Considering the sheer speed, complexity and ever changing risk in today’s technology saturated business environment, it’s hardly surprising that the call for digitally savvy directors is increasing. Emerging research suggests serious consequences for boards that continue to ignore or delegate enterprise-level technology governance. By Elizabeth Valentine
Up until very recently the focus of technology governance has largely been within the IT department. But technology is increasingly integral to most business practices and processes, data monitoring and reporting and to all aspects of stakeholder engagement. Governing technology investment and risk has become a part of a board’s fiduciary duty of care whether boards realize it or not.
Enterprise business technology governance (EBTG) includes the leadership and governance oversight of technology at an enterprise level. EBTG differs significantly from operational IT governance in the same way that strategic and operational management differ.
At the enterprise level, the board focuses on making sure that strategy is enabled by technology. They promote a governance view where customers, stakeholders, people in IT and from across the business engage to better focus investment decisions and priorities. These boards understand how to best derive enterprise value from the use of data and information, services and business technologies, and govern accordingly. EBTG is integral to their activities, and it’s not just happening in technology-related companies (Valentine & Stewart, 2013).
Looking across industry and scholarly research about boards and technology, several concerning trends emerge. Boards know that technology is important to their businesses, but they don’t seem to be building bench strength in EBTG or putting the systems and process in place to ensure they are governing technology investment and risk effectively.
A lack of governance mechanisms
Less than 25 per cent of boards have mechanisms such as CIO briefings and dedicated technology committees to monitor technology risk and evaluate the effectiveness of any EBTG they have in place (ITGI, 2011). This is surprising given the significantly increased compliance requirements introduced over the last decade. If a board doesn’t know what it doesn’t know and it doesn’t have the means to easily find out, risk increases.
The gap between knowing and acting
There is also a significant gap between what is being said and what is being done. Boards know technology is essential to their business but have been surprisingly slow to build digital director capability. Three separate surveys revealed more than 90% of senior executives and directors identify technology as competitively important or very important (Eisener-Ampler, 2012; ITGI, 2011; PwC, 2012). However only 1% of Fortune 500 boards (PwC, 2012a) and less than 16% of boards globally (Gartner-Forbes, 2012) identify having technology-relevant skills amongst their directors. Ironically in another 2012 survey, board respondents ranked technology as the most substantial missing or insufficiently represented skill set of all board skills (Groysberg & Bell, 2012).
This is of concern because board decision-quality is logically premised off having the right mix of knowledge, skills and experience i.e., competencies. Directors must be competent to question both management and consultants. Further, Leblanc and Gillies (2005) suggest that if boards lack a full set and balance of competencies across its directors, they will not be fully effective, no matter how skilled individual directors are.
While acknowledging that not all directors need EBTG competency, such contrasting findings imply a heavy reliance on either internal expertise or external consultants. Neither are necessarily orientated towards meeting board compliance requirements.
Consequences and risk
Without digitally-savvy directors in today’s environment, boards risk ‘flying blind’ (Carter & Lorsch, 2004) and there are potentially serious consequences for having a hands-off approach to EBTG. While many boards have been successful in the past without digital directors, in the current apparent lack of focus on strategic information use and EBTG there is little to stop the misuse of information or the new breed of technology-savvy, innovative competitors gaining significant advantages.
A board’s combined knowledge, skills and experience drives their actions and priorities. Their capability and orientation has a profound impact on whether the organisation not only has a culture that uses data and information for decision making and competitive advantage, but also whether the organisation realizes the value of technology investments.
With a strategy-matching and balanced set of competencies, boards are better equipped to meet their governance responsibilities. They can ensure the right information makes it onto the board agenda. They have the knowledge and experience to ask the right questions and check that investment decisions and technology priorities will maximize returns and minimize risk.
Organisations that do not competently ‘grasp the digital revolution risk failure, just like the Kodak and Xerox companies of this world, precisely the kinds of companies that ought to have been on the leading edge of this change. Their managements failed them, and certainly their boards failed them’(Feather, 2012). Boards can no longer afford to ignore or delegate enterprise technology governance (Van Grembergen & De Haes, 2009), and if they do, they court competitive, financial, compliance and reputational risk.
Four possible outcomes of building EBTG competency
Knowing whether it’s time for digital directors starts with checking whether your board and senior executives are focused on four key aspects of EBTG. The organisation can then assess whether there is a need to recruit or develop talent, and ensure that effective systems, governance mechanisms and relationships are in place.
1: Make business technology strategy a fully integral aspect of business strategy and corporate governance. This board has the talent and mechanisms in place to move with the times and thrive. They know what it takes to strategically transition from legacy systems to a dynamic business ecosystem. They know how and when to invest in new and emerging technologies, for the right reasons. They expect management to maximize technology and people capability in a planned way across system, product, process, operations, stakeholder engagement and innovation.
2: Oversee strategic business technology-related security and risk governance. This board understands how to competitively embrace new and disruptive business technologies while minimizing security, reputational and financial risk.
3: Oversee strategic business technology investments and technology asset performance. This board knows how to monitor business and technology performance, confident that it has the governance mechanisms in place to drive value-add for all stakeholders in a strategic, integrated and planned way. They are confident that enterprise business technology governance supports their meeting the board’s fiduciary responsibilities.
4: Build dynamic information and technology governance capabilities at all levels. It requires leadership from the board and executive, in partnership, to build an enterprise with an information and data decision-making culture. Optimized EBTG is present when the board and executive can measure the effectiveness of data and information usage in decision-making within the board and throughout the organisation. The board has the capability to ask the hard questions. EBTG discussion is an integral part of the overall strategy calendar and board agenda.
Boards know that technology is essential to their businesses, but have been slow to embrace a competency mix that includes digital directors amid their ranks. Enterprise business technology governance is part of a board’s responsibilities because technology pervades every aspect and level of business. To ignore this is to court risk. Further work is required to identify and validate a flexible range of board-level digital director EBTG competencies. This is the basis of our current and future research.
This article was originally published in the June 2013 edition of Boardroom Magazine, from IOD New Zealand. Reprinted with permission.
Other Publications by Elizabeth Valentine: http://eprints.qut.edu.au/view/person/Valentine_Elizabeth.html#group_art...
Carter, C. B., & Lorsch, J. W. (2004). Back to the drawing board: Designing corporate boards for a complex world. Boston MA: Harvard Business School Press.
Eisener-Ampler (2012). Concerns about risks confronting boards: third annual board of directors survey 2012. In M. Breit & S. Kreit (Eds.). NY, NY, USA: Eisener Ampler.
Feather, F. (2012). Execs not using social media at board level strategy In R. LeBlanc (Ed.), Boards and Advisors Forum (Vol. 2012). Mountain View, CA, USA: LinkedIn.
Gartner-Forbes (2012). 2012 board of directors survey: stay in balance. In J. Lopez & M. Raskino (Eds.). Stamford, Connecticut, USA: Gartner.
Groysberg, B., & Bell, D. (2012). 2012 Board of directors survey. USA: Heidrick & Struggles International, Inc. and WomenCorporateDirectors WCD).
ITGI (2011). Global status report on the governance of enterprise IT (GEIT) - 2011. Rolling Meadows, IL: IT Governance Institute.
Leblanc, R., & Gillies, J. (2005). Inside the Boardroom. Ontario: Wiley & Sons.
PwC (2012). Annual Corporate Director Survey. New York, USA: Price Waterhouse Coopers
PwC (2012a). Bridging the IT confidence gap (abridged version). New York, USA: PriceWaterhouseCoopers.
Valentine, E., & Stewart, G. (2013). The emerging role of the board of directors in enterprise business technology governance. International Journal of Disclosure and Governance(April), 1-17.
Van Grembergen, W., & De Haes, S. (2009). Enterprise Governance of IT in Practice
Enterprise Governance of Information Technology. In (pp. 21-75): Springer US.