Technology is becoming increasingly important to businesses. Businesses depend on technology not just for process automation or ERP (Enterprise Resource Planning). Increasingly, technology is providing new operational capabilities, opening up new markets, and providing opportunities to gain better customer insights. It is fair to say that technology is now integrated in the way businesses work. Understanding the implications of technology trends has become critical for the future success and survival of businesses.
Many Boards are beginning to take a greater interest in the ‘strategic view’ of technology. There is a growing awareness among Board members that, if strategic technology investments are to deliver value, more systematic and deeper involvement by the Board is necessary. There is much at stake here. The success of many mergers and acquisitions depends on the effective integration of technology. Company reputations can be tarnished as a result of cyber attacks or loss of private data. New entrants and business models are dramatically altering cost structures and changing the game. Experience with technology and business transformation is becoming important at the Board level.
Boards Don’t Discuss Technology Often
In a McKinsey survey of corporate Board directors, more than half of respondents said their Boards had none or only one technology related discussion a year. They acknowledged that this level of involvement was inadequate. Even when discussions about technology take place, these are likely to be about current projects and not about forward-looking view of technology’s impact on their company or industry.
Considering the importance of technology, a more structured approach to Board engagement is desirable. South Africa’s code of company governance now mandates regular interaction between Boards and executives on issues related to technology.
To enable IT to regularly feature on the Board agenda, multiple approaches and forums need to be considered. Approaches that leading companies are considering include periodic reviews of the impact of technology, reviews of IT portfolio and strategy, and improving technology literacy.
Big-picture Technology Landscape
Some Boards are engaging in discussions with the help of their CIO or external experts (vendors, partners, and consultants) on the likely impact of technology on their business and industry.
Understanding technology trends and lessons from others can help inform future strategies. Given the rapid pace of technology change, it would be proper to have these discussions every 12 months. Having such discussions ahead of planning major new technology investments or transformation initiatives is even more important.
A key question to be explored is: how will technology change the basis of competition in our industry? In the banking industry online consumer payments by companies like Square (a mobile device and app that enables merchants to accept payments) are challenging traditional payment solutions. Smartphones, social media, and location-based technologies are helping change customers’ experience and allowing new competitors to gain market share.
Another question to consider is: what is necessary to exceed customer expectation in the digital world? Customers are experiencing high levels or convenience and personalisation from online giants such as Amazon, Apple, and eBay. Customer expectations are rising quickly. Using technology, competitors are differentiating their offers via service and convenience. Meeting these expectations can be a major challenge for traditional companies, and often requires multi-year technology investments just to compete.
Through these discussions, the Board is in a position to decide if business plans effectively leverage technology to improve performance. Boards also need to consider the timelines of the technology changes and for the implementation of planned actions. Technology provides both threats and opportunities. By seizing opportunities and mitigating threats, companies can increase performance. There are many examples of companies having increased their revenue by launching an online sales channel, or cutting the cost and time of processing via automatic end to end processing.
Board Review of the IT Portfolio and Projects
Leading Boards are beginning to introduce an annual report card on technology capabilities and how they support the corporate strategy and operations. Focusing on major IT systems, they review how well the current systems portfolio aligns with the business unit strategy. The review should also look at risks (e.g. cyber security) and projects with large IT components. The review should show the opportunities and threats. This will often lead to the re-balancing of short-term needs with long-term imperatives and commensurate budget changes. In dynamic areas, such as mobile channels, quarterly re-balancing may be necessary, as customers switch to newer ways of transacting.
The board may also need to understand how IT can improve business agility. Technology impacts both operational and strategic agility (such as, connecting to new partners or establishing new channels). Smart businesses are looking to improve agility via technology. For example, introducing new products quicker, or quickly optimising a manufacturing process. If IT systems are inflexible, it becomes harder to introduce changes at low-cost. Simplification and standardisation often help improve system agility. Boards need to assess both the business and the IT agility to stay competitive.
To deliver value, businesses need more than just technology. Well defined strategies, right technology, quality data, the right skills, and sound governance processes all contribute to creating value. Any weak link in this chain results in poor outcomes. Capability assessment should cover these dimensions and address areas of weakness.
Capabilities are more than systems. They also include talent base (and succession) within technology organisation and the ability to leverage newer technologies. Boards are also establishing sub-committees to check the progress of major transformation/ technology initiatives.
In short, the Board needs to focus on how IT is going to help transform their organisation.
Tech-savvy Board Members
Boards are usually not very technology literate. According to McKinsey, many more Boards are seeking to better understand technology issues and their business implications than they have in the past. Some Boards are actively seeking to recruit new Board members, who are technology savvy. Others are using ‘boot-camp’ style training to educate Board members on technology. This is not dissimilar to training on risk management or accounting. Having a Board sub-committee on technology and implementing stronger governance on technology decisions often results in more effective stewardship. System and security risk reviews may also be considered by the Board risk/audit committees.
Unless most of the Board develops a greater appreciation of the impact and potential of technology, Board discussions will be difficult even with some technology savvy Board members.
Technology is becoming ever more important to business strategies and success. Boards play a critical advisory role to the management. Engaging regularly in discussions about technology trends, portfolio, and capability would help build Board members’ expertise. This will in turn lead to stronger technology governance structures and processes.
Participating in technology discussions with the Board is a great opportunity for the CIO to regularly interact with Board members. This will help the CIO understand the Board’s concerns and priorities and allow the CIO to shape dialogue on technology.
Taking the Board on the journey is indeed going to be a bumpy ride, but well worth the effort.