Competency three directing value creation may2015

Enterprise Technology Governance

Leading strategy & performance Meeting fiduciary responsibility Directing value creation

Governing risk & conformance

Competency Three Direct and govern technology enabled innovation and value creation

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Directing and governing technology enabled innovation and value creation This is the third of three Enterprise Technology Governance (ETG) papers based on Elizabeth Valentine’s doctoral research (Valentine, 2015). This thesis developed three competencies that experienced industry and governance practitioners considered boards of directors need to effectively govern technology in a digital world.

Competency three provides practical examples for boards to use. The first competency covered the board’s role to strategically govern technology for competitive advantage and business performance, while the second competency covered the board’s role in governing risk and compliance. This competency covers the board’s role to govern and direct technology-enabled innovation and value creation.

Background To a growing number of tech-savvy directors and senior executives the requirement to derive returns and build business value from technology investment is a no brainer. From as far back as 2008 it became common for more than 50% of capital expenditure to go into technology investment. However, as many as 85% of boards around the world continue to ignore their role in ETG (Valentine, 2015). There’s a lot of talk about the importance of technology, but not nearly as much competent action in the board room.

As Joe McKendrick points out in his excellent blog (1 January 2013) the IT department and the CIO or consultants end up getting blamed when, in the absence of competent strategic leadership of technology-related change, the culture at the top perpetuates practices that prevent value creation or achieving returns from IT investment. These leaders sign off on projects to drop, often isolated, technology solutions on top of a dysfunctional or disconnected area of the business expecting that the solution will fix the organisation’s product, customer and productivity woes and make the organisation more profitable.

When things go wrong at any stage of a project, CIOs can become frustrated by the board and non-IT senior executive’s failure to listen to them.

It can come down to how technology strategy, opportunity, risk and value creation is led and governed from the top, and whether there are the range of ETG competencies to do this, appropriate to the organisation type, size and industry.

McKendick says, ‘more enlightened organisations… recognize that long-term investments in and support of technology are key to their future. They’re willing to make use of technology to innovate, and are highly tolerant of failure -- it’s all part of the learning experience. They view CIOs and IT 2

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Competency Three Directing Value Creation

leaders as partners and valued advisers for their advance [or transition] into the digital economy’.

Boards with competency in this area realize that they need to build from an operational cost-center focus on deploying IT systems to understanding the role of technology in driving business innovation and underpinning IT/ business and stakeholder engagement relationships. They understand that this is part of their role in leading business strategy, governing risk and opportunity and building for the future. They lead by making sure that the organisation has a strategy matching focus on competency – not yet a common practice.

Competency three Definition Directors with competency three are able to demonstrate the following skills, knowledge and experience: • make quality judgments and decisions in relation to strategic, innovative, technology

investments that provide value creation opportunities • demonstrate capability to govern and direct appropriate technology investments.

Competency three Organisation Capability Statement As leaders, these boards expect technology to underpin strategy development, investment prioritisation, business innovation, collaboration and value creation opportunities for future success.

This organisation has the ability to derive product or service value through technology projects.

The ongoing design of the enterprise’s technology systems support innovation, business process efficiency, service delivery and their ongoing improvement. They understand business applications and their wide use throughout the enterprise. To meet the organisation’s current and future needs, the board and executive regularly evaluate and discuss current, new and emerging technologies for product, system, process, service and user experience optimisation.

Copyright © 2012- 2015. Elizabeth Valentine and Enterprise Governance Consulting. All Rights Reserved.

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Key areas of enterprise technology governance to consider.

This section presents each of the six descriptors from competency three, asks a key question and provides a little more information.

Descriptor 1 Experienced in board-level governance oversight of large scale IT project investments such that IT assets are acquired, implemented and monitored with risk and value balanced throughout.

Question In what ways do operational and board technology governance people and processes work toether to support project success and deliver expected returns?

When demonstrating this competency, these boards: • Have an understanding that ensures technology governance structures

and processes are integral to the organisation’s strategy and business planning, and

performance monitoring and reporting systems • Understand their oversight role and responsibilities in project, product and service

life-cycles from inception and proof of concept to implementation and post completion

review • Understand the relationship and difference between operational IT governance

frameworks and board governance structures and processes to support project

success throughout • Ensure that governance and audit processes support the dynamic balance between

risk oversight and value creation throughout projects and business planning lifecycles.

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Competency Three Directing Value Creation

Descriptor 2 Understands how to derive business value from technology investments

Question For each technology project or investment, what outcomes are expected savings, returns and value creation - and what measures will ensure that each is achieved?

Directors and senior executives with this competency: • Understand current and emerging uses of technology in product, system, process and

service design and development • Can critically evaluated the quality and completeness of large-scale technology strategies

and proposals presented to the board for sign-off • Know what to measure and what’s required in reports on performance to achieve

expected returns and derive value, and meet fiduciary care responsibilities • Listen to those responsible for operationalizing strategies and proposals • Can ask the right questions and critically evaluate responses to identify early signs of risk

or discover value creating opportunities.

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Descriptor 3 Knowledgeable about or experienced in technology asset management to derive expected returns after implementation.

Question In what ways is the technology invested in being used or not used when compared with strategy or project promises? In what ways is the board evaluating asset life-cycle related issues and opportunities to better oversee returns and derive value?

This board understands that technology is changing rapidly, effecting asset life-cycles, business and technology strategy and investment priorities and decisions. It understands competitive implications as well as any emerging risk relating to current assets.

This board establishes and maintains: • A comprehensive overview of the organisation’s technology maturity and the extent to

which current assets support its strategic goals • The ability to evaluate industry trends in new and emerging technologies relevant to

meeting business or industry needs.

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Descriptor 4 Can demonstrate basic knowledge of system and infrastructure components such as software, applications and hardware and cloud-based services, and the implications, costs and benefits of their uses.

Question’s Akin to risk oversight, what current, new or emerging technology system and infrastructure issues or opportunities are key to achieving returns and adding business value?

This board oversees strategy and requires reporting on all key areas of technology risk and value creation relating to: • Whether the board, senior executives and key staff have the right technology

competencies to derive promised value and manage risk • The security of the organisation’s data and information and how privacy is maintained • The effective design, integration and implementation of technology projects • The current and future integrity of technology hardware and systems • The effectiveness of current board-level approaches to technology risk oversight.

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Descriptor 5 Knowledgeable about the use of mobile and social media in product and service delivery.

Question What impacts or opportunities do mobile technologies and the use of social media offer to this organisation?

This board understands: • That mobile technology and social media are changing the ways in which stakeholders

can engage with their organisation and the risks and opportunities this presents • How mobile technologies can support and enable performance of frontline staff, assist in

compliance data capture and reporting and in product and service delivery in all parts of

their organisation and their industries • How social media and mobile technologies can provide new ways of engaging with key

stakeholders and new models of doing business.

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Competency Three Directing Value Creation

Descriptor 6 Skilled in the design and use of technology performance scorecard measures.

Knows what to measure and how to interpret performance data.

Question To derive expected returns and glean business advantage from technology investments, what type of customer/stakeholder, financial, employee and operational measures should be in place and reported on in board papers?

This competency ties all three ETG competencies together such that the board measures the effectiveness of technology strategy, integration, investment, implementation and use for innovation, improvement, advantage, efficiency and effectiveness as appropriate to the sector it operates in, and the organisation’s type and size.

Directors need a good knowledge of: • Where to focus customer / stakeholder engagement activity and investment • How to demonstrate financial returns on technology investments to shareholders /

stakeholders • What the business must excel at to remain fresh and competitive, and how technology

can support that through information and communication system design • How technology supports management, staff and stakeholders in learning, growing and innovating.

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Discussion Boards don’t need to understand the detail of technology to be effective in overseeing an organisation’s use of IT. But they do need to better understand business technology governance and how management should be dealing with and reporting on technology investment, risk and value creation.

ETG-focused boards can ask the right questions, challenge responses in relation to the businesses they govern and are much more likely to ensure that technology- related strategic and risk information makes it onto the board agenda.

They understand that there is risk in delegating ETG responsibilities) down to management.

(as well as their wider governance

Accountability You have now completed the three technology governance competencies.

Accountability looks at the fiduciary responsibility directors have in ensuring technology is being governed affectively.

References Valentine, E. (2015). Enterprise Business Technology Governance: new core competencies for boards of directors in digital leadership. (Doctor of Information Technology Monograph), Queensland University of Technology, Brisbane, Australia.

Valentine, E., & Stewart, G. (2013). Director competencies for effective enterprise technology governance. 24th Australian Conference on Information Systems.

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