Is digital literacy the new financial literacy?

Dionne Lew reveals why digital and social literacy are must-have future skills for directors.

High-profile failures in corporate leadership have led to increased demand for financial literacy at board level. So why aren’t we demanding the same of arguably the biggest game changer of all, technology?

While a lack of understanding of digital trends may not lead to fraud, it could expose the organisation to brand damage or loss of competitiveness, with equally harsh results.

Boards need to be strategic about technology and understand the difference between information and communication technology (ICT) and digital and social investment. The social economy is already worth $1 trillion, according to Goldman Sachs, and the Boston Consulting Group predicts it will top $4.2 trillion by 2016 – which means boards should be asking their CEOs how they intend to leverage this opportunity.

Gartner says worldwide total ICT spend will surpass $3.7 trillion by the end of this year. That includes IT (hardware and software), digital (the content layer) and social (the way technology allows people to connect). To date, around $34 billion has been spent on big data (huge amounts of data collected over time that become difficult to analyse and deal with using common database management tools) and $109 billion on cloud, with predictions these will grow to $232 and $207 billion by 2016 respectively. And, this is just the start, with the implications for staff and time management as yet unknown.

Clearly, leaders need to understand what outcomes they can expect from this level of investment. How will data translate into useful knowledge and be used for business outcomes? How will cloud affect traditional models of procurement? Can social media be used strategically and what is the return on investment (ROI)?

While social platforms do not carry the same costs as infrastructure, concerns about their value remain. But with more devices connected to the web than people on earth, and most of those using social media, they are becoming indispensable. Social media is an enormous opportunity and the risk of not being there is obvious.

During the Thanksgiving weekend in the US last year, e-commerce rose 26 per cent from the year before to $1.042 billion, with online store Amazon the highest revenue generator. This is nothing compared with China’s equivalent. Chinese consumers spent $3 billion on Taobao in 24 hours. US advertising revenue from social networks last year is expected to be $5.54 billion.

But it’s not just about the money. The power of social media to organise and influence played out in 2012 through the London riots, the Arab Spring and the US election, for which online campaign spending rose 616 per cent compared with 2008 and played a tangible role in the outcome.

Despite this, there is a glaring lack of digital and social literacy at the top. Social know-how remains largely misunderstood. According to the 2012 CEO.com Social CEO Report, 70.3 per cent of CEOs from FORTUNE 500 companies had no presence on social networks at all. And, an IBM study suggests only 16 per cent of US CEOs use social media to communicate with customers.

However, CEOs are not alone, as many IT professionals and directors are not able to fully understand social media in the strategic sense.

How can boards sign off on the company’s strategy and marketing plan without understanding the social media component or in some cases, the lack of one? And, what should CEOs in turn be demanding of their teams? C-suites seem yet to fully grasp the implications of digital change and its direct business implications.

Richard Levick, CEO of US-based crisis and public affairs communications firm Levick Strategic Communications, asks why leaders, well aware of their responsibilities, seem content to let others control online narratives that dominate public perceptions, with the result that activists and regulators are a full internet generation ahead of the companies they target.

One reason is the perception of digital as a support function rather than as central to leadership, and the absence of corporate affairs executives in the uppermost tiers.

Many leaders acquired their power in a pre-internet world. They are finding it difficult to deal with digital issues and are unsure how to bridge the gap. But digital literacy is a skill and like any skill, it can be learnt.

Leaders are able to read profit and loss statements and cash flows without being accountants. In the US post-Sarbanes-Oxley, financial literacy is a legislated requirement for audit committee members of boards. Australian directors are required to have a degree of financial literacy, as major court cases such as Centro show. Yet digital and social literacy are not yet on the curriculum.

Boards are already showing a greater appetite for information, with McKinsey & Co finding technology increasingly on the agenda as an embedded business, and not an IT, issue. But with the digital economy expected to contribute 5.5 per cent to the GDP of G20 countries, an equally vital issue is managing the cyber security risk.

The impetus for Australian leaders to get on board should be even stronger since they have been slower than in any other country to adapt, growing at only 3.7 per cent compared with the average of 5.5 per cent.

Digital development will be increasingly difficult to separate from productivity. We are only at the beginning of what is projected to be a steep trajectory, but there is no doubt that for directors who intend to climb it, digital and social literacy are must-have future skills.

Dionne Lew
CEO
The Social Executive