Do Boards Need a Technology Audit Committee?

What does FedEx, Pfizer, Wachovia, 3Com, Mellon Monetary, Shurgard Storage, Sempra Vitality and Proctor & Gamble have in widespread? What board committee exists for less than 10% of publicly traded firms however generates 6.5% better returns for these firms? What’s the single largest funds merchandise after salaries and manufacturing tools?

Expertise choices will outlive the tenure of the administration staff making these choices. Whereas the present quick tempo of technological change signifies that company know-how choices are frequent and far-reaching, the implications of the decisions-both good and bad-will stick with the agency for a very long time. Normally know-how choices are made unilaterally inside the Info Expertise (IT) group, over which senior administration selected to don’t have any enter or oversight. For the Board of a enterprise to carry out its obligation to train enterprise judgment over key choices, the Board will need to have a mechanism for reviewing and guiding know-how choices.

A latest instance the place this form of oversight would have helped was the Enterprise Useful resource Planning (ERP) mania of the mid-1990’s. On the time, many firms have been investing tens of hundreds of thousands of {dollars} (and typically tons of of hundreds of thousands) on ERP programs from SAP and Oracle. Usually these purchases have been justified by executives in Finance, HR, or Operations strongly advocating their buy as a approach of maintaining with their opponents, who have been additionally putting in such programs. CIO’s and line executives typically didn’t give sufficient thought to the issue of easy methods to make a profitable transition to those very complicated programs. Alignment of company assets and administration of organizational change introduced by these new programs was missed, typically leading to a disaster. Many billions of {dollars} have been spent on programs that both shouldn’t have been purchased in any respect or have been purchased earlier than the consumer firms have been ready.

Actually, no profitable medium or giant enterprise will be run as we speak with out computer systems and the software program that makes them helpful. Expertise additionally represents one of many single largest capital and working line merchandise for enterprise expenditures, outdoors of labor and manufacturing tools. For each of those causes, Board-level oversight of know-how is acceptable at some degree.

Can the Board of Administrators proceed to depart these basic choices solely to the present administration staff? Most giant know-how choices are inherently dangerous (research have proven lower than half ship on guarantees), whereas poor choices take years to be repaired or changed. Over half of the know-how investments usually are not returning anticipated positive aspects in enterprise efficiency; Boards are consequently turning into concerned in know-how choices. It’s stunning that solely ten p.c of the publicly traded companies have IT Audit Committees as a part of their boards. Nonetheless, these firms get pleasure from a transparent aggressive benefit within the type of a compounded annual return 6.5% better than their opponents.

Tectonic shifts are beneath approach in how know-how is being provided, which the Board wants to know. IT business consolidation critically decreases strategic flexibility by undercutting administration’s skill to contemplate aggressive choices, and it creates doubtlessly harmful reliance on only some key suppliers.

The core asset of flourishing and lasting enterprise is the flexibility to reply and even anticipate the impression of out of doors forces. Expertise has turn out to be a barrier to organizational agility for a variety of causes:

o Core legacy programs have calcified
o IT infrastructure has did not maintain tempo with adjustments within the enterprise
o Rigid IT structure leads to a excessive proportion of IT expenditure on upkeep of current programs and never sufficient on new capabilities
o Quick time period operational choices infringe on enterprise’s long run functionality to stay aggressive

Conventional Boards lack the abilities to ask the precise questions to make sure that know-how is taken into account within the context of regulatory necessities, danger and agility. It is because know-how is a comparatively new and fast-growing career. CEOs have been round for the reason that starting of time, and monetary counselors have been evolving over the previous century. However know-how is so new, and its value to deploy adjustments dramatically, that the know-how career continues to be maturing. Technologists have labored on how the programs are designed and used to resolve issues dealing with the enterprise. Not too long ago, they acknowledged a necessity to know and be concerned within the enterprise technique. The enterprise chief and the monetary chief neither have historical past nor expertise using know-how and making key know-how choices.

Nick

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