Only six percent of the directors overseeing the world’s biggest banks have any technology experience. That figure, from an Accenture report, is surprising given that the banking industry is increasingly digitized. Yet banking is not alone. Technology is transforming the rules of businesses and reshaping industries in just about every sector.
So, what role should a board play in deciding on technology investments and shaping businesses in the digital age? And more specifically, what does this mean for staffing a company’s board?
The answer to these questions depends on two factors: whether technology is a strategic differentiator for the business, and the nature of the industry and market structure in which the company operates. These questions help define the degree to which a board should be involved in the key technology decisions; whether by expert technology representation on the board (via a board seat), by relying on the advice of an external consultant or committee, or by simply delegating to the company’s (internal) executive management.
How—and whether—to staff the board room with relevant technology expertise dictates how a corporate board of directors receives and interprets the information it needs to make key business decisions such as capital asset allocation, staffing, risk assessment and, of course, how it incorporates technological changes into the business, in an ever-changing landscape.
The extent to which technology differentiates a business from its competitors can be viewed on a sliding scale. On one end technology innovations and improvements simply ensure that a company “stays in the game,” while at the other extreme, technology acts as a critical source of value creation and enhancement.
If technology serves simply to keep a company in the game, the board probably doesn’t to be actively involved in the day-to-day management of technology decisions and should delegate this responsibility to the executive management. But as businesses derive a more direct or significant part of their inherent value from technology, they’ll need access to independent experts with deep understanding of technology as a key driver of the company’s fundamental value proposition—people who can check and challenge management’s recommendations.
Indeed, for companies whose core value and viability crucially depend on getting technology bets right, technology decisions should probably fall squarely to the board which arguably should have at least one member with the appropriate depth and breadth in the field.
The industry structure in which a business operates should also influence how a board assesses technology effects. For companies operating under a monopolistic structure, for example, technology most likely serves to ensure efficient operations rather than differentiate the company. Under such a scenario the board can adopt a relatively laissez-faire approach and delegate technology-related decisions to the company’s executive leadership. The opposite is true for businesses operating in more perfectly competitive industries, which have an unlimited number of suppliers and consumers. Those boards should have as much as visibility and understanding of technology shifts as possible.
Of course, like most business decisions, the answer to how best to imbue a company’s board with technology expertise depends on context. Most companies, after all, are complex and don’t operate on the extreme ends of the scale I’ve described.;