IT is an essential function of every business today but it is still lacking as a main strategic priority on boards.
Technology as a topic for the board of directors
In 2003 Nicholas Carr wrote that “IT doesn’t matter” and encouraged companies to treat IT as a commodity, to outsource it and consider it a pure cost factor with zero strategic value and irrelevant to innovation.
A lot has changed since and over the past decade, the digitalisation wave made most companies realise that Information Technology is far more than just a commodity or a simple business support tool. IT has long since become a key strategic asset that is defining the future of every business and that drives a large part of all innovations. Technology – and IT in particular – has become one of the core strategic components of literally every business.
Now that IT is a key strategic factor, it might be expected that this would also be reflected in the composition of the boards of directors of companies. However, we still see only very few companies having elevated IT and digital to a topic worth establishing and discussing in depth at the board of director level, despite its strategic nature. Not many of the larger companies – except perhaps for technology companies – have appointed non-exec directors to their boards who can truly contribute sound knowledge and experience in IT and digitalisation to the company’s top-level strategic body.
According to Constellation Research, a leading Silicon Valley tech research and advisory firm, “about only 11% of the Fortune 500 have experienced tech experts on their boards” in 2019.
As technology defines how products and services are shaped and composed, produced and delivered to the market, how companies interact with their customers, suppliers and partners and the way they collaborate internally, companies who want to be successful in the networked economy will need to have people on their boards of directors that are experienced in IT, understand how digitalisation can change their business models, products and services and the way their company can operate efficiently in the digital age. These developments call for non-exec directors who have gained personal hands-on experience in driving the digital agenda and its impact on the culture, processes, and the organisational structure of established companies.
A study conducted by MIT Sloan Management Review in early 2019 shows that board members who understand the impact of emerging technologies on business success are helping companies outperform competitors. Furthermore, it states that “being a digitally savvy director is often a consequence of time spent in a high-clock-speed industry where business models change quickly, such as software or telecom, or having experience in an executive role with a strong technology component.”
Looking at the composition of boards of directors of most established companies, still predominantly present are sales, financial and legal experts and those with extensive experience in the traditional core business of the company; in other words, people who know how the business was conducted successfully in the past.
This needs to change if these companies want to ensure they remain relevant and competitive in the future. By failing to take advantage of IT as a strategic asset, to digitalise their business processes and products and to exploit new business models driven by technology, these companies run the risk of becoming marginalised. “Digital Darwinism is unkind to those who wait,” said Ray Wang, founder and CEO of Constellation Research, and this is also underpinned by figures: for example, more than 50% of the companies that were part of the Fortune 500 list in the year 2000 have since disappeared, most of them because they failed to leverage technology in a strategic way to reinvent their businesses.
Having more IT/digitalisation experts as members of boards of directors will also tilt the strategic discussion towards technology in these boards. IT will become a key strategic topic. CIOs in turn will need to get more involved and get more board exposure, become more strategic in their thinking, learn how to communicate at the board level and how to contribute to the strategic agenda of their companies.
For many successful CIOs with experience in digital transformation, this may also open new career opportunities – such as assuming a role as non-exec director on a board. It would be a good development and learning exercise for each CIO to start acquiring the necessary strategy skills by joining a board as non-exec director.