The C-Suite Governance Maturity Model, or: How to Improve Profitability and Company Value with Governance
One of the crucial ingredients of both innovation and digital transformation efforts is the digital savviness of the C-level management and board members. An interesting study on this topic by researchers at MIT found that when executives understand what digital progress can do for their company, their companies have on average 48% higher revenue growth and higher valuation
Inspired by this research and proprietary data points, we at ContractZen have created a Maturity model on C-level Governance and are sharing it here with a wider audience for the first time. We hope that this maturity model we’ve shared is useful for you and your company. We’ve built it with companies fully committed to benefitting from digital innovations in their governance and digitalization efforts.
Clear Financial Benefits from Improved Digital Savviness
According to a recent study by Peter Weill, Stephanie L. Woerner, and Aman M. Sha published in MIT Sloan Management Review, only seven percent of the 1,984 large global companies they studied have digitally savvy executive teams. It is easy to estimate that the situation might be even worse in small and medium companies in most industries.
This is more important than most executives want to admit.
According to this study:
”Companies with half or more of executives exhibiting digital progress have 48% higher revenue growth and higher valuations (share price to sales ratio) and 15% higher net margins than the rest, Weill and his co-authors find.”
Let that sink in. Astonishing numbers! This is massive and is more important than most other factors we found describing differences in corporate revenue growth and valuations.
Not only are the companies with a high level of C-suite digital maturity more valuable and grow faster, but they are also more robust against rapid changes in their industry. This robustness is due to their ability to create meaningful revenue streams from novel innovations.
According to the same study: ”For example, the companies in the top quartile generate a whopping 59% of revenue from innovations introduced within three years - compared with only 18% in the bottom quartile of companies.”
The first recommendation in the study is to: ”Determine the current level of digital savviness on the top team.” We suggest that you combine this with governance objectives. These two are connected, create actionable insight, and result in a meaningful effect on value creation in your company.
We hope that the following maturity model will serve you as you are planning your approach.
The C-suite Governance Maturity Model
The digital maturity level does not depend on the size of the company and the best companies in the studies have extremely mature methods of governance work. For example, the Agile growth companies we have studied have often invested time and money into good digital and governance capabilities.
Many companies are only just beginning to see the importance of how their upper management works. The executive teams in both small and large companies can be on levels 01 or 02 (Reactive/Aware) of our model, i.e., their work is largely reactive, and the ways of working have been ad-hoc by current or prior executives without a careful study of the alternatives or even documenting their way of work.
The key questions to ask yourself are: how transparently do we work, how dependent on single persons are we in our processes, do we have sufficient speed in our day-to-day decisions, and are we capable of using all the available data when making decisions?
Growth requires coordination
Striving for Coordinated (level 03) is thus a good goal for companies that are looking to grow. Growth requires new capabilities, a higher level of collaboration, and a common understanding of roles and responsibilities.
Becoming Coordinated (03) requires that work between executives and departments can be done using tools that are superior to just email and file sharing - that decisions and contractual obligations get documented in ways that are visible based on roles and responsibilities.
Why shouldn’t we plan to move directly to Agile/Systematic (level 04) or even Optimized/Digital (level 05)?
It’s tempting to set a high bar and try to leapfrog over some levels. Study after study has found that this approach does not work in the real world. The needed programs are corporate-wide change programs that require a change in how all C-level employees work. We find that you need to be on the prior level as an organization to have the skills, aptitude, and capabilities that are required to reach the next level.
Achieving the Coordinated (03) level first and then moving step by step to higher levels is in practice the only way to reach the highest levels of digital C-level governance maturity.
Benefits of a Governance Maturity Model
Using a maturity model is useful as it:
- Creates a clear benchmark on where you are and where the best in the industry are.
- Is a great tool for setting goals for digital transformation. Typically ”getting to the next level” is most useful, where it’s hardest to attain.
- It works especially well in times of change: new board members, new CEOs, and new C-level executives can quickly understand where you are, where you want to get, why you want to achieve that, and what that will take from them and their team.
The big picture of C-suite governance is surprisingly varied across companies even in the same industry. While the best-in-breed have a well-defined governance structure, many companies have not yet taken time to understand and address the maturity of governance.
We hope our straightforward model will help you and your team assess where you are on the journey. We are very proud that in ContractZen’s customer base we have hundreds of technology early adopters who have benefited from smart, collaborative ways of working but also from our C-Suite Governance Suite.
PS. To learn more, please check out ContractZen’s governance software with advanced Contract Management, 100% paperless board meeting software for efficient meeting management, Data Rooms (VDR), and leading eSignature services. Our suite is designed for a step-by-step approach where you can smoothly proceed with no IT project or time-consuming implementation. ContractZen is ready-to-use and brings value almost immediately (that’s what our customers say) - read more here: Our Board Portal was recently ranked among the best solutions in the world.