The Board’s role in strategy, governing ecosystems, and artificial intelligence

The board dinner event, “The Board’s role in strategy, governing ecosystems and artificial intelligence”, held in Stockholm, Sweden in mid November 2019, was co-organized by two board research projects: SISU Boards led by Professor Mats Magnusson of the Royal Institute of Technology (KTH) and 4Boards.ai led by Professor Robin Teigland of Chalmers University of Technology and by Chairman Liselotte Engstam of Digoshen/Innovisa engaged in both research projects. The event, as well as both research projects, are co-sponsored by Vinnova – the Swedish Innovation Agency.

The objectives of the evening included the following:

  • To learn more about the topics of strategy, governing ecosystems and AI from two globally leading experts
  • To share experiences and potential best practices with other board members
  • To contribute to board research under confidentiality.

The event was divided into two sets of activities: 1) speaker presentations and 2) roundtable discussions. Speakers included two globally leading experts, Anastassia Lauterbach and Sebastian Herzog, as well as Researchers Chairman Liselotte Engstam and Professor Mats Magnusson. Below is a summary of the speakers’ presentations as well as some insights gained through roundtable discussions with event participants.

Speaker presentations

Speaker Anastassia Lauterbach – Anastassia is a board member of Easyjet, Wirecard & Diligent and an advisor on AI & Cybersecurity. Anastassia discussed the board’s role in strategy, governing ecosystems & AI. “AI is in fashion,” she stated. Even though AI is not new, what has given rise to this disruptive technology and subsequently drawn attention to it in the past few years is: 1) open data sharing, and 2) advancement and complexity of algorithms. Nine out of the ten highest valued companies globally are AI-centric, such as Facebook, Google, Amazon, Alibaba Group. Anastassia pointed out, however, that data processing is not sustainable as it requires a lot of energy. She remarked that Google with all its processors and data centers consumes more energy than the entire aero industry.

A lot has been discussed around AI, and Anastassia posed some very relevant questions: Can the machine comprehend? What is intelligence? If a machine can differentiate between cats and dolphins, that does not mean that it comprehends the difference. Even though deep learning is trying to mimic neural networks, similar to those of a human brain, where some say that this is how intelligence can be replicated, intelligence is more than thorough imitation. Anastassia quoted Yann LeCun, a French-American computer scientist working primarily in machine learning, computer vision, mobile robotics, and computational neuroscience, to support her point: “Despite these astonishing advances, we are a long way from machines that are as intelligent as human – or even rats. So far, we’ve seen only 5% of what AI can do.” Anastassia encouraged people to be somewhat skeptical of AI claims, as many are still immature.

Anastassia further elaborated on how diversity and ethical concerns around data and algorithms need to be carefully considered. She questioned, what are ethics? What is an ethical society? How do we ensure ethics on a global level since what is ethical in one society may be unethical in another?

AI needs to be looked at and investigated from both a bottom-up and a top-down perspective. AI is about culture and leadership. Before thinking about whether to apply AI to your business operations, there is a need to understand what need or problem you are trying to solve.

 


Speaker Sebastian Herzog– Sebastian is a partner at hy – the Axel Springer Ecosystem Company. Sebastian presentation focused on business strategy and how it is evolving in the era of digitalization. “Strategy is no longer about Powerpoint slides and gut feeling, it is about utilizing technology to make informed decisions,” says Sebastian. Digital investments drive performance in growth and profitability, as it happened in the Axel Springer case. Axel Springer was a German publishing company, before its CEO recognized the need for the company to grow from a digitalization perspective. This led to the company growing from 1 to 700 companies while its overall size remained almost the same. Today while Axel Springer is a media company, investors evaluate it as a technology company.

As presented by Sebastian, digital platform companies have overtaken many companies with traditional business models. For example, in the case of Airbnb and Netflix, it was the business model that was focused on the number of subscribers and not the technology and that allowed for exponential growth through network effects. Today attention and interest are shifting from B2C to B2B. Sebastian provided examples of several startups that are conquering the B2B world, e.g., Darkstore, Flexe, which focus on shared warehouse space. At hy, Sebastian noted that they use data and proprietary software to identify growth opportunities.

 


Speaker Mats Magnusson, SISU Board Research Project – Mats is Professor at the Royal Institute of Technology and Vice Chairman of Innovation Leaders et al.Mats discussed several interesting questions while sharing some outcomes of the SISU research project,

How can boards become better in strategy? One clear finding is that boards need to develop their digital business capabilities as well as have “digitally savvy” board members, ie members who have experience in leading digital transformation. In fact, research by MIT suggests that there should be at least three digitally savvy members on a board, in order for a board to successfully lead a firm through digital transformation. This was confirmed by SISU results as 55% of those surveyed believe that boards need to be changed in composition, in order to better deal with digitalization challenges.

How innovative is your company? Research shows that boards rely primarily on internal sources of information, yet 65% of board members and management in the SISU project responded that their boards do identify disruptive technologies. Furthermore, 57% of respondents believe that their boards take bold decisions while 48% state that innovation is an item on their agenda and 45% that they continuously monitor and measure innovation.

Concluding, Mats stated that transformative boards are those that are better at bringing INSIGHTS, ie external challenges and examples of identified good practices into the board and sharing them, better at PIVOTing, ie using the insights to engage in strategic repositioning and innovation for the company, and finally better at ALIGNing,ie to better reallocate resources to make the company more agile in responding to change.


Speaker Liselotte Engstam, 4Boards.AI Research Project (and SISUBoards) – Liselotte is a professional board member and research scientist, Chairman of FCG Group, Board Member of Tieto, Zalaris, Transtema, S-Group holding and INSEAD IDN as well as co-founder of the board advisory company, Innovisa/Digoshen. Liselotte presented the 4boards.ai project, which is conducted in collaboration with Combient and the Investor companies as well as with FCG Group.

Liselotte presented the 4boards.AI framework that the research project has developed to support boards to improve their governance of important AI areas. This framework is based on a comprehensive global review of academic and practitioner research as well as interviews with leading board members and experts in Sweden and elsewhere. This framework is published in the book chapter, “AI Leadership and the Future of Corporate Governance – Changing demands for board competence”, in the book, by Eds. Larsson, A. & Teigland, R. (2019 – forthcoming), The Digital Transformation of Labor: Automation, the Gig Economy, and WelfareRoutledge Publishing.

Liselotte further discussed how boards need to balance the guidance of opportunity with the control of operations, in order to be successful going forward.  The three areas where boards need to improve guiding were shared with examples and facts, and they are 1) Big data management, 2) AI-based innovation, and 3) Development of digital business ecosystem. The three areas where boards need to improve stewarding are 1) Data management, ethics, black box decision-making, 2) AI cybersecurity, and 3) Leadership in digital business ecosystem.


Exploring board issues with participants

During the evening, discussions at each table were facilitated by a designated table host.

Participating board members were first asked to express their agreement with a statement through Mentimeter and then to discuss several related questions in more depth. Notetakers at each table captured the discussions. The first area focused on business innovation strategy, the second focused on data strategy, and the third on AI ethics and governance.

The first Mentimeter statement was “Our business strategy includes a clear innovation strategy guiding the ecosystem collaboration, for both exploitation and exploration.

Participants were asked to state their agreement on a 5-pt scale, from completely disagree to completely agree.

While the more progressive participating board members evaluated that they were close to “Agree”, there was quite a spread of answers from completely disagree to completely agree as can be seen in the light blue shade in the adjacent illustration.

Roundtable discussion: How is the board reviewing the company’s innovation capability and progress? Any KPIs?

The following are some of the discussion notes.

  • We follow the old ways on measuring success.
  • We are not very structured; we don’t have any KPIs.
  • We do not measure innovation capabilities; we think more around how to create value.
  • Innovation is not measured. We follow the strategy.
  • We believe in incremental change, not a big leap that many are talking about.
  • Innovation is quite an ambiguous term. What is Innovation? Is it the same as automation?
  • Many product companies do not realize that they are service companies.
  • We do not have any particular KPIs for innovation capability and progress.
  • This is only reviewed when we separate into separate X unit or Corporate VC.

Roundtable discussion: Does your business strategy include an innovation strategy and how is it expressed? 

  • Innovation is a part of the business strategy, but not separately defined.
  • Innovation might be in a service or product, a new way of doing or delivering something, but product and service do come together.
  • Innovation is measured in milestones as the projects around product services progress.

Boards spend too much time on legal issues, discussing what not to do. Boards are not strategizing, rather they are playing defense.


The second Mentimeter statement was “We discuss data strategy at the board, i.e., how current and future data enable specific business goals and inspire our business strategy.” All responses were even more spread out than in the first statement, with an average more towards neutral to agree (3.4 of 5).

The deep dive round table question debated was: How is information about strategy for Data reported to the board?

Some responses included the following:

  • Yes, we are discussing but there is no strategy, especially not for the long term.
  • Data strategy is not reported explicitly, only as part of bigger projects.
  • The only data strategy is around the CRM strategy, and it is more historic in scope.
  • Discussion happens when we are collaborating with industry platforms, but we still lack a formal data strategy.

The final Mentimeter statement was “Our board is guiding and reviewing the ethical use of AI and algorithms, including non-regulated usage area (e.g., recruitment, services, etc.).” The answer was clearly towards disagree (1.9 of 5).

The deep dive round table question debated was How are non-regulated AI use cases monitored and reported to the board?

Responses included the following:

  • There is no clear understanding of what AI is. Is it faster and more structured data?
  • Very limited.
  • Are we too hard on AI requirements. It is like either hard requirements or none.
  • No requirements are most common. This is due to a lack of knowledge.
  • We are not fully aware of where AI is applied in our business.
  • We focus primarily on regulated AI areas.

Sharing of research material 

Our guests also received some academic articles and booklets as they left the event.

Article Innovation and Corporate Renewal also Disrupts boards, published in IMIT MGMT Magazine June-19 available here.

 

 

 

 

 

 

The Article “AI Leadership and the Future of Corporate Governance” will shortly be published, both as an independent publication and as a chapter in the Routledge book, “The Digital Transformation of Labor”, to be released in December.  We will also update this blogpost when the chapter becomes available, or register here if you are interested to be informed at the release.

 

 

 

 

 

 


The event was kindly hosted at Creuna– a customer experience company. Johanna Fagrell Köhler, CEO of Creuna, opened the night by presenting Creuna with its 350 staff members around the Nordics and a production office in Ukraine. Creuna, as stated by Johanna, stands on three legs: business, technology and user experience. When combined, these pillars help create the greatest value for Creuna’s customers.

 

 

 


This event was facilitated with great support by 4Boards. AI Researchers:  Fernanda Torre, House of Innovation, Stockholm School of Economics, and Maria Kandaurova, Department of Technology Management and Economics Chalmers University of Technology and by SISU Board Project Assistants, Elly Pensjö, KTH, and Noor Taki, KTH. The “people on the ground” were Alexandra Sandelin, Creuna, and Johanna Fagrell Köhler, CEO of Creuna, and with appreciated support from Vinnova.

Warm thanks also to our speakers, contributing table hosts and all guests!

/Organizers Researchers Chairman Digoshen/Innovisa Liselotte Engstam, Professor Mats Magnusson, and Professor Robin Teigland.

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