A few simple questions and requests from the board can make a dramatic difference in how a company leverages information technology to create a sustainable competitive advantage.
This series explores how the board of directors can help the company leverage technology to create a differentiated customer experience and sustainable competitive advantage. The board can set expectations that challenge management to take a more strategic view of technology.
Understanding Technology vs the Value of Technology
Early in my career, I worked with a CFO who asked the most insightful questions. When I eventually asked how he knew so much about technology, he admitted that he really didn’t understand any of it. But he did realize the potential financial impact of what the technology could do for the company.
That’s probably when I realized something that I’ve coached CEOs on for years – you don’t have to understand technology, but you better understand what technology can do for your business.
The same applies to the board of directors. They do not need to be technologists. They simply need to be savvy businesspeople that ask the right questions, or make the right requests, to draw the best from management, including the CIO.
We previously discussed the board’s responsibility for approving strategy and budget, and for maintaining good governance. So how does that translate to leveraging technology? I’ll answer in two ways.
First, we’ll discuss strategy and budget. As we wrote in a recent article, the board can simply ask how management will use technology to improve the customer experience and create a sustainable competitive advantage. They should set the expectation that, rather than having a disjointed strategy section in the strategic plan, each piece of the strategy should have technology embedded.
Some organizations will be planning a digital transformation, in which case technology will have an impact on virtually all parts of the company and their processes. Technology is the strategy and is reflected in product development, marketing, sales, supply chain, staffing, training, manufacturing, or product development, etc.
But, short of a digital transformation strategy, how does management embed technology across the strategic plan?
Strategy and Budget Questions
The board can challenge management to find ways to apply technology in the various business operations. Some questions may include:
How can we apply predictive analytics to target prospects while increasing sales and reducing costs?
How does our web site compare with the competition and is it delivering a differentiated customer experience?
Are our systems integrated with our supply chain and is there an opportunity to improve speed to market and reduce costs?
The board may not understand predictive analytics or be familiar with the web site or have any idea of how internal systems are architected. None of that matters. Instead, they are asking insightful questions to challenge management to think differently.
I’ve had directors ask these kinds of questions over the years. In many cases, especially when I was brought in for IT turnarounds, I had to explain the weaknesses in our technology and advise that some of their requests were simply infeasible – at the time. But it would set us on a course to aspire to these goals, enabling us to prioritize certain technology initiatives that would create the foundation for some of these more strategic initiatives.
Remember, the board takes a long view. They are generally looking out one to three years, or more. They realize that major improvements don’t happen overnight. They want to see that our strategy and budget support the long-term goals.
Second, let’s address governance. Everyone reading this is likely familiar with the mountains of financial reports and analyses that the company produces. And a substantial chunk of the annual report is income statements, balance sheets, cash flows, equity reports, charts, and graphs.
I find it interesting that these reports are like driving your car looking in the rearview mirror. They are strictly historical and we have disclaimers telling the reader that past results are not predictors of future performance.
So, where is the monitoring of technology – that which may well predict the future, or at least be the roadmap to the future state?
I’ve written quite a bit about, and speak on the topic of, measuring the value contributed by IT. I propose that certain IT metrics should be monitored by the board with an expectation of continuous improvement. These metrics have a direct impact on the bottom line and enable top line growth, while reducing risk.
Here is what the board should be asking about and monitoring.
Let’s start with cyber resilience. What precautions is management taking to prevent, or recover quickly from, a ransomware attack? Are we protected from hacking and phishing? Are systems and data properly backed up and how long would it take to restore a backup in the event of a disaster? Yes, these items are covered in the annual audit of public companies. That means they get attention once a year. How many CIOs just snickered a little?
What if the board asked for the financial impact of any of these events and requested a quarterly update? That might force IT to monitor and test regularly. It may drive management to take a fresh look at the business continuity plan.
How about IT customer service – both internal and external? The board should expect customer satisfaction to be measured regularly and be continuously improving. But they should also compare customer satisfaction against total cost of ownership, which should be reducing over time. Two simple metrics that tell a powerful story about how we treat our customers and the impact on profitability.
The board should also expect an update on software development and maintenance. What percent of projects completed on time, within scope, and on budget? What is our cost per story point or function point (these are measures of work effort)? What is the breakdown of error detection across the software lifecycle? And how reliable is the software we put into production?
The board should expect management track the return on investment (ROI) on major technology initiatives. That means the executive sponsor must commit to the impact on revenue and profits, and IT must track the costs, and the two need to ensure that projects deliver on their promises. That doesn’t seem like a lot to ask but most companies that I’ve worked with lack this level of visibility.
Finally, the board needs to know how well IT adheres to their operating and capital budgets.
You may be thinking these are too “in the weeds” for the board and would consume too much time in a board meeting. Actually, these are all leading indicators. They are predictors of future financial performance and risk management. And they should take no more than 10 to 15 minutes to report, especially with graphs or charts that show what direction each of these is trending.
The board must challenge management to embed technology in the company strategy and demonstrate how technology will improve shareholder value. And the board needs to monitor IT performance to provide a level of confidence in management’s ability to deliver on the strategy.
A quick update of key IT metrics in the quarterly board meeting paints a clear picture of how technology is utilized and how well management is executing. It tells us if technology is a strategic weapon or a risk. And it enables the board to make informed decisions, supporting or challenging the strategy and budget based on management’s ability to execute.
Coming up are How the CIO Should Prepare for Board Meetings and we will finish with some guidance for the CIO on the evolving relationship with the board.
These articles are purposefully brief and aim to provide high level guidance and trigger ideas. As always, if you want more information or don’t want to wait for all the upcoming articles, email Emily Ford at Emily@WolffStrategy.com and she’ll set up a complimentary 30-minute consultation with me.
Larry Wolff is the founder & CEO of Wolff Strategy Partners, a boutique consulting firm specializing in Enterprise Strategy Management, Digital Transformation, IT Leadership, and Executive Coaching. Larry has served as CEO, COO, CIO, Chief Digital Officer, and management consultant for public, private, international, and emerging growth companies. His specialties include corporate and IT strategic planning, technology led business transformation, business and IT turnarounds, merger integration and large-scale project rescues. His methodologies span industries and scale to companies of all sizes.
Feature image by Andiry Popov from 123rf.com.
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