No matter what sector companies are active in, the management team increasingly pays attention to technology and IT. KPMG says it is high time that the board of directors follows suit.
IT on the board's agenda? You bet, says Anthony Van de Ven, KPMG partner responsible for Technology Advisory. "And no, this isn't just about companies like Uber, Netflix, Spotify, and all those other companies that serve as examples of digitalization," that much is clear. "Even in 'normal' companies, there are a whole bunch of new technologies and innovations that are part of daily operations. IT is not just a support function anymore. It is an essential component of an organization's success. That is why it deserves to be on the board's agenda."
KPMG, together with the Antwerp Management School, conducted a study that also showed the added value of involving the board in technology policy. "It is very clear that when the board of directors gives strategic attention to IT, the value of companies increases," says Paul Olieman, Director Technology Advisory for KPMG. "Investors tend to invest in a company where the board of directors follows up on large digital transformation projects by monitoring the key figures."
The board must, of course, avoid interfering with the operational side of those projects. It is crucial that the board of directors keeps an eye on what its company does, as well as looks at what typical for its particular sector, in order to direct appropriate and informed questions to the management. Anthony Van de Ven: "Directors also need to have insight into the budget for IT and know what part of that is necessary to maintain existing processes and how much ultimately goes to strategic IT projects that help the business get ahead."
"Data is often called the 'new gold'," Paul Olieman adds, "but we often notice that directors have no idea of the value of the data their company has access to. Nonetheless, that should also be a point of consideration. Directors should ask how the data will be used and what analyses are being conducted."
Modern directors respect the value that technology and data represent, but must also recognize the risks that accompany technology. Anthony Van de Ven makes the point that the more comprehensive that digitalization is (think of the Internet of Things, robotics, data analytics, and artificial intelligence), the greater the risks, such as those related to cybersecurity. Data privacy is also an important point of consideration for the board, as is the GDPR, the new European data privacy regulation, which is a game changer for many companies.
KPMG experts differentiate among companies based on two criteria. The first: how dependent is the company on the reliability of IT? The second: how dependent is the company on technology innovation? The answers to these two questions determine the degree to which a board of directors should involve itself in IT.
"If a company is less dependent on IT, it is possible to turn over control to the audit committee or risk committee," says Paul Olieman. "But if IT is truly interwoven into everything the company does, it is better to create a separate IT oversight board or IT advisory board. They can then report directly to the board of directors."
At the same time, Anthony Van de Ven recognizes that sometimes it is not an unambiguous situation, "for example, when IT is purely supportive for one business unit but operationally crucial for another business unit. The board's direction of the various business units can depend on how important IT is for each business."
"You always have to use common sense," Paul Olieman summarizes. "There is no single best way for the board of directors to give attention to IT policy. It always requires a case by case approach."
Anthony Van de Ven and Paul Olieman notice that many directors are not yet ready to fully exercise their role on the IT front. "A boardroom traditionally focuses on the company's legal and financial concerns. That is also where the expertise of the board members lies," says Van de Ven. "You see that the board's understanding of technology is often inadequate, while the questions and challenges regarding digitalization, disruption and new technological innovations are of utmost importance. We should be able to expect that a director has the business insight into what technology could mean for the organization. There is a need for tech savvy directors."
By the way, it's not only the board members who need to get their knowledge up to speed. Management, in particular CIOs and technology leaders, also needs to couch the information they share with the board in less technical terms and put more emphasis on the added value for the business. "Ambitious CIOs and technology leaders understand that they must become more fluent in business language and must contextualize their technology choices within the company's global business strategy."
What can KPMG do for you? KPMG helps companies map out the progress of their IT policy. Specialists help develop an appropriate policy and rationalize the way investment decisions are made. KPMG, together with the Antwerp Management School, also provides training for directors in this area.