Recently I was engaged in a brief but very useful discussion on the Boards and Advisors LinkedIn Group about why technology governance should or shouldn't be singled out from other areas of board competency, and if so why. The discussion highlighted two important issues.
Unfathomably there still seems to be a sense among too many board members and governance professionals that boards need only view technology as an enabler that falls into the same bucket as other business enablers like cash/equity, people and plant, and is not a priority.
Rapid digitization is driving a need for boards to be tech-savvy
Rapid technology change and the increasing maturity of the digital organization and digital economy exacerbated by the nexus of mobile, cloud, social media and data-related technologies are changing the role of the board and are amongst the reasons why business technology governance is being singled out (Valentine & Stewart, 2013a). Technology is an enabler, but it is also creating whole new business models. The convergence of industries and the active role of consumers in an increasingly networked society are causing organizations to question the basic concept of value and the processes that lead to value-creation (Prahalad & Ramaswamy, 2003). In other words technology can be an enabler, a strategy, a product or service. It has become more than the IT department providing an internal, enabling service or infrastructure. And change is not slowing.
Robin Johansen suggests, ‘the ‘Internet of Things’ is in its infancy, yet we have already seen an explosion of new technology such as wi-fi controlled individual lamps; wi-fi monitored fire extinguishers; bridge structures being monitored in real time; pedestrian and car movements monitored in real time and so on. This is disruptive technology which has the potential to overturn traditional ways of doing business in many sectors. Being ‘asleep at the helm’ as these changes invade our world could prove very costly.
‘Cloud computing also has the potential to change everything by lowering costs; enabling scale-up/scale-down options on demand; enable new business start-ups without significant capital and so on. The massive growth of Amazon Web Services illustrates how established this trend already is. (http://aws.amazon.com/solutions/case-studies/all/). In addition, Microsoft claimed November 2013, to be adding 1,000 customers per day on their Azure offering with revenues up 100% year over year. It would be a brave board which believes that these changes will not impact their business model.’
Surprisingly iconic companies have ignored rapid technology changes in their sectors at their peril. ‘The sometimes slow sometimes rapid decline and value erosion of big name organizations such as Dell, AOL, Blockbuster, Nortel, Nokia, RIM, Barnes & Noble, Gap, Kmart, Sony, Sears, and A&P was presumably over-seen by boards of these once iconic companies. In most instances, none made massive or sudden blunders and they were often still featuring in textbooks and 'Halls of Fame' even as their erosion had become marked and even irreparable,’ (Keen & Williams, 2013, p. 643). Clearly their management and their boards failed them.
Enterprise technology governance does need to be singled out
Business technology governance is being singled out because research says it's the competency most likely to be missing or under-represented on boards globally (Groysberg & Bell, 2012). It's being singled out because all major consulting group surveys from 2012 to 2014 show more than 90% of boards and senior executives know that business technology is mission critical, but also show that average of less than 20% of boards worldwide have yet to make the move to getting digital directors on board.
Even newer models of board governance such as the Learning Board model are impacted by business technology and, at least in the short term, likely require specific focus in relation to ETG if the model is to be applied effectively. As Robin Johansen suggests, in relation to the Learning Board Model:
- It can impact strategy - eg does new IT enable a new business model or strategy; what trends are impacting our specific industry?
- Policy formulation - eg what security policy might be required in a cloud based business; or how does Bring Your Own Device impact security?
- Accountability - eg having enough knowledge to be truly accountable for decisions related to IT and not abrogating accountability to management or a ‘passing consultant’;
- Supervising management - eg having enough understanding to challenge management thinking in relation to IT and to provide effective supervision of risk and value creation management in relation to new initiatives.
These examples possibly highlight why, until there is greater competence in governing technology at board level, ETG may need to be singled out. Technology is pervasive and disruptive across modern businesses and whole industries.
Why are boards so slow to act?
My research suggests a range of possible reasons and that boards who continue to ignore or delegate ETG do so at their peril. It also suggests that some directors have used the 'IT is operational and not the business of the board' reason for not engaging and up-skilling. Other research identifies a clear disconnect between operational governance of IT and the boards enterprise governance role.
To be effective, boards need a strategy-matching mix of competencies (Leblanc & Gillies, 2005) to inform the structure and membership of all boards. Up until very recently there has been an almost mono focus on member competency being finance and legal in an industry knowledge context.
The bigger current challenge however seems to be helping board members (especially the old school) and those who provide services and professional development to them to understand the extent to which business technology, its advantages and risks, pervades every technical discipline. The nexus of business technologies is creating new business models. Their impacts pervade all traditional technical skill areas including finance and legal. They are creating new competitive, financial, legal, HR and reputational risks never experienced before.
It's not a huge leap for those in the 'It's operational and not our business' camp to link this belief with a statement such as 'Boards need to see technology for what it is...an enabler' if you don't have sufficent knowledge and experience of ETG. My research identifies these exact types of beliefs and board cultural norms as attitudinal barriers and a possible reason why too many boards continue to delegate technology matters to the CIO and management (then blame them when things go wrong).
As Karen Martyn recently commented: 'It is insufficient for a board to say 'they delegated to the CEO' when projects fail - the board has a responsibility to monitor delegations and seek assurance that delegated responsibilities are being implemented as envisioned. Whether it be IT, collective employment negotiations, restructuring, or any other project/programme that is critically (strategically) important to the organization, the board's role is to oversee the successful implementation by setting measurable indicators of progress and success, then diligently and regularly monitoring the results. Anything less is a failure of governance.' If business technology ever reverts back to being only infrastructure or when there's business technology capability at all levels of the organization, it won't need to be singled out. It will just be business as usual.
Thanks to Cam Brinsdon for starting this thought provoking discussion, and Peter Crow and Robin Johansen for their excellent input into this debate. http://www.linkedin.com/groups/Why-single-out-Technology-Governance-3834048.S.5837728779392266241?qid=d5e33e86-2a15-4f38-b44d-15bb93452f52&trk=groups_items_see_more-0-b-ttl NB this is a member only group.
Karen Martyn was commenting on one of my blog postings:http://www.enterprisegovernance.com.au/blog/board-directors-role-technology-value-creation
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.
Keen, P., & Williams, R. (2013). Value architectures for digital business: beyond the business model.MIS Quarterly, 37(2), 643-647.
Leblanc, R., & Gillies, J. (2005). Inside the Boardroom. Ontario: Wiley & Sons.
Prahalad, C. K., & Ramaswamy, V. (2003). The new frontier of experience innovation. MIT Sloan Management Review, 44(4), 12-18.
Valentine, E., & Stewart, G. (2013a). The emerging role of the board of directors in enterprise business technology governance. International Journal of Disclosure and Governance(April), 1-17. doi: 10.1057/jdg.2013.11
Valentine, E., & Stewart, G. (2013b). Director competencies for effective enterprise technology governance. Paper presented at the 24th Australian Conference on Information Systems, Melbourne, Australia.