Alexandra Cain looks at the board’s role in making technology investment decisions that fit into the business’s governance framework.
In an era of digital disruption, boards are focused on how to invest in technology to propel the company into the future. It’s a complex task, one that requires the right mix of oversight, technical knowledge and foresight of emerging business trends.
As a result, it’s safe to assume technology is a standing agenda item for every board, especially the business’s approach to IT investments. The starting point has to be how technology fits into the business’s governance framework. As Romain Rallu, managing consultant at IT governance and risk management firm Privasec says, every director to whom he talks is focused on the business’s approach to IT investment. He notes every company’s IT investment strategy must have governance at its starting point. “It’s essential for IT investments to align to the company’s strategy and objectives.”
But before the strategy can be developed, the board must understand the business’s current technology position, with a focus on three tech pillars: big data, cloud computing and social media. This starts with a formal review of the company’s IT position. According to Dr Greg Spencer MAICD, principal consulting partner, Beyond Technology Consulting, best practice is to have an external independent technology expert conduct a review every two years.
“The review should evaluate the organisation’s IT strategy and operational practices, benchmark resource levels and costs and check alignment to business requirements and corporate risk appetite,” he recommends.
The first step is to select the right external consultant. The choice will depend on the business’s circumstances, level of technological sophistication and specific technology issues.
“The appropriate consultant depends on the skill set the business wants. While this will differ from business to business, it’s important that any technology expert who is providing advice at board level understands the impact of technology across the company and the link between tech and strategy,” says Anuja Rao GAICD, director and founder of 3D printing business Select 3D.
However, experts by their nature tend to focus on a specialised area and it can be difficult to find just one consultant who can handle all the company’s IT challenges.
“Boards need to engage with a balanced selection of experts. It is easy to run with the first expert opinion. But better governance is to seek the input of several consultants as they will have varying experience and could propose the use of different technologies,” says Timothy Allison, non-executive director of Custom Innovation Co.
“The board needs to understand the technology inputs and the reasoning behind selecting the core components. The technology outputs need to fit within the business’s strategic framework, which means the framework needs to be established before the technology development,” he adds.
As a result, Allison suggests an expert or specialist in technology would struggle to provide a balanced commercial recommendation across all the unique aspects of any business. To address this the board should engage with tech experts on a continual basis. This allows the business to keep up to date with emerging tech trends and gives directors peace of mind that they are across the technology opportunities and challenges their businesses are facing.
New tech trends
Technology must be approached in a considered manner to allow the company to generate as much value as possible from IT investments. In the past, some companies have embraced new technologies before really thinking about their consequences. A systematic approach is a much better option.
“Boards need to avoid leaping into new technology. There is a shortage of board members that have that wide commercial technology experience that is critical for building a technology framework and strategy. Technology by its nature will expand and evolve rapidly. Only through developing a balanced plan will the board not only take control of the change but also feel comfortable in engaging with technology tools,” says Allison.
“The board must assess the B2B and B2C technology requirements of the business now and also looking forward 10 years. There must be an integrated IT framework that encourages collaboration across the business. Only through recognising this and addressing the longer-term issues the business is facing can the board begin to feel comfortable and confident in developing its strategic IT framework,” he adds.
Aside from the right access to experts, every board needs to decide how technology should be represented at the board level. There are a number of possible models. Tessa Court, CEO at IntelligenceBank Board Portal Software, believes that given the rate of digital disruption, every company is or eventually will be a technology company. As a result, every board should have a digital director. “You need someone at board level who can be the continuous voice of technology in governance discussions. While it is not necessary for each director to know intricate details of how different technologies work, all directors should understand how technology is impacting their respective industries, and should be in a position to speak with management about technology issues impacting the business,” says Court.
“High-performing boards should have a technology sub-committee, which provides a forum to consider the impact of new technologies, major technology expenditure and cyber risk on IT strategy,” she says.
According to Court, external experts should be part of this committee, especially if the board does not have ample technical expertise.“It’s important to establish an ongoing committee to set the overall strategy and governance over the IT function, as opposed to having experts providing ad hoc advice. This ensures continuity of strategy,” she advises. Big issues for big data
Once a business has its strategy and IT governance framework set, a central concern will be how the company accesses reliable and extensive data on which to base business decisions. ‘Big data’ is the term that is often used to describe the increasingly large amounts of information the digital technology revolution is delivering that businesses can use to help future planning. The information toll companies have about how vehicles use their roads is an example.
How to corral and then make meaning from big data is one of the most pressing challenges facing boards today. It’s especially important given how valuable this information is to help to guide the board’s thinking around strategy.
To this end, says Court, the board should ensure that the business plan defines the opportunity and value of big data, and how big data projects align to the company’s strategic vision.
“Collecting data for data’s sake can be a massive drain on resources, and not produce anything meaningful on which the business can act. Big data insights need to drive the business forward,” she says.
Court says the board should ask the management team about the types of analytics being developed, the resources being deployed to collect, collate and protect this information and the impact on the business. “There is a huge opportunity for the board to use insights from big data to drive discussions about risk management and forecasting.”
As Spencer says, businesses are now in an ‘information arms race’, through which companies can take advantage of big data to produce unique insights about their markets and to improve their operational efficiencies. To do this, boards must treat data as an asset.
“The organisation must decide to own, maintain and assign accountability for it. This means data integrity must always be maintained to keep its value and provide insights,” he adds.
Rao agrees businesses can only truly generate value and insights through big data if they view it as one of the business’s most important assets and can understand its future impact. “Data analytics cannot be powerful unless the board understands existing and future business models. It helps for directors to map out in strategic planning sessions high-level processes using information flow charts between work groups to see the impact of technology on the business,” says Rao.
It’s important for boards to understand that businesses are at the start of the big data journey. As Allison notes: “Big data is far larger than we can currently see or comprehend. Boards need to recognise the impact on their business longer term and its integration into the strategic frame.”
Additionally, boards need to be aware that data sharing is not yet well regulated. Expect already onerous laws around protecting consumer data to tighten to better define and protect individuals’ rights. Allison says new technologies such as the Internet of Things will exponentially expand the size, complexity and personalisation of data, another emerging tech issue for boards to watch.
It’s easy to assume cloud computing is a box organisations have already ticked. But like big data, cloud technologies should be an ongoing discussion point.
Cloud computing involves storing data and technology through a distributed network of servers. The hardware is usually located away from the business’s main premises to help protect company information stored in the cloud. At this point, most businesses have incorporated cloud computing into their operations. For instance, most enterprises should have determined which information is suitable to store in a public cloud, and which information should be held privately.
A public cloud is a network of servers that stores information for a variety of different organisations. A private cloud is a closed network, and not connected to public clouds. There are also hybrid options that combine features of both private and public clouds. If the board has not yet made a clear choice this should be an urgent focus.
“Public cloud services are very powerful, but they may not address an organisation’s security requirements. For example it may not be suitable for a customer’s banking or medical records to be distributed on public services,” says Allison. “Boards want and need to use the cloud, but they need to understand the controls and flow of data within that environment within their planning to ensure any sensitive information is properly stored,” he says.
According to Spencer, hybrid clouds are becoming a common way for large organisations to take advantage of the cloud.
“This allows businesses to realise the cloud’s benefits while balancing the organisation’s legacy systems and unique requirements. Digital innovation for almost all non start-up companies involves a compromise to accommodate budgets and transformation of existing business processes,” he says.
Protecting reputations online
Social media is the third pillar, alongside big data and cloud computing, that boards must prioritise when considering their IT investments. While many directors view engaging in social media as a risk, it’s important for the board to engage actively with this topic, to help mitigate perceived risks, the greatest of which is reputational damage as a result of mishandling the business’s social media strategy.
As Allison notes, both positive and negative social media is healthy for businesses. What is critical is how the negative commentary is dealt with and the resulting goodwill which flows from the proactive handling of a public issue. “Typically, best practice will address the more difficult issues publicly and then move the discussion offline. The board should also see social media as an opportunity to understand the business’s reputation in real time and at the coal front; very little can be hidden in such a public medium,” he adds. This requires ongoing investment in systems to monitor social media, as well as the right talent to manage online communication.
Technology remains a pressing challenge for every board. The idea is to nominate a digital director, set up a board sub-committee that deals with technology and appropriately engage with experts. Businesses that do that will put themselves in a strong position to take advantage of technology trends, rather than simply respond to them.
Anuja Rao’s framework for assessing tech investments
- What are the legal and compliance issues around the implementation of new technology?
- What are the data implications?
- How will the technology impact the customer, business and other technology platforms within the business?
- What business processes and headcount will it impact?
- What is the cost?
- What is the risk appetite to adopt the technology considering competitive advantage, cash flow, earnings before interest, tax, depreciation and amortisation, research and development, and environmental heath and safety concerns?
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