Do Boards Need a Technology Audit Committee?
What does FedEx, Pfizer, Wachovia, 3Com, Mellon Financial, Shurgard Storage, Sempra Energy, and Proctor & Gamble have in not unusual? What board committee exists for the simplest 10% of publicly traded agencies but generates 6.5% more returns for the one’s organizations? What is the single largest price range item after salaries and production equipment?
Technology selections will outlive the tenure of the control crew making those choices. While the modern-day rapid tempo of a technological alternate method that corporate technology decisions are frequent and along way-reaching, the effects of the selections-each desirable and bad-will live with the company for a long time. Usually, era decisions are made unilaterally in the Information Technology (IT) group, over which senior management selected to haven’t any enter or oversight. For the Board of a commercial enterprise to perform its responsibility to workout commercial enterprise judgment over key selections, the Board have to have a mechanism for reviewing and guiding era selections.
A recent example where this type of oversight would have helped became the Enterprise Resource Planning (ERP) mania of the mid-1990’s. At the time, many groups were making investment tens of millions of greenbacks (and now and again masses of millions) on ERP systems from SAP and Oracle. Often those purchases had been justified by using executives in Finance, HR, or Operations strongly advocating their buy as a way of preserving up with their competition, who have been also installing such structures. CIO’s and line executives often did now not provide enough thought to the hassle of the way to make a hit transition to those very complex structures. Alignment of corporate resources and management of organizational change introduced by means of these new systems became neglected, often ensuing in a crisis. Many billions of greenbacks had been spent on structures that both ought to now not were bought in any respect or were offered earlier than the patron groups were prepared.
Certainly, no successful medium or massive commercial enterprise can be run today without computers and the software that makes them useful. Technology also represents one of the single largest capital and working line item for commercial enterprise prices, outdoor of labor and production system. For each of those reasons, Board-level oversight of technology is suitable at a few stages.
Can the Board of Directors preserve to go away these fundamental selections entirely to the current management team? Most massive technology selections are inherently unstable (research have shown less than half of delivering on guarantees), while poor selections take years to be repaired or changed. Over half of the era investments aren’t returning expected gains in business performance; Boards are therefore becoming concerned in era choices. It is sudden that most effective ten percentage of the publicly traded businesses have IT Audit Committees as part of their forums. However, those groups revel in a clear aggressive benefit inside the shape of a compounded annual go back 6.5% extra than their competition.
Tectonic shifts are underneath way in how generation is being furnished, which the Board desires to recognize. IT enterprise consolidation severely decreases strategic flexibility by means of undercutting control’s potential to don’t forget competitive options, and it creates potentially risky reliance on only some key suppliers.
The middle asset of the flourishing and lasting business is the capability to respond or maybe count on the effect of outside forces. Technology has grown to be a barrier to organizational agility for some reasons:
Traditional Boards lack the capabilities to invite the proper inquiries to ensure that technology is taken into consideration in the context of regulatory necessities, chance, and agility. This is because the generation is a pretty new and fast-growing profession. CEOs have been round in view that the start of time and financial counselors had been evolving over the past century. But the era is so new, and its fee to install adjustments dramatically, that the generation career remains maturing. Technologists have labored on how the structures are designed and used to clear up problems facing the enterprise. Recently, they identified a need to apprehend and be involved inside the enterprise method. The enterprise leader and the monetary chief neither have records nor experience making use of era and making key era decisions. The Board wishes to be concerned with the executives making generation choices, simply as the era leader needs Board aid and guidance in making the one’s decisions.
Recent regulatory mandates together with Sarbanes-Oxley have changed the relationship of the enterprise chief and financial chief. They, in turn, are asking for comparable assurances from the technology leader. The enterprise leader and financial chief have professional advisors to guide their selections, including legal professionals, accountants, and investment bankers. The technologist has relied upon the seller network or experts who have their personal perspective, and who may not continually be able to offer guidelines in the first-class pursuits of the corporation. The IT Audit Committee of the Board can and ought to fill this gap.
Fundamentally, the Board’s function in IT Governance is to make sure alignment between IT tasks and enterprise targets, the screen moves taken by the technology steerage committee, and validate that technology approaches and practices are turning in price to the enterprise. Strategic alignment between IT and the commercial enterprise is essential to constructing a technology architectural basis that creates agile groups. Boards need to be aware of technological hazard exposures, management’s assessment of those risks, and mitigation techniques considered and followed.
There aren’t any new concepts here-most effective confirmation of existing governance charters. The execution of generation choices falls upon the control of the agency. The oversight of control is the obligation of the Board. The Board desires to take appropriate possession and end up proactive in the governance of the generation.
Do Boards want a Technology Audit committee? Yes, a Technology Audit Committee inside the Board is warranted as it will cause generation/business alignment. It is extra than truly the proper component to do; it’s far a fine practice with actual bottom-line benefits.