Because technology is a crucial part of business strategy, boards and CIOs may need to elevate their engagement and collaboration with each other. How can CIOs lead and guide the conversation about technology's impact on business trajectory?
TECHNOLOGY is a strategic imperative in nearly every organization, regardless of industry, sector, or geography. Few companies are immune to the influence of technology-driven disruption, innovation, or value creation. Business strategy is now largely technology strategy, and high-performing CIOs are both leading technology deployments and helping the business develop and implement technology-enabled business strategies. “There isn’t a single strategy in any business that isn’t enabled by technology,” affirms Sheila Jordan, SVP and CIO of Symantec. “Technology is the common denominator in every single key strategic imperative in every company.”1
Many board members agree. “As the pace of change quickens, technology now leads and influences business strategy in almost all companies and industries,” says Scott Bonham, board director at Magna, Scotiabank, and Loblaw Companies Limited. “It is imperative for board members to understand these disruptive changes as they relate to technology, guide the organization to go beyond traditional IT conversations, and leverage technology to grow the business.2
Yet CIOs—ostensibly the stewards of the organization’s technology agenda—infrequently appear in the boardroom, and when they do, they often find it difficult to engage directors in a strategic dialogue. This CIO Insider aims to help CIOs be more effective in positioning technology on the board’s agenda, providing education and awareness for the board, and communicating strategic concerns. Based on multiple interviews with both CIOs and board members, it presents CIOs with recommendations for engaging with the board on preserving and growing shareholder value.
A 2017 Deloitte study found that high-performing S&P 500 companies were more likely (31 percent) to have a tech-savvy board director than other companies (17 percent). The study also found that less than 10 percent of S&P 500 companies had a technology subcommittee and less than 5 percent had appointed a technologist to newly opened board seats.3
Over time, more boards are seeking to appoint directors with technology acumen—but open board seats are few and far between. There are many reasons for this, including board member age, tenure, and board refreshment. Among S&P 500 companies, the average age of an independent director is 63,4 and 44 percent of boards with a mandatory retirement age have set that age at 75 or older.5
Historically, board interactions with technology topics often focused on operational performance or cyber risk. The Deloitte study found that 48 percent of board technology conversations centered on cyber risk and privacy topics, while less than a third (32 percent) were concerned with technology-enabled digital transformation.6
Interactions between management and boards have historically been episodic, typically occurring only at quarterly board meetings. The rapidly changing technology and business landscape suggests perhaps that boards and technology leaders should stay connected and engaged outside of board meetings; yet, our interviews showed that when it comes to technology, many boards emphasize “protecting and preserving” at the expense of topics related to technology-enabled business growth and expansion, such as developing new capabilities, business models, and revenue streams.
Deloitte’s 2018 global CIO survey found that technology investments reflect this imbalance: In the average organization, only 18 percent of the technology budget is spent on developing new business capabilities; the remainder is spent on business operations and incremental business change.7“I don’t want to dismiss cyber, because of course it’s critical. But if you were to ask me what keeps me up at night it’s not cyber—it’s disruptive technologies,” says Mike Toelle, Nationwide board director. “Any company in any industry could be made obsolete very quickly by a small group of people with a computer and a phone.”8
CIOs can initiate an ongoing technology awareness effort that, over time, could help them make strides in communicating with and educating directors. Deloitte’s global CIO survey found that an increase in interactions between CIOs and the board can lead to a more balanced mix of conversations about both risk and strategic opportunities9 (see figure 1).
Another important topic for board discussions is the allocation of technology investments. It can be tempting to continue investing in areas with a proven return; CIOs can help boards resist complacency by having an ongoing dialogue on the allocation of technology investments, the appropriate balance of investments in preserving and growing the business, and the value of sustained technology-enabled business innovation capability that can shape the organization’s future.
Metrics presented in dashboard or scorecard format can be invaluable. To provide clear and consistent messaging and show progress in board conversations, David Markwell, SVP of information technology at Canadian food retailer Loblaw Companies Limited, says his team created a framework for a balanced scorecard across certain key indicators. “We aligned the scorecard with tolerance levels of enterprise risk, which align to the board’s appetite for risk” he explains. “We include the scorecard in the pre-read, and in the meeting, we talk about anything that’s out of tolerance around our risk indicators.”10
Management teams can engage in ongoing strategic technology conversations via three primary avenues: tech-fluent board members, board subcommittees, and management-level technology committees.
Tech-fluent board members. Based on their experience, age, tenure, and other factors, directors typically have varying levels of tech fluency, defined as the ability to broadly understand and confidently discuss technology concepts.11
Like language fluency, the need for technology fluency will be different for each board member, depending on their roles. CIOs can aim to increase the overall tech fluency of all board members and build trusted relationships with key directors. They can also orchestrate training and awareness based on the different needs of board members by providing succinct, high-level educational materials about key strategic technology issues and their impact on the business and industry. In interviews, many directors said they do not know where to start and that it can be difficult to find educational resources when they need them (see sidebar, “Sparking ongoing conversations about tech trends”).
For the last decade, Deloitte’s annual Tech Trends report15 has identified the trends that are likely to disrupt businesses during the next 18–24 months (see figure 2). Using such research as a basis for discussing business implications can lead to robust conversations between boards and technology leaders.
CIOs can use interactions with directors to spark conversations on how technology trends can enhance business value and reduce costs, leading to a broader dialogue about how these emerging innovations are being used in different industries. CIOs can also raise directors’ awareness of technology risks and challenges, help them assess their organizations’ readiness for these technologies, and educate them on how to provide effective oversight of technology adoption.
For example, CIOs can leverage Tech Trends to help engage boards on how the convergence of new technologies and foundational technology forces are enabling organizations to drive disruption while maintaining operational integrity. The report can also help them make a case to the board for developing a systematic approach for identifying and harnessing digital transformation opportunities to replace the traditional model of anchoring digital transformation to a specific technology advancement.
Many directors rely on the judgment of their more tech-fluent colleagues who may serve as the board’s resident technology experts. CIOs can cultivate these board members to be technology advocates. “CIOs need an advocate for technology sitting on the board who can continue to emphasize that technology strategy is not distinct from business strategy,” notes Owen Williams, insurance CIO at Everest Reinsurance. “And directors need technology leaders to provide elevator pitches that very succinctly describe the value that technology investment will deliver to the business.”12
Conventional wisdom would suggest that younger directors are more tech fluent. However, experience or age is not a proxy for being tech savvy, says Jessica Blume, board director at Centene Corporation and Publix Super Markets. “Many older board members bring relevant experiences in technology to the boardroom through past leadership roles as well as current board positions,” she says. “They are eager to accelerate their understanding of new technology trends and apply insights based on past experiences to help CIOs navigate opportunities and risks.”
Board committee or subcommittee. Boards tend to have a high level of awareness of cybersecurity and cyber risk issues specific to their companies: Cybersecurity is the top risk that boards focus on and the No. 1 topic of education for audit committees.13 As a result, many companies delegate all or part of technology oversight to either the audit or risk committee. Some are forming technology committees or subcommittees, but this is still rare.14 “Not every company needs to have a tech subcommittee,” says Nationwide director Toelle. “But there does need to be some venue or mechanism within the board for a deeper conversation about technology.”
Regardless of board structure, technology discussions should likely be a formal charter for one of the board’s committees. It is important to have in-depth discussions on topics that have to do with protection and preservation of assets with one or more committees (such as the audit or risk committee) but consider lobbying for opportunity- and growth-related technology discussions to be held with the full board.
Vetting technology topics in committees can make presentations to the full board flow more smoothly. When members of the full board ask questions, committee members can give informed answers in alignment with the CIO and management.
Management-level technology committee. To help manage the supply and demand of IT resources, one CIO holds several review sessions with key members of the management team. A management-level technology committee can help business leaders align on strategy, priorities, and investments before interacting with the board or its subcommittees.
It is important that discussions in such management structures not become mired in operational details. Management-level technology committees should not stifle direct engagement between the board and technology leaders; rather, they should bridge any gaps between technology leadership and the board and help align technology and business strategy.
These three avenues are not mutually exclusive. Many companies employ all three to better engage the board on technology topics. These approaches do not lessen the need for independent advice. Because technology is changing so fast, many boards and management teams rely on periodic advice from independent advisors who can help boards assess technology-related factors that affect company performance and educate them on technology topics, strategies, and risks.
Interactions between management and boards can be categorized as either defensive—focused on protecting, preserving, and enhancing corporate assets—or offensive—focused on ways to increase shareholder value through business growth and expansion, such as developing new capabilities, business models, and revenue streams. However, interviews revealed that boardroom discussions often are not balanced across both safeguarding the company and using technology to achieve growth.
“Boards expect CIOs to do more than provide operational excellence in managing risk and security,” says Peggy Foran, chief governance officer, SVP, and corporate secretary of Prudential Financial Inc. “Boards tend to look at technology from the perspective of risks rather than opportunity, but they also expect CIOs to focus on innovation, products, solutions, and trends that transform businesses. If I were CIO, I would make it my mission to play not only defense but offense.”16
CIOs can support board oversight of technology issues and investments by balancing engagement across both the protection and growth aspects of technology. To cover the broad scope of technology and board engagement, technology leaders and boards can interact across three major domains: performance, risk, and strategy (see figure 3).
Boards can benefit from understanding how technology can improve or detract from business performance. CIOs can help by gaining consensus and tracking and reporting key performance metrics. Key performance dimensions are:
Boards should keep up to speed on how to manage multiple risks, including new disruptive technologies, cyber incidents, ecosystem partners in the extended business enterprise, brand or reputation risk, and unhealthy organizational cultures.23 “Risk management conversations are sometimes happening in a fragmented way because various committees and subcommittees will tend to focus on specific pieces or risk and at different levels of detail or using different risk models,” says Vivek Khindria, VP of cybersecurity and technology risk at Loblaw Companies. “Progressive boards will encourage and engage in holistic risk conversations that include risks, risk trends, risk appetites, and mitigation strategies with the full board.”24
Key risk dimensions are:
Technology leaders can help board members guide business strategy by helping them understand technology’s strategic potential. One board director told us that members are often invited to full board meetings one or two hours early to attend education sessions on strategic topics such as use models for emerging technologies. These sessions are sometimes conducted by in-house technology experts, but often the board brings in outside consultants to lead the discussions.
Key strategy dimensions are:
Rapidly changing business and technology environments require boards and CIOs to evolve their engagement with each other. CIOs can support boards’ oversight of technology issues and investments by engaging them in continuous dialogue about using technology to address the key board mandates of protecting the business and driving shareholder value.
Through “the art of ongoing engagement,” CIOs can help boards elevate their technology expertise and partner with them to provide more informed oversight of technology-driven strategy and initiatives in areas related to performance, risk, and strategy. Here are some specific suggestions compiled from our interviews.
In many companies, technology leaders and board members have rarely had ongoing conversations about key technology dimensions, metrics, or thresholds or discussed the target allocation of technology investments in defensive vs. offensive areas. The leaders we interviewed suggest it is time to start. A CIO’s best ally in this effort can be an open mind and a willingness to be inclusive of all viewpoints. “CIOs can help by not being too protective and controlling of the technology domain, which could allow bias to taint or influence decision-making,” says one board member. “It’s better to think about tech in a more inclusive way. No one has a monopoly on good ideas, and board members have a lot of valuable expertise and insights they can bring to the mix.”29
CIOs lead unique and complex lives—operating at the intersection of business and IT to deliver value to their organizations. To help CIOs manage these challenges and issues, Deloitte has created the CIO Program. The program provides distinctive offerings to support the CIO career life cycle through leadership development programs, immersive lab experiences, insights on provocative topics, and career transition support to complement the technology services and solutions we provide to our clients.