Changing technology: What is the role of the board?

Friday, 10 October 2014


    In this discussion note, AICD raises some important questions in relation to the role of the board in the changing world of technology.

    Technological advancements also affect the practice of management. Professor Tim Laseter provides an interesting perspective on this in a Strategy+Business article titled, "Management in the second machine age". He provides an historical examination and consideration of future trends, revealing important lessons for managers:

    • they must become more creative and entrepreneurial, and
    • they must address the social challenges of the emerging disruption. It is important for the board to understand the types of characteristics that good managers will increasingly need to possess.

    Discussion for directors

    Do you know how your company is using technology - or how it should be used?

    While the role of the board in the changing world of technology will vary according to the company and industry in which it operates, the time is ripe for conversation at board-level regarding governance of technology issues.

    To open this conversation, the Australian Institute of Company Directors offers some initial thoughts on board responsibilities, effective decision-making, high-value project oversight and financial duties.

    Board-level responsibilities

    Many corporate technology decisions will be made by management. Among the powers reserved by boards, however, is the ability to make decisions related to strategic changes (e.g. transformation priorities or business model innovation) and approval of significant capital and operating expenditure.

    Boards are also primarily responsible for technology risk oversight (including information security), holding management to account for progressing initiatives and realising the benefits from IT investments (e.g. governance / assurance of high-value IT-enabled projects).

    To discharge all these responsibilities effectively, boards need the capability to critically monitor the influence of technology on strategy development and execution. Boards also need to assess all options and business cases presented by management, including initiatives where implementation may be complicated by legacy systems or require custom-built complex technology.

    Assessing available information

    In making strategic initiative and technology investment (expenditure) decisions, directors need to keep abreast of how emerging technologies are being used outside their industry in order to effectively monitor, assess and constructively challenge information presented by management.

    This may require non-executive directors to explore technologies beyond those they have been exposed to across their directorship portfolios. It may include boards undertaking (or seeking from management) greater analysis, forming board subcommittees and / or consulting external advisors on the changing world of technology.

    Financial performance and statements

    Directors also have obligations to approve annual financial statements that are true and fair. While directors can delegate some aspects of financial accounting to management, the overall responsibility remains with individual directors. Directors need a reasonable degree of technological literacy to fulfil their financial duties (for example, monitoring software expenditure, capitalisation, sale and impairment decisions etc).

    Scope of technology considerations

    The scope for assessing the relevance of technological change to boards may span the following strategic areas:

    • an organisation's fundamental ability to achieve its desired outcomes (is the business model becoming irrelevant as a result of the activities of non-traditional competitors or competitive substitutes?);
    • product development (driving revenue through core products);
    • customer experience and service delivery (e.g. delivering greater service through online or digital channels);
    • the supply chain (integration with technology used by suppliers);
    • process automation, and/or
    • cost reduction / control.

    High-value project execution

    There are high stakes for boards in governing technology-related projects. Failure to achieve anticipated benefits, incurring overruns on budgeted development costs and/or delays in deployment timeframes may have significant negative consequences (e.g. reputational damage of project delays, asset impairments and /or earnings downgrades).

    Questions to discuss

    1. What technology decision-making authority / powers does the board wish to maintain? What can be delegated to management?
    2. What is the board's risk appetite for adopting new technology?
    3. Is your organisation looking to be a market leader in technology adoption?
    4. What decision may be taken on a proposal if there is no existing example (use case) available for management to assess, or provide the board, when recommending the adoption of an untested technology?
    5. Do you need evidence of success from an early adopter to feel confident investing in new technologies?
    6. Would you work with an unknown local brand or technology start-up?
    7. Is there new technology available which you should be considering?
    8. How do you know what potentially relevant IT trends have not yet been brought to your attention by management?
    9. Would investment in new technology distract from the company's core competency?

    Information technology trends

    This is the context for how we propose to consider in a forthcoming update the role of the board in being aware of – or acting upon – technology trends.

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