maximizing performance through it strategy2007 SPECIAL SUPPLEMENT 2007 Board and Information Technology Strategies Report: MAXIMIZING PERFORMANCE THROUGH IT STRATEGY Four Big Ideas from the Corporate Board Member/Deloitte Touche Tohmatsu Survey on Information Technology in the Boardroom Big Idea #1 IT is a hot topic–and more and more directors are beginning to recognize its intrinsic value. Information technology is closely tied to every aspect of global “completely and actively involved” in IT (Figure 1), and so thus far, are doing little are built on information and information systems, and we believe having state-of- business today and plays a critical role in enabling management to to capitalize on its potential to enhance corporate performance. the-art technology that links internal and external processes, as well as builds attractive customer interfaces, is a must. Protecting sensitive and proprietary data is develop a strategic plan to achieve the company’s desired results. In trying to get more perspective on these numbers, we soon found it to be a essential. And, without compatible software, even the most cost-effective Indeed, the Corporate Board Member/Deloitte Touche Tohmatsu survey makes clear there’s a growing challenge to talk to board members directly. For example, some directors global solution could end up wasting a company’s financial and human resources. declined offers for one-on-one interviews, explaining they felt inadequate to discuss awareness among directors that what once was solely a back-office IT. In contrast with Money’s comment, other directors we spoke to held the So while directors are keenly aware of the transformation that’s taken place, much opinion that there are very few board members qualified to discuss the technical needs to be done to promote useful discussion in the boardroom. And directors concern now underpins almost all business considerations. Several directors who participated in the survey, such as the Hon. Arthur L. Money, FIGURE 1 How involved are boards in information technology strategy? former U.S. assistant secretary of defense and a director of Intelli-Check, SafeNet, 1% and Terremark Worldwide, are enthusiastic about this new paradigm. When we asked 14% 16% Money whether he believes regular discussions on IT strategy should be brought to the level of the board, he gave us a simple and straightforward answer: ? Completely and actively involved ? Somewhat involved 69% ? Not at all involved “Absolutely.” The numbers in the survey show a consensus on this opinion. ? Not sure Sixty-seven percent of boards represented in the survey said members of their board believe IT is an important, board-level issue; 62% said the CEO considers it a aspects of IT, and that it was an inappropriate topic for the board. themselves must take the first step. As James T. Brady, a director of Constellation board issue. A few variances are seen when this question is cross-tabulated by While these opinions may be in the minority, they highlight the striking Energy Group, McCormick & Co., NexCen Brands, and T. Rowe Price Group put it, “You don’t put an IT strategy in industry. Among respondents from the financial services industry, for example, where their very lifeblood depends on data accuracy, speed and security, 76% of challenge directors face today: IT permeates nearly every strategic corporate endeavor, yet, in many cases, boards are place and then leave it alone. I think it’s a constantly changing strategy based upon directors said their board approaches IT as a board-level issue, and 73% said their inadequately supported or ambivalent in approaching the topic. the needs and the opportunities that come down the pike.” CEO does so (see Appendix). The issues presented by IT are complex and go well beyond the ability to automate Over the next few years, director involvement with IT is likely to grow as more information becomes available and Yet despite this new awareness, there’s a hesitancy to jump in with both feet. Only 14% of directors surveyed said they are business systems, navigate e-mail, or design a Web interface. Companies today What Does It Mean to Be “IT Knowledgeable”? A little over half the directors surveyed said they had three or more IT-knowledgeable members. But what does opposed to knowing the detail of such things as IT back- office or front-office systems or manufacturing systems. it mean for a director to be IT knowledgeable? Does it mean the board member has a general working Eduardo Rodriguez, president, Strategic Communications Consulting Group; director, ONEOK knowledge of computers, or does it mean he or she is an IT specialist? How informed are directors today? It generally means having an understanding of how the information technology process in an organization or a We posed this question to a group of directors, and here is what they said: company is managed; knowing how the key components of the IT strategy, or the IT platform, provides for James T. Brady, managing director, Mid Atlantic Ballantrae International; director, Constellation Energy Group, McCormick & Co., NexCen Brands, and T. Rowe conducting the business; and making sure that the system for tracking and collecting information of all types, particularly with regard to financial data, has appropriate checks and balances and security provisions. Price Group If your question is, do we need to have people who are real nitty-gritty IT specialists, I do not believe that. It Susan Wang, director, Altera Corp., Avanex Corp., and Nektar Therapeutics conceivably could be helpful, but I think we have to have people who are business-conversant with IT, who have the [To be IT knowledgeable means] just to be appreciative of the capabilities and the pitfalls of the issues related ability to ask the right questions and can get comfortable that the control environment around IT is sufficient to to security and active controls. I think most [directors] understand that. But to be helpful in strategic discussions, deal with the many risks implicit in information technology, whether those be security or any of the other things you read about every day. especially where strong IT capability can be a differentiator, board members need to have somewhat better knowledge—to be able to appreciate the difference Kevin Daly, CEO, Maxxess Systems; director, Danka Business Systems PLC, and Iteris between shrink-wrapped packages versus sophisticated programs in development. They need to understand that To be knowledgeable in IT [at the board level] means to be in a position to make good judgments regarding IT there are many levels of competence in IT systems. I think board members who have been in senior management requirements, investments, and project expectations. It does not require detailed technical knowledge of the positions have a decent appreciation of that. specific technologies that are used [or] considered, but it does imply a reasonable comfort with the tradeoffs, ROI analyses, and change processes that arise. It helps to have “been there” in similar situations in a different How many members of your board do you consider to be IT knowledgeable? environment. 8% 26% 10% Anne Pol, director, UGI Corp. I would say it is somebody who has, from an operating point of view, been through putting in an Oracle or an ? One ? Two 56% ? Three or more SAP system companywide. I would say you would have to be significantly immersed in what IT systems are, how ? No one on the board is knowledgeable about IT much they cost, how hard they are to execute, etc., as Big Idea #2 Attention to IT strategy at the board level, and to measuring and monitoring the value of IT, correlates to improved business performance. What’s the number one factor that leads all companies to implement value their IT strategy as important in the areas of compliance and risk management. “We had a substantial part of the total effort involved in the business practice IT systems? Hands down—it’s performance. Higher performance is the holy grail of shareholders, We take this to mean that while IT is a tool used by many companies to capitalize change, so [we] weren’t dealing just with one part of the organization,” said Dietz. on strengths, those who are facing performance challenges recognize IT’s value as a lever for improvement. Dietz also told us that for this project, the audit and risk committee set up managers, and directors alike, and our survey makes clear there’s a checkpoint meetings to confirm that the project was progressing as anticipated. Whatever the initial goals or rationale, we believe one of the most important correlation between a company’s stated performance and how “There was a recognition within both top management and the board that having components for the eventual effectiveness of a major IT endeavor is having the board informed its board is about IT. that focus would [bring recognition to] the effort,” he said. Constellation Energy director James T. Brady described how this recently applied actively engaged in measuring and monitoring its progress. A great example is a recent project undertaken by Capital One Dr. James C. Castle, a director of ADC Telecommunications, VeriFone Holdings, to one of the boards he currently sits on. “At one of the companies, we went through Financial Corp. Director Ronald Dietz told us Capital One faced a major overhaul The PMI Group, and Southwest Water Co., agrees that the value of measuring and a major transition to SAP worldwide in the last several years, and that had a when it replaced its entire credit card process and customer information capability. With two previous attempts at the monitoring IT cannot be underestimated but the methods for doing so may change huge, positive impact on the ability of management to control and manage a overhaul, and a budget of around half a billion dollars, Capital One undertook a depending on how IT is used by the company. “I’m on one board which is in diverse global enterprise. Information is king these days, and IT can be a huge IT strategy that affected some 37 million customers. The transformation the information technology business, and it’s really crucial to monitor it,” Castle told tremendous positive in that regard; or, if it’s not up to snuff, it can be a real negative was far-reaching–creating both an opportunity for progress and the need to reevaluate the business systems involved us. “So it’s been monitored by operational results and also by the improvement that in terms of [accomplishing goals].” you can see and the attribution that you can get from the information technology When asked about their financial performance relative to their peers, 60% of our survey group said it is better than to be sure the new technology brought improvements rather than just automations of less-effective practices (see sidebar inset). itself for the results of the company. [Then] I’m on another board where the company that of their competitors. And while 56% of respondents as a whole said their companies FIGURE 2 do a good job of measuring and monitoring IT, that number was 61% among those High-performing companies are more likely to monitor IT value and keep directors apprised of IT expenditures. who said they outperform their peers. Not insignificantly, 62% of these high Directors who say their companies do a good job of measuring and monitoring IT performers said they receive appropriate justification for major IT expenditures 61% 56% at the beginning of each project, as well as periodic updates throughout the Directors who receive appropriate justification for major IT expenditures project–compared with 56% of respondents as a whole (see Figure 2). 62% 56% Interestingly, directors who noted their company’s financial performance was lower ? Directors from high-performing companies ? All directors surveyed A Director’s Perspective on IT Strategy and Outsourcing We Interviewed Ronald Dietz, chair of the audit and risk committee of Capital One Financial Corp., for his views responsible for the integrity of that operation, at least to the extent that [managers] are reporting results to us on managing IT strategy and outsourcing. that are, in fact, at a standard that we would report to ourselves in terms of financial numbers and so forth. “We have outsourced a large number of processing operations. Essential to that move was a comprehensive management process to establish standards, negotiate comprehensive contracts, and monitor performance. “There’s also the whole question of, is our data protected? Are our outsourcers, in fact, managing the integrity of their operations in an acceptable way? All activities, both outsourced and proprietary, needed to be knit together by comprehensive, appropriate Because we’re dependent on that in terms of our own customer data. information systems. Much of that is not an IT strategy per se, but involves managerial attention, some domiciled in the IT area. “Finally, you have the question of (in banking everything is a channel) what you might call “channel management.” For example, somebody comes in and uses an ATM machine, somebody comes in and works with the call “In fact, we just had a report on that activity at our audit meeting last week. There were some concerns there. If center, somebody sends you a check, somebody walks into an office. And if they’re all [company-owned], those you take a look at the total work force in many financial organizations today, a substantial portion of that work force is now in the hands of third-party suppliers. are disparate parts that you have to manage in order to pull the transaction activity together across that variety of channels, so to speak. So you can appreciate that that becomes even one step more complicated when you’re “So there are two major issues. One is, particularly under Sarbanes-Oxley and other mandates, we’ve got to be dealing with third parties.” is not involved in information technology per se. It just uses IT to run a more bidding process has been implemented, and understanding what assurances have efficient operation. That’s probably the least important. I mean, this company has been made with regard to contracts and timelines, to name a few, are legitimate to be current in information technology, and its systems have to be effective, but concerns for directors. Underlying it all, the board’s accountability to shareholders the strategy is not quite as important. Finally, I’m on another board where is paramount in its fiduciary duty. information technology is crucial, but not in an obvious way. Your information technology has to, in this case, allow your customers to do what they need to do. It has to be user-friendly and efficient. So you can monitor that by how well you’re doing against your competitors in securing new business, and also measure that, somewhat, by looking at results of the company in the areas where information technology is crucial.” Clearly, the board must be involved in an oversight role in many different capacities. Issues such as confirming that a risk assessment has taken place, asking tough questions about cost justifications, inquiring how a system compares to those of competitors, ensuring an ethical Big Idea #3 Directors lack adequate information on IT strategy. There’s information technology and then there is information about when it comes to IT strategy so that they can become “IT knowledgeable.” Many sufficient or useful as a tool in preparing for meeting discussions. In contrast, 62% information technology. And if you are going to talk about the former, boards are missing the cue they need to get more involved, according to the directors of directors who said their boards are completely and actively involved in IT we surveyed. This could help explain why they told us IT strategies at so many strategy reported that they receive sufficient IT information that fully you’re going to need plenty of the latter. Our survey shows that while prepares them. Moreover, there may be a link to financial performance: 47% of respondents think IT is important, they aren’t necessarily getting the companies are unable to fully support international growth opportunities (55%), competitive intelligence (47%), research respondents who said their companies are information they need to allow IT to maximize product value, increase FIGURE 3 market share, and improve the efficiency of their operations—all of which can greatly promote While many boards are receiving adequate information on IT, some aren't getting the right blend of quality and quantity when it comes to information that prepares them to discuss IT strategy during the board meeting. shareholder satisfaction. Boards that receive sufficient IT strategy information that fully prepares directors for IT strategy discussions during the board meeting. Consider this, for example: Only 43% of respondents get sufficient pre-meeting 43% information to prepare them for IT strategy discussions. Approximately one in five respondents receives plenty of Boards that receive IT strategy information that is useful, but doesn't prepare directors for boardroom discussions. 25% information, but say it isn’t particularly useful for board discussion. One-quarter reported the information they receive is useful but stops short of preparing them Boards that receive an overflow of IT strategy information that isn't always useful for directors' board meeting preparations. 18% for a boardroom discussion. Fifteen percent of respondents receive information that is both low in quality and quantity Boards that receive information that is both low in quality and quantity. (see Figure 3). 15% On the whole, the directors in our survey know IT is important and many understand and development (44%), risk assessment (33%), risk management (30%), corporate performing better than their peers financially and 41% that said they are its impact on all strategic areas, but many are operating with their hands tied behind governance (28%), customer satisfaction (27%), legal and compliance issues (26%), performing equal to their peers also told us they receive adequate information on IT their backs. Although nearly 70% of directors said their business and IT and employee productivity (26%) (see Figure 4). strategy to prepare them for discussions, compared with only 31% of respondents strategies are well aligned, some skepticism may be in order, given that the survey who felt their companies needed to improve financial performance. shows relatively few directors are currently getting information sufficient to make There’s a bit of circular logic to consider. The dearth of IT strategy information meaningful judgments about IT strategy. could explain why more boards aren’t involved in IT–46% of non-IT-involved It’s just common sense that before directors can make competent decisions on IT, they This finding should evoke a clarion call for all directors to demand quality information boards were also among those that did not receive IT strategy information that is need to have an understanding of the issues at hand. “Better information enables Directors’ Perspectives: Measuring the Value of IT We asked directors to explain their methods of measuring and monitoring strategic IT programs and results. Aubrey Harwell, chief manager, Neal & Harwell; director, Piedmont Natural Gas Co. “It is difficult to measure the value of IT until there is a system breakdown or a problem that occurs by virtue Kevin Daly, CEO, Maxxess Systems; director, Danka Business Systems PLC, and Iteris of some IT failure. I’m not sure there is a way to measure and monitor the value other than to have an “The value of IT (to the extent it is realized) is its impact on business performance metrics. Unless and until IT awareness, but if there is a breakdown, the damage can be significant.” impacts true business parameters, it is providing no strategic value. While IT investments cannot be isolated from other changes going on in the business environment, it is usually a valid assumption that major IT initiatives will (if they are successful) have meaningful The Hon. Arthur L. Money, director, Intelli-Check, SafeNet, and Terremark Worldwide “It’s a day-to-day, operational function of management these days. And I think boards need to insist upon that in impacts on at least some traditional business efficiency, effectiveness, control, or compliance metrics.” cases where management doesn’t see the value of it.” William A. Etherington, chair, Canadian Imperial Bank of Commerce; director, Celestica, and MDS Susan Wang, director, Altera Corp., Avanex Corp., and Nektar Therapeutics “We do regular reviews of capital projects that are mostly IT investments. Whenever we have had project misses “A company that puts all of its resources into its core business and uses IT as kind of a necessary part of (schedule and/or budget), we have revisited the process to review IT strategy and operations. Our current plan business, but does not want to spend an extra penny if it can help it, in some respects is penny-wise and pound- calls for annual IT strategy updates, regular project reviews—with ‘watch-list projects’ highlighted—and foolish, because it will end up with a lot of cobbled-up systems and processes that wind up costing it more.” connections to IT strategy included in regular strategy and operations reviews by the business unit leaders.” better decisions,” says Don Watt, director of Cott Corp. and CEO and chair of FIGURE 4 DW+Partners. Watt went on to say he has seen companies hit the rocks because they How IT fails to fully support, or supports, the following corporate areas: were unable to effectively implement IT strategies. Stories such as Watt’s bolster International growth opportunities 55% our belief that there is a need for more meaningful information to discuss IT 33% Competitive intelligence strategy as a key element that can help bring value to the corporation in all 47% 42% strategic areas. Research and development 44% 40% Risk assessment 33% 60% Risk management 30% 63% ? Fails to fully support this area ? Does a good job supporting this area Big Idea #4 When director involvement in IT heightens, understanding of its role in strategy deepens, and IT becomes more effective in supporting the business. On a list of top 10 hits for corporate results, information technology globalization, in particular, the data showed that companies are faced with financial services, health care, and technology/media/telecom industries, might be called the crossover star. We believe there’s hardly another enormous challenges as they strive to connect operations and communications on a worldwide scale (see sidebar inset). three-quarters or more of respondents rated IT as very important to compliance. More than three-quarters of directors in area that has had more impact on corporate success. In fact, IT is fast those industries also said it was very important for customer experience and While overall directors’ awareness of IT is a growing trend, the survey shows that becoming the competitive differentiator in every market. Providing high-quality products, retention. A whopping 83% of financial services directors rated it very important particular industries are more in tune than others with the importance of IT strategy for risk management (see Appendix). implementation. For companies in the maintaining optimal rates of efficiency, and producing a significant return to shareholders are formidable FIGURE 5 Directors said IT strategy and implementation is very important to the success of the following strategic issues at their companies: objectives—and today technology is not just a step, it is the ladder used Compliance to help achieve those objectives. 84% 69% Intuitively, it’s no surprise that, as a group, technology-savvy respondents placed more Positioning against competition 79% importance on IT strategy than did respondents from other companies. 50% Risk management Directors who characterized themselves as completely and actively involved in IT 57% 74% strategy were more likely to view IT as very important to other strategic activities, Organic growth strategy 73% such as compliance (84% compared with 69% of all respondents), positioning 49% against the competition (79% compared with 50%), risk management (74% Customer experience and retention 69% 66% compared with 57%), organic growth strategy (73% compared with 49%), Mergers and acquisitions customer experience and retention (69% compared with 66%), mergers and 61% 32% acquisitions (61% compared with 32%), globalization of operations (55% compared Globalization of operations 55% with 46%), and outsourcing operations (48% compared with 33%) (see Figure 5). 46% Outsourcing operations 48% A deeper dive into the data also shows that directors from companies with more 33% than $10 billion in revenue are even more inclined to place importance on IT as a ? Directors whose boards are completely and actively involved in IT ? All directors surveyed supporter of globalization. With A Director’s Perspective on IT Strategy and Globalization An Interview with Dr. James C. Castle, a director of ADC Telecommunications, VeriFone Holdings, The PMI Group, “I think the strategic thing about globalization is where you have different technologies, or different approaches and Southwest Water Co., on the role IT strategy plays in globalization. to the technologies, or where you’ve got embedded systems that are different than you have in the home “In order to globalize, you have to have integrated operations. Many companies approach globalization by system, wherever that’s located. Those are very important. You have to be sure you investigate that or you’ll find yourself in a situation where you can hardly buying a company overseas, and inevitably–it almost seems by design sometimes–the information technology function, operationally. [This is particularly acute] in the instance when you’re doing an acquisition, and having a systems don’t speak to each other. They were designed independently, and you can’t even close the books well. lot of the due diligence being slapped on the compatibility of the IT systems between you and the company you’re So it’s critical, if you’re going to globalize, to have compatible information technology systems. thinking of acquiring.” Environment is also a factor. Just as a polar bear won’t adapt easily to the African however, rated IT to be an important factor in the specific areas of compliance, savannah, the very nature and culture of a company’s business correlates to the customer retention, and risk management. importance it places on IT. Directors who said “IT is our business or product” were Overall, while the survey indicates directors at large are becoming more aware of how IT affects the implementation of all more likely to find IT important to every other strategic issue. Directors who said IT other corporate strategies, boards whose companies are already ingrained with a “provides my company’s competitive advantage” had similarly strong views about the importance of IT to all strategic areas. Those directors who viewed IT in technological culture more readily understand these connections and their potential benefits to the company. more of a supporting role, however, were inclined to rate IT’s importance less strongly (see Figure 6). It should be noted that even directors among the latter group, FIGURE 6 IT’s role in the company correlates to how directors view its importance in other strategic areas. IT blended with other assets supports our IT supports the company but the company functions IT is our business and/or our product and is IT provides the company’s competitive advantage company's competitive advantage and is important to these strategic areas. even if IT systems fail. Yet IT is important to important to these strategic areas. and is important to these strategic areas. these strategic areas. Compliance 70% 81% 69% 66% Customer experience and retention 90% 81% 69% 56% Globalization of operations 60% 57% 44% 47% Mergers and acquisitions 50% 44% 32% 25% Organic growth strategy 80% 73% 46% 43% Outsourcing operations 70% 32% 34% 26% Positioning against competition 90% 68% 50% 41% Risk management 80% 70% 57% 50% 5110 Maryland Way, Suite 250 Brentwood, TN 37027 1633 Broadway New York, NY 10019-6754 |
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