a large digital project (i.e CRM system or website redevelopment) the executive team may struggle to understand how these investments can improve their business performance in the long term. It’s my role as an independent NED to bring the external perspective to the table, advise the board of their options and the positive impact that these developments can have on the business long term, presented in a way that they will understand.

As the only digital expert on the board, I am comfortable with the fact that I may be alone in my views, but I can’t be afraid to challenge. My best compliment from one of my CEO’s was his thanks after a strategy day for reverse engineering the conversation and taking a different approach to the others around the table, with that, I knew I was making an impact.

During Covid, my role became even more important. We saw a decade of change in a matter of weeks with video calling platforms such as Zoom, Houseparty and FaceTime now being used as people’s lifeline and platforms like Tik Tok, Snap, Instagram and Facebook used to keep people entertained. The conversation I was having at the virtual board table was simple; overnight their businesses had shut with pubs and high streets closed and now in order to survive they needed to shift to a direct-to-consumer (DTC) model. This took a shift in mindset from the board and senior management but with limited options and no time, what would have taken months to get approved, took days. Website redevelopment to enable direct-to- consumer, app development and social media strategy was the key focus.

Since coming out of lockdown, the businesses have survived due to their agility and willingness to adapt in these unprecedented times. In most cases, the DTC growth has been so significant that despite the high streets opening up again, it’s become a significant revenue stream and so in many cases the decision has been made to fundamentally change the way the organisation is structured to enable digital first thinking for the future and as the digital expert around the table, my persistence, knowledge and understanding of this space has paid off!”

CONCLUSION

As we now hopefully emerge from ‘lockdown’, companies face a rare opportunity to focus time and resource to ensure that the digital element of their businesses are set up for growth, be that by adding talent directly into their management teams, or hiring a NED to support and facilitate the digital agenda.

Lenders and private equity funds have access to more cash than ever before and are under pressure to deploy this in the UK and globally. Businesses that take this opportunity to lay the foundations of a digital-first approach will reap the rewards in terms of growth and value creation in a post Covid-19 world, where consumers will be transacting more than ever with technologically savvy organisations.

Interested to find out more? Please get in touch with Drax to learn more about the proprietary data tools that fuel our insights.


Kate Trowbridge

Director, Consumer
kt@draxexecutive.com

Sebastian Twining
Associate Director, Consumer
st@draxexecutive.com

Annemarie Depue
Partner, CTO Practice
annemarie.depue@draxexecutive.com

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[i] https://www.reuters.com/article/us-health-coronavirus-britain-supermarke/online-uk-grocery-spending-hits-record-in-lockdown-shopping-spree-idUSKBN2330RP

[ii] https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/the-covid-19-recovery-will-be-digital-a-plan-for-the-first-90-days

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