Saturday, June 22, 2024

Taking It To ‘The Board’

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I recently completed some research on the role that Boards of Directors play in technology governance. I posted an online survey to determine what the state of the practice actually was.

The results were pretty amazing -– to say the least. More than 50 senior technology executives responded to the survey. The findings benchmark the state of the practice -– and suggest how companies can improve business technology governance.

Boards of Directors are typically organized around committees with specific responsibilities, but Technology Committees are relatively rare.

Nearly all of the companies that do have Technology Committees on their Boards of Directors are technology companies. For example, HP, Cisco, Sun and Microsoft have Technology Committees just like they have Audit, Compensation and M&A Committees.

The difference is that technology company Technology Committees focus on corporate technology strategy -– which new products to develop and market -– and not on the internal use of computing and communications technology.

Put another way, these committees would not look at the desirability or risk of installing and enterprise resource planning application -– but they would look at investing in a new search engine to compete with Google.

The analysis of the survey data revealed all sorts of patterns and insights:

  • Responses to the question — “What governance structures does your firm utilize for technology?” -– indicated that the vast majority of respondents use Executive Review Boards (72%) or Project Management Offices (62%) to govern technology. A very small percentage use outside advisory boards (6%).

  • The next question –- “How would you characterize technology governance at your firm?” -– revealed an amazing response: More than 70% of respondents believe their technology governance is “tight” (27% think their governance is “loose”).

  • The next question –- “What role does your firm’s Board of Directors play in the governance of technology?” -– yielded some responses that in many respects define the state of the practice of board governance. Only 19% of the respondents stated that their Boards of Directors were routinely informed about the state of technology at their companies. 37% of their companies boards are informed about major projects and 29% are only informed about “special” projects.

  • The next question –- “Has recruitment of directors for your firm’s Board been influenced in any way by a desire for technology experience?” -– suggested that the overwhelming number of companies (63%) in our survey do not regard technology experience as a prerequisite in any way to board membership. Only 8% of the respondents indicated that their companies prefer board members with technology experience.

  • The next question –- “Is there a Technology Committee or Subcommittee of the Board?” -– says it all: Seventy-five percent of the respondents answered “no.” Twenty percent of the respondents answered “yes.”

    But the correlation of the 20% with the vertical industries represented in the survey indicated that companies that create, sell and support technology are the ones that have technology subcommittees of their boards.

  • The next question –- “How often does the CIO, or another technology executive, present to the Board of Directors?” -– suggests that 20% of the companies invite their CIOs into the board room routinely, but that 26% rarely do. Twenty-six percent sometimes do and 17% do so often.

    These results dovetail with the findings regarding the board’s oversight of major and special technology projects, but suggest that nearly 80% of board meetings are not interrupted by technology discussions.

  • “Does the CIO, or another technology executive, communicate to the Board about technology matters between Board meetings?” is a question that exposes the depth of technology involvement the board has with technology executives and technology initiatives.

    The data suggested that between-meeting-communication about technology matters is very infrequent. Only 14% communicate between meetings and 51% rarely or never communicate between meetings. 10% often communicate and 25% sometimes do.

  • The next question asks “Do technology vendors present to the Board?” The data here is almost violent: More than 90% answered “rarely” or “no.”

    The data indicates that the preferred mechanisms for governing technology are Executive Review Boards and Project Management offices. Relatively few companies have Technology Committees of their Boards of Directors.

    We also know that there are several Fortune 1000 companies that have established Technology Committees of their Boards and that technology companies have do not focus on internal technology issues, challenges or opportunities.

    Given the data -– and in some cases in spite of the data -– there are several recommendations I’d like to make:

  • If you spend more than 5% (of gross revenue) on technology then you should consider a Technology Committee of the Board of Directors because technology is consuming significant resources and is obviously intertwined with corporate strategy …

  • If there are significant technology investments planned in the near-term – and the likelihood of continued significant investment is high -– then a Technology Committee should be established to track these initiatives …

  • If technology will become an integral part of your overall business strategy, then a Technology Committee should be formed …

  • If there are growing digital security, compliance, disaster recovery and capital budgeting risks then a Technology Committee should be formed …

  • If your company’s view of technology is strictly operational and tactical -– and not at all strategic -– and technology costs are below 5% of gross revenue -– then there’s no need for board level oversight of business technology …

    The prescriptive literature suggests that it’s time for boards to assume more meaningful oversight of technology investments and strategies. The descriptive literature suggests that there’s relatively little board involvement in technology planning or oversight. The survey data that I collected supports the descriptive literature: there is relatively little board involvement in technology planning or oversight.

    This is a pivotal time in the evolution of technology governance. Technology is simultaneously becoming commoditized and strategic. The cost keeps rising as well, with many companies now spending 5% or more of their annual gross revenue on technology.

    While the majority of companies still use Technology Review Boards and Project Management Offices to govern technology (that govern well below Boards of Directors), companies whose technology budgets are growing and whose perception of technology is more strategic than operational should consider moving technology up the governance hierarchy to the board level.

    What do you think? Should Boards of Directors get involved with technology -– or be kept at arms length (as they have for decades)?

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