Technology on Board agenda
How should the board strengthen its role related to technology governance and decision-making?
The board’s role constantly grows, and now technology falls firmly under their remit. In this article, our Technology Strategy and Transformation Partner, Markku Viitanen, will discuss the above topic with Jo Iwasaki, the Corporate Governance Advisory Lead in Finland.
Boards need to understand how technology and data give a competitive edge to a company and increase its value, as well as understanding the associated risks. Importantly, boards need to upkeep their ability to challenge the top management.
This is a big change in a relatively short time. Based on our studies, only about 10–15 years ago, technology primarily mostly concerned the IT departments of companies. As far as boards were concerned, the matter was only brought to their attention if significant investments or risks were identified," clarifies Markku Viitanen.
Today, technology is a vital part of all business. Businesses need to innovate by applying new technologies, such as cloud, blockchains, artificial intelligence and machine learning technologies. Different areas of technology, IT and operational technology (OT), are converging, opening new opportunities for digitalisation. The board and management need to be aware how technology provides a competitive advantage and value to business, for example how technology is embedded in products and services, or how it enables core business processes and operations to become more efficient. This need creates a technology challenge for the board. The board needs to understand how one’s organisation is using technology at the moment and what are the related risks and limitations but also look beyond, towards the uncertainties of the future.
Key technology challenges for board members
A rapid pace of change is a challenge. Only ten years ago, organisations were able to make long-term technology roadmaps. Today, planning cycles are much shorter.
"It depends of course on the technology area. In the operational technology area, investment cycles are tens of years long. At the other extreme (e.g. in digital areas), life cycles can be very short. We use more and more technology in an as-a-service mode. The way we adopt to technology in our business is often ready-made solutions in order to avoid complex and costly customisations and technology, and to avoid vendor locks. Then, it is much easier to replace old technologies with the new ones," says Viitanen.
He continues: “I would emphasise the impact of uncertainty. In terms of technology, nowadays we need to invest in technologies, such as new platforms, even though we may not fully know how they will evolve and how we will apply them. Making investment decisions is more complex, traditional business case calculations do not necessarily work anymore and uncertainty is more pronounced.”
Business environments are more complex. Businesses can neither operate independently nor be in silos. We are now part of ecosystems and networks, and this brings new challenges to technologies and also makes them more complex. It’s not only what technologies we are using or how we are using them. It is also a question of who can set the rules and have the authority to make decisions.
Technology can be a topic on its own, but boards need to consider its implications for everything else on their agenda. The board discussion is unlikely to be an abstract discussion on “What do we need to do with technology?” and is more likely to be a discussion on “Have we thought about technology in the context of almost everything – from talent acquisition to legal compliance?” This question helps the board to hold management accountable.
Expertise in technology – what level is good enough for a board member?
Not all board members have to be technical experts. However, the minimum level of understanding required of board members is that they are comfortable in challenging management by asking questions, ensuring that all the relevant aspects have been considered.
“For example, a board may be evaluating different strategic options. They need to understand what technology and data capabilities are needed in order to make the strategy succeed. Is it a question of improving core operations or building new digital channels for clients? Or should technology capabilities be improved in order to operate with ecosystem partners? And all this must be done while keeping potential technology risks in mind,” explains Viitanen.
For boards to ensure that they can oversee sophisticated technology-related discussions, they certainly need to have a good dialogue with technology leaders, such as the CIO, CDO or the CTO. Boards also need to drive a culture where it is acceptable to fail when innovating. There must also be the flexibility to adjust project portfolios, and if some projects go wrong, they need to be terminated and resources must be transferred to new projects.
“There are different models for these roles, depending on how companies have organised their technology. But no matter what the model is, there must be linkage with the board. Also, the CEO and CFOs are important catalysts as they influence what topics are covered in the board meetings, and they need to make sure that technology gets enough attention,” explains Viitanen.
The complexity of the digital environment requires a technologically fluent board
Every board member should have a degree of technological fluency in general and have a deeper understanding of the technology related to his or her expertise. A technical committee made up of technology experts is not always the answer.
“As the role of technology is increasing and companies are all dependent on technology, all board members should have technology skills . In some cases, there might be members who have been appointed because of their strong background in technology. But all members, those on audit committees in particular, have to understand the potential risks of IT in finance-related processes and the consolidation of financial information and other business information. Also, improved analytics and data can bring new dimensions and content into the discussion between the audit committee and the auditors,” explains Viitanen.
There is a global trend of setting up technology committees. It can support the board in its role of ensuring the organisation’s technology programmes are aligned with business strategy and targets. But the board can equally have an internal or a third-party advisor on technology. The important thing is to consider if the board has enough knowledge and information to understand both the complexities of the topic and what is material to the company. The management team should be asking themselves the same question.
“It is useful to gain an overview and dive deeply where relevant. We at Deloitte issue the annual Tech Trend report which can be helpful in obtaining an overview of technology trends and changes. We also receive requests to present these trends to the board. In such presentations we highlight what is relevant to the company, and there is always a lot of dialogue, often with a CIO or CTO present. Such a session will help the company identify what trends are important for them and help them to follow them up afterwards,” says Viitanen.