Technology has changed how people communicate, collaborate and behave, creating better ways of working, learning and living which in turn is changing how organisations can be designed. Consequent changes to the economy and society are profound. Boards of many organisations are ill equipped to meet this challenge.
Just as decisions on war are too important to leave to the generals, in today’s world decisions on technology are too important to be left to the CIO and external consultants. A good board must have a real understanding of the opportunities and threats, and increasingly directors must have either a technology background, or had a senior executive role that developed a working knowledge of technology issues.
A corollary of this is that board risk management committees must include technology as part of their standard agenda. Failures can have a catastrophic impact on the entity’s viability.
The quality governance practices can be measured by the value produced by the performance of the organisations. The purpose of good governance is to develop quality organisations that achieve desired goals and conform to the policies and procedures set down by the board.
Technology is vital to the Survival of Most Organisations
Because technology is creating better ways of working, learning and living it is becoming pervasive and impacting everyone in both developed and developing economies. Every organisation is facing significant changes in how they operate and achieve their purpose because of the capability and capacity of rapidly changing technology. We can do things today that were just not possible 3 or 4 years ago.
Boards need to evolve towards technology fluency and be able to make critical decisions on technology projects across:
- Cloud turning technology into a utility service
- Mobility connecting technology to everyone everywhere
- Big Data turning data into evidence
- Social Media connecting everyone to everybody
Diane Smith-Gander FAICD and non-executive director of NBN Co responded to these challenges for directors and their boards warning that companies need to think about how they communicate with their customers and that boards need to be more technology savvy. Importantly she stated in her recent article in Company Director the monthly magazine of AICD, “All directors need some understanding of technology and how it effects their organisations just as they need to understand the finance function.”
Since the IBM CEO Study series began in 2004, technology has progressively risen on CEO’s radars. CEOs ranked it sixth in importance in 2004, jumping to third spot in 2006 but in 2012 technology rose for the first time to top of the list.
If boards ignore or worst still fail to understand the implications from rapid technology change it will not be just retailers and newspaper proprietors lurching from one market down grade to the next.
What makes Technology Strategic?
Everyone in the world is becoming connected to everybody else directly through social media and other mobile applications and indirectly through trillions of devices. The profound changes include:
- Commerce, especially retail has fundamentally changed. The buyer is better informed and has much more power and influence in how the transaction is conducted.
- People have more choices in how they connect, communicate and collaborate which is rapidly changing human behaviour.
- Technology is magnifying capacity and capability of people and most things can be done at a distance and at a time of ones choosing.
- Digital artefacts spin off from everything that is done providing data that can be analysed to produce patterns that support evidenced based decision-making.
Improved living standards are the result of increased productivity resulting from real innovation that is usually driven by constantly improving technology. Technology is critically important because capital investment in technology improves productivity without relying on improved competitiveness achieved from lower wages.
Technology must be important to directors because technology has the potential to change how organisations are designed and how people communicate, collaborate and consult. Recent research by McKinsey indicates that half the synergies in M&A depend on technology. If directors are ignorant of that potential how can they govern their organisations and be judged as leading performers on any scale? McKinsey recommends that this demands new forms of thinking about board organisation and about new ways of the board interfacing with management.
Deloitte argues that fundamentally different types of institutions may be necessary to be able to compete in our rapidly evolving environment to harness new tools and practices to simultaneously accelerate learning and achieve much higher levels of efficiency. “To do so, we need to rethink the rationale for firms.” Technology is removing constraints in how we rethink that rationale and therefore makes technology arguably the most important issue facing board directors today.
How Should Boards Deal with Technology?
Boards must be able to ask the tough questions that their executives may have missed. Whilst most directors can judge if they have a poor CFO far fewer are confident of judging if they have a poor CIO. A standard list of questions to ask of any technology proposal does not help a director dig deeper and thoroughly question the answers they were given first time round.
The South African Code of Company Governance mandates regular interactions between boards and executives on technology. What more is required to ensure Australian boards continue to be considered world-leading performers in how they govern their organisations?
- Conduct annual technology reviews involving forward looking conversations on how technology is impacting their industries and what are likely effects on their strategic plan.
- Conduct board reviews of major technology projects to determine the impact on corporate strategy and achievements.
- Determine what is the role for Risk Committees in the management and mitigation of technology risk.
- Consider the establishment of a Technology Advisory Board and determine its status with the board.
The British Standard ISO 38500:2008 is a framework for evaluating, directing and monitoring the use of information technology. It proposes a framework for the organisation that covers the responsibility, strategy, acquisition, performance, conformance and human behaviour involving IT.
A mature approach to governing technology will ensure that the directors are comfortable with their governance of technology knowing that they have focused on their existing business (say printing newspapers) and that they have left their shareholders to independently choose to invest in digital start ups (say Seek, Car Sales or RealEstate.com) or alternatively they have decided that a large company can benefit from digital acquisitions to invest in their future.
This transition in thinking is moving boards from “let’s get a technology savvy director and they can think about this” to the space they need to be in “let’s have a board that understands and explicitly manages the company’s technology related risks and opportunities”.