Digital efforts due to their profound impact on business landscapes require establishing a Board Committee with a mandate to guide the company’s strategies and govern the realization life cycle spanning opportunity identification, investment decisions and implementations.
Businesses pursuing a strong growth agenda are realizing that technology is inextricably linked to their actions on the ground. Their business strategy and technology strategy are increasingly becoming indivisible as they attempt to harness IT solutions to effectively compete and sustain growth in the market place. A study by Gartner on CEOs’ priorities for next two years indicates the importance CEOs have placed on technology. In the study, IT is ranked 5th surprisingly ahead of profits and new product that are ranked 6th and 8th respectively.
There is no industry that has not been impacted by digital. The intensity may vary but not the intent. Companies can hardly take a ‘will not affect us’ position when they witness changes around them. Hence, it is impinging on them to be pro-active and continuously reshape their strategy fusing strong business models and impactful technologies.
As digital takes the centre stage in the strategy conversations, companies try to ascertain who should lead the digital programs; whether it is CEO, CMO or CIO or the need for a new role like Chief Digital Officer and who the principle stakeholders are. However, while this debate gets traction, one group of key stakeholders does not seem to appear frequently in the deliberations; the Board of Directors. The Board’s involvement seems to be largely limited to providing approvals for digital investments and possibly review them if they come up during Board meetings.
When we try to investigate the extent of Board’s involvement, a quick scan of the constitution of the Board of a few randomly picked companies, would tell us that most of them, including a few leaders, do not have a Board committee for technology. While it is common to find committees for Audit, CSR or Shareholder Relations there is not one for technology and /or innovation. There could be reasons that are legacy related but as the businesses are increasingly driven by technology, one wonders whether the Board should play a more active role than be a passive participant. Consider the following:
- Technology is no longer seen as a mere enabler of business process but a strategy that can shape and employ new business models
- Nimble and new age competitors that have technology as the core of their businesses have the potential to disrupt the incumbents to the extent of even marginilising them in the market place
- Relationships with customers and vendors are increasingly determined by technology savviness than purely based on traditional strengths like brand or products. A study by McKinsey suggests that about half of M&A successes depend on IT, which emphasises the strategy play of IT.
Given the high stakes, the rationale for the existing committees could well be applied to justify the need for a technology committee or better, a broad based digital committee. It can be modeled along the constitution of other committees with an aim to provide guidance and conduct periodic reviews of the digital programs. The charter of a Board committee normally covers the mission, membership, meeting frequency and duties and responsibilities. Let us see how these apply to a digital Committee.
The mandate of the digital Committee would be to assist the Board and guide the company in the digitization efforts. The committee can support the executives to strategise transformative digital programs to be an early mover in the market or quickly respond to competitors’ actions that may threaten the company’s position. The role of the Board committee becomes more prominent for small and mid-sized companies that may lack credible leadership across levels and resources to pursue successful digital programs.
Membership and Meetings
The committee should ideally be chaired by an independent director in the Board and can consist of fellow directors with need based support from executives. They can enlist experts and consultants to guide them where required. The committee can work with a structured plan that can act as a baseline and meet as frequently as possible with agreed minimum number of meetings.
The digital Committee needs to focus inter alia on 4 areas:
- Digital Strategy
- Portfolio Management
- Leadership and Resource Management
- Program Management
Digital Strategy – Asses Strategic Importance of Technology
Digital strategy requires a radically different approach from a traditional IT strategy while assessing the potential of technology and thus goes beyond defining an IT plan for the company. It involves crafting new business models with technology at the core. The impact is mostly organization-wide and demands an effective change management. The company has to continuously assess the opportunities presented by technology developments and threats from competition and bring in changes that are rapid and continuous. Hence, businesses require a well thought out digital strategy that is rooted in their current market position and desired future landscape. The long term implications demand the Board’s attention and thus the role of digital committee in integrating business and digital strategies.
A starting point for the committee could be to measure the effectiveness of existing technologies in their capability and flexibility to address the current business issues, respond to changing market conditions and scale up for future possibilities. The committee should guide formulating a digital strategy that can propel the company into the desired growth trajectory. The committee should also help move the strategy exercise beyond the CIO’s office by encouraging organization-wide participation and enlisting customers, business partners and industry experts where required.
The committee should continuously challenge their CxOs to ably leverage technology to further gains in areas such as business performance, employee comfort and customer satisfaction. Their readiness should be measured against the new-age or technology savvy competitors’ efforts that may have the potential to threaten the position of the company in the immediate or near terms. Armed with such reviews, the committee should periodically monitor the progress of technology strategy execution and ensure alignment and refinement to the changing business contexts.
In short, the committee should direct digital strategy in the following ways:
- Establish a ‘Digital Maturity’ scale that can reflect company’s position and market actions and that can measure the effectiveness of the current usage of technology and plans for the future.
- Collaborate with the leadership team, customers and business partners to jointly formulate or refine technology strategy
- Periodically review the technology strategy execution and jointly address implementation issues.
Portfolio Management- Construct a right portfolio of digital programs
IT Portfolio management would typically mean optimizing the IT assets of the company by refreshing the portfolio through introducing or dropping IT assets due to technical reasons such as obsolescence, scalability etc. Such decisions normally fall in the domain of CIO. However, companies need to take portfolio management to a more strategic level where the decisions are based on business imperatives and future demands. This is where the Board committee can step in and guide the executives.
In most organizations, a substantial portion of the IT budget, even to the extent of 70% go to maintenance of existing IT assets and the rest on fresh investments. This undermines the company’s ability to explore and invest in future-ready technologies. The Board should guide the company to swap the ratio in gradual manner.
The future-ready can be looked at in two categories – the near future state and future state; the near future state is those technologies that have been proven but not yet part of the mainstream usage. An ideal company would have tested and accepted prototypes or already using these technologies in a small way. SMAC stack can be a good example for this category. The future state is the technologies that are in early stages of development, not yet proven but the company can start building prototypes. A good example could be IoT or Cognitive solutions. The Board would need to ensure appropriate investments in the future technologies while optimizing the spend on operational systems.
To summarise, the Board’s involvement in this area could cover the following:
- Ensure the company bets on immediate and future technologies
- Budgeting that commensurate with the bets
- Align performance measures and reviews to the investments
Leadership and Resourcing- Enlist right owners and adequate resources empowering them for success
Some companies still see digital as a technology foray and any attempts on digitization land at the door of CIO. A seasoned CIO could be qualified to lead digital programs, however it may not always be effective as digital is often and should be deeply welded into the differentiators be it customer service, marketing or operations. Hence, in order to realize the intended benefits and to fix end-to-end ownership, the efforts may need to be led by the most appropriate head. It could be function heads such as the CMO or Chief of Operations by a CDO.
The Board Committee is best placed to formulate guidelines on ownership and governance for digital programs that can cut out layers of decision making and minimize ‘baton-passing’ risks. The framework thus developed could empower and encourage the right owners to lead and navigate through the complexities of business models, technology and people alignment. A number of digital programs may need to be executed rapidly to either grab an opportunity or solve a pressing problem. Such fast paced moves bound to have their share of missteps, hence it is important that the framework encourages owners to take risks without the fear of failures. The Board may choose to intervene to sufficiently resource the programs to ensure there the programs do not face any hurdles.
Hence, the Board can assist in the area of leadership and resourcing in the following ways:
- Formulate guidelines and mechanisms to plan and execute digital programs
- Bring in the right leadership to own the programs and ensure adequate resources to support the programs
- Evaluate business case and approve investments
- Help bring an high performing culture and encourage the teams to take risks and not intimidated by failures
Program Management – Provide for execution oversight and course corrections to ensure benefit realization
Execution is where the rubber meets the road and comes with inherent risks due to complexities involved. Many technology projects fail due to increased costs, inordinate delays and poor outcomes. According to an Oliver Wyman analysis, the world’s largest 500 companies lose more than $14 billion every year because of failed IT projects.
The Board has to take active role in reviewing the progress of the digital initiatives periodically and ensuring the value is realized on the investment. Where possible, one of the members of Board digital Committee can be drafted into the Steering Committee of implementation projects to monitor the progress and intervene when required.
Digitization is generally an enterprise-wide effort and depending on the areas could also focus on extended enterprise involving business partners and customers. The transition could be quick and may disturb the existing structures and positions. Hence, driving change is crucial to achieve desired results. The committee needs to strategise change management programs, communicate frequently with stakeholders to demonstrate that they are fully behind the initiative and ensure participation across groups.
Most companies miss out on learning and gaining knowledge. What one arm of the organization does is not known to other arm. It is critical to bring in a learning culture in the company to know what works and what doesn’t and use the learning to improve in the execution of digital programs. The Board committee should address this common flaw and force executives to share experiences across functions and group companies.
In short, the Board can involve in execution in the following ways:
- Measure value of incumbent IT projects and ensure they are in right track, adjust project mandates on the fly to suit business conditions
- Drive change, connect with stakeholders more frequently to know their feedback and ensure course corrections
- Encourage organizational learning that cuts across past and on-going programs
The responsibilities outlined may indicate a higher involvement of Board in areas that normally fall in the executive domain. So do we expect the Boards to be more ‘hands-on’? To what extent can they question and challenge the plans and proposed decisions of the executives? The answer lies in recognizing what digital can bring in. It can both be an opportunity and a threat; when pursued incisively by the company it has the power to shape the business for the future, on the other hand competitors can potentially destroy the position of the company by their calculated moves. The companies thus face opportunities beckoning growth on side and threat of even closure due to early start competitors on the other side. Because such changes are rapid, Board’s direct involvement will ensure that the company’s sails are set in the right direction to navigate through a rough and highly competitive business environment.
Post Script: The trigger to write this piece came from working with two Board members of a medium-size company I was consulting with. The independent directors were seasoned professionals with experience of running companies themselves and technology evangelists. They guided the company in digital efforts, helped sell the idea to other Board members and assisted the CEO in resolving couple of knotty issues. Their involvement helped cut short the decision cycle during planning and they continue to be actively involved in the on-going implementation.