On Technology, Boards Need to Get More Sophisticated
December 20, 2012 Editor 0
As a former CEO at Kraft Foods and now a member of several boards, Betsy Holden has long observed how IT has become more and more critical to corporate performance. And yet, technology’s representation in the boardroom hasn’t kept pace. “Board-level conversations about technology need to be strategic and connected to key business drivers, rather than focused on the tactical, as is often the case,” says Holden.
Our research and experience bears this out. In a McKinsey survey of corporate directors, more than half said their boards had one technology-related discussion a year or none at all, which many regarded as insufficient. Moreover, a separate McKinsey survey of executives suggested that a significant gap exists between the ideal board conversation and the ones the boards are actually having.
Given the importance of technology, we believe boards should consider five actions to improve the technology discussion:
1. Sponsor periodic discussions of technology’s long-term role in the industry. Some boards are engaging in forward-looking conversations about how technology affects the industry and what the implications are for their company. Given the rapid pace of change, such big-picture discussions should take place every 12 to 18 months — or more frequently.
2. Establish board reviews of the IT portfolio and major projects. Boards are also beginning to introduce an annual “state of the union” report on the company’s IT capabilities and how they support the corporate strategy and operations, often including:
- A review of the IT portfolio’s alignment with corporate and business unit strategy, focusing on major IT systems (e.g., enterprise resource planning or industry-specific systems), as well as the company’s IT operating model and resource strategy
- Critical issues like cybersecurity or major systems transformations
- CIO succession plans, IT leadership bench strength and capability building
- Ongoing reviews of major business projects with a significant technology component. One company, for example, is rolling out a several hundred million dollar business process-transformation project representing the company’s largest investment over a 5- to 10-year period. Given the importance of this effort, the board conducts regular progress reviews with the project leader, the CIO and the head of the business area.
3. Ensure the right discussions with IT leadership. Critically, successful discussions require the CIO and his or her staff to engage at a board level. As Holden, now a senior advisor at McKinsey, notes, they must leave the IT jargon behind and relate the IT strategy to the business strategy. Often, IT leaders and board members don’t speak the same language resulting in the risk of the full potential of IT investments not being realized.
One way we’ve found to improve this dialog is to ensure CIOs engage with directors outside the boardroom. One CIO, for example, has monthly conversations with a tech-savvy board member. Their meetings, to which the CIO often brings members of his own team, also benefit IT. The CIO can showcase his or her bench strength, while expanding the IT team’s awareness of the business impact and top-management issues.
4. Leverage technology-savvy board members. Greater board involvement in technology matters means that corporate directors, just like CIOs, have to raise their game. Finding the right board member can pay significant dividends. Some boards have chosen to bring on, over time, more board members with technology backgrounds who can help spur these conversations during board meetings. Other boards are considering their own “technology boot camp” training sessions, much like the risk or accounting training that some boards conduct for committee members.
Another option is a technology advisory panel, similar to the scientific advisory boards that many pharmaceutical companies use. By integrating a mix of advisers including both industry experts and cutting edge technologists, companies could have an extra set of eyes on the existing portfolio and the coming trends they should be considering.
5. Strengthen the technology governance structure. While boards often need to improve their technology expertise, there are also structural steps that can make them more effective stewards. One is to create a technology-focused committee to ensure more frequent and directed discussions on these topics. Twenty-two percent of survey respondents reported that their company board had a committee responsible for technology oversight in some form.
Another way to strengthen technology governance is to delegate risk-related technology issues to the board committee that oversees company risk, expanding oversight to conduct risk reviews of systems and the operational risk from business processes dependent on those systems, as well as broader cybersecurity issues.
Technology is becoming increasingly important to corporate strategy and boards have a crucial role to play as trusted advisers. Now is the time to act.
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