Time for Boards of Directors to Increase Focus on Technology
Frank Petersmark | November 17, 2015
Most IT leaders have experience with the various committees that are part of a company’s Board of Directors structure. It’s common for IT leaders to have to report to a board audit committee on security or other issues, or to a board finance committee as a prelude to asking for a large IT investment.
Besides those two, many boards have several other committees, including ones for compensation, legal, nominating, governance, and sometimes even for enterprise risk management, which is usually more focused on financial risks than anything else. What most boards don’t have, though, is a committee that focuses on what many now believe to be the most impactful company function of all—technology.
That seems short sighted and odd at best, and something else, perhaps, at worst. In nearly all of the current research and surveys of business executives, including Novarica’s, technology is nearly universally identified as the driving force in the company, for better or worse. Most business executives seem to believe the future of their company—its product portfolio, market position, and overall profitability—depends on the company’s ability to effectively master and leverage the right technologies for their business. That begs the question of why more companies do not have standing, board-level technology committees to oversee nothing less than the future of the company.
Part of that answer might lie in the fact that old habits die hard, and traditionally that kind of board committee has just never existed. It might also be the case that many companies have IT executive or steering committees already established. Those are generally comprised of the CIO and/or other IT leaders, business function executives, and maybe a sitting board member.
However, neither of these are enough of a reason for companies and their boards to ignore establishing this critical function at the highest management and oversight level of the company. In fact, companies who don’t strongly consider the establishment of a board technology committee may soon find themselves at a serious competitive disadvantage.
And why should this be so?
First, the technology investments that most companies consider and ultimately make, certainly rise to a level of materiality so that direct oversight is required. It also makes sense to have technology investments considered independently from the board’s finance committee, whose purview is the entire company, but whose membership often lacks the experience and perspective required for important technology investments.
Second, the potential for resource impacts across the entire company as a result of technology initiatives certainly rises to the level of materiality where direct and knowledgeable oversight is warranted. Consider the recent trend of core systems modernization occurring at most insurers over the past several years. Often the most under-considered part of these initiatives is the widespread impact they have on resources in almost all of the functional areas of a company. This causes, among other things, resource conflicts and tensions that often lead to diminished productivity and customer-facing impacts.
Third, most technology efforts are not about the technology ultimately, but are about the process impacts on the organization. Sticking with the core systems modernization example, new systems often replace decades’ worth of functional processes—and the cultural biases that have evolved with them—and the degree to which employees and customers are willing and able to adapt to the new processes has a major impact on a company in the short and long term. That is the definition of materiality.
Fourth, nearly all technology initiatives nowadays are somehow related to market competitiveness. Whether the technology enables mobility to improve customer acquisition and retention, or improves processes for efficiency, or allows for the rapid development and implementation of new products, or enabling the levers required to turn information into action, it has an impact on the company’s ability to compete in their marketplace. Once again, that’s materiality.
For all of these reasons and more, it is actually past time for companies to implement a technology-focused board committee. The fact that it exists at very few companies in the industry only means the industry, survey responses to the contrary, has not really made the executive management connection to the materiality and impact of technology, as other industries clearly have. That sounds like an opportunity for some insurers to get a jump on the competition.
Frank Petersmark is associate vice president of research and consulting for Novarica.
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