What does FedEx, Pfizer, Wachovia, 3Com, Mellon Fiscal, Shurgard Storage, Sempra Energy and Proctor & Gamble have in common? What board committee exists for merely 10% of publicly traded companies nevertheless generates 6. 5% greater returns for the people companies? What is the single most significant budget item after salaries and making equipment?
Technology decisions will outlive the tenure in the management team making those decisions. As you move the current fast pace of technological change signifies that corporate technology decisions are frequent along with far-reaching, the consequences of the decisions-both very good and bad-will stay with the firm for years. Usually technology decisions are made unilaterally from the Information Technology (IT) class, over which senior management chose to get no input or oversight. For the Board of an business to perform its duty for you to exercise business judgment over key judgements, the Board must have a procedure for reviewing and guiding technology judgements.
A recent example where this form of oversight would have helped was your Enterprise Resource Planning (ERP) mania in the mid-1990’s. At the time, many companies were investing tens of sums of money (and sometimes hundreds of thousands and thousands) on ERP systems from SAP along with Oracle. Often these purchases were rationalized by executives in Finance, HR, or Operations strongly advocating their purchase in order of keeping up with their opponents, who were also installing such devices. CIO’s and line executives often would not give enough thought to the problem of learning to make a successful transition to these quite complex systems. Alignment of corporate means and management of organizational change produced by these new systems was unnoticed, often resulting in a crisis. Many immeasureable dollars were spent on systems that either ought not have been bought at all or were bought prior to client companies were prepared.
Certainly, no successful medium or large business might be run today without computers and it that makes them useful. Technology also represents one of several single largest capital and operating range item for business expenditures, outside involving labor and manufacturing equipment. For payday cash reasons, Board-level oversight of technology is appropriate at some level.
Can the Board of Directors carry on and leave these fundamental decisions solely to the present management team? Most large technology decisions are inherently risky (studies have shown less than 50 % deliver on promises), while poor decisions take years to get repaired or replaced. Over half in the technology investments are not returning anticipated gains operational performance; Boards are consequently becoming linked to technology decisions. It is surprising that only ten percent of the publicly traded corporations have IT Audit Committees in their boards. However, those companies enjoy a clear competitive advantage available as a compounded annual return 6. 5% in excess of their competitors.
Tectonic shifts are under way in how technology has supplied, which the Board needs to be aware of. IT industry consolidation seriously decreases strategic flexibility by undercutting management’s capacity to consider competitive options, and it creates potentially dangerous reliance on just one or two key suppliers.
The core asset of flourishing and lasting business is to be able to respond or even anticipate the result of outside forces. Technology has become a barrier to organizational agility for assorted reasons:
o Core legacy systems get
o IT infrastructure has failed to keep pace with changes in the industry
o Inflexible IT architecture results in a very high percentage of IT expenditure on maintenance of existing systems but not enough on new capabilities
o Short-run operational decisions infringe on business’s long lasting capability to remain competitive
Traditional Boards lack the skills to ask the right questions in order that technology is considered in the wording of regulatory requirements, risk and agility. For the reason that technology is a relatively new along with fast-growing profession. CEOs have been around since the start of time, and financial counselors have been evolving within the last few century. But technology is so brand-new, and its cost to deploy alterations dramatically, that the technology profession remains to be maturing. Technologists have worked on what sort of systems are designed and used to unravel problems facing the business. Recently, they recognized a need to understand and be involved in the business strategy. The business leader plus the financial leader neither have history not experience utilizing technology and making essential technology decisions. The Board needs to get involved with the executives making technological innovation decisions, just as the technology leader needs Board support and guidance to produce those decisions.
Recent regulatory mandates including Sarbanes-Oxley have changed the relationship in the business leader and financial leader. They therefore are asking for similar assurances through the technology leader. The business leader and financial leader have professional advisors to steer their decisions, such as lawyers, accountants along with investment bankers. The technologist has relied upon the vendor community or consultants who have their unique perspective, and who might not always be capable of provide recommendations in the best interests in the company. The IT Audit Committee in the Board can and should fill this specific gap.
What role should the IT Audit Committee play inside organization? The IT Audit function inside Board should contribute toward:
1. Taking technology strategy into alignment
with organization strategy.
2. Ensuring that technology decisions will be in the best interests of shareholders.
3. Fostering organizational development and alignment between sections.
4. Increasing the Board’s overall idea of technological issues and consequences within the corporation. This type of understanding cannot are derived from financial analysis alone.
5. Effective communication relating to the technologist and the Committee members.
The IT Audit Committee won’t require additional board members. Existing board members might be assigned the responsibility, and use consultants to help you them understand the issues sufficiently to deliver guidance to the technology leader. An assessment existing IT Audit Committee Charters shows this common characteristics:
1. Review, evaluate and make tips about technology-based
issues of importance to the organization.
o Appraise and critically review your financial, tactical and strategic benefits involving proposed major technology related projects along with technology architecture alternatives.
o Oversee along with critically review the progress of significant technology related projects and technology structure decisions.
2. Advise the senior technology management team with the firm
3. Monitor the quality and effectiveness involving technology systems and processes that correspond with or affect the firm’s internal command systems.
Fundamentally, the Board’s role within it Governance is to ensure alignment involving IT initiatives and business objectives, monitor actions taken with the technology steering committee, and validate that technology processes and practices are delivering value on the business. Strategic alignment between IT plus the business is fundamental to building a new technology architectural foundation that creates agile companies. Boards should be aware of engineering risk exposures, management’s assessment of those people risks, and mitigation strategies considered along with adopted.