Thursday, September 27, 2012

A Tale of Two Surveys: What Matters in Boardroom

Strategic planning topped the board’s “wish list.

The prestigious consulting firms and media companies published many good white papers and industry surveys regarding what matters at board level now, especially economies are not completely recovered from recession yet, businesses from the top down are looking for innovation as a new light, strategy as GPS, and IT as a new catalyst.

A recently released annual corporate director survey from PWC highlight business strategy, risk management, IT oversight and human capital as top priorities at board agenda:

  • Top three board priorities: IT opportunities and issues, Risk Management, Developing Human Capital
  •  88% integrate discussions of risk with strategy.
  • 78% establish minimum guidelines for return on investment from strategic transactions;  
  • 74% believe their company’s approach to IT contributes to and is aligned with setting strategy;
  • But fewer than 1% of today’s Fortune 500 directors have an IT background
And another survey by Garner & Forbes highlight:
·       72% believe the next decade will be far more volatile and unpredictable than the previous one
·       68% of Respondents who say ‗The changes arising from current economic uncertainty are so deep and persistent that many companies and industries will have to change their business models
·       66% of Respondents who say ‗We see economic difficulty or recession as an opportunity to improve our market share and competitive position
·       50% of board directors agree that IT is the way to change the rules of competition.

1.    GRC Management

 From PWC survey, board directors recognize that risk oversight is a critical responsibility of the board. This involves ensuring that management has a process in place for identifying key risks and approach to mitigate these risks to an acceptable level.

  • Crisis management oversight, a component of overall risk management oversight, has become an increasingly important issue for boards as well; An effective crisis management plan is an essential part of a company’s overall approach to risk management and business continuity.
  • Over-Optimistic about Risk: Nearly all directors (97%) say they are at least “moderately comfortable” with their board’s understanding of the company’s risk appetite. This significant level of comfort is noteworthy in light of the many criticisms (particularly after the financial crisis) suggesting companies and boards did not fully understand the risks their companies were taking or that they were taking on too much risk.
  • Accountability: Many directors may understand the risks the company faces, but they are not sure who on the board is supposed to oversee them. This structural disconnect could prove troublesome for companies in the long run. If directors are unsure whose responsibility it is to oversee risk, the board could have a risk oversight gap;
 From Gartner’s survey:

· 70%: Board members who agree with the statement: “Compliance with anticipated new government regulations will create a material increase in our operating costs in 2012.”

·  Large Enterprise Top Priorities: Restructuring corporate risk tolerance, Improving the Board‘s risk oversight; Strengthening or pursuing greater workforce diversity.

2. Business Strategy

From PWC survey:

 Strategy Discussion is critical: Directors realize the importance of strategy discussions, and virtually all (99%) discuss the continued viability of the company’s strategy at least once a year.

 Strategic planning topped the board’s “wish list,” with over 75% of directors wanting to devote more time to it during the next year to strategic planning, success planning meeting manager from key parts of the company,

From a Gartner survey:

·       Focus on Revenue Growth vs. Cost Reduction: 65% mostly focused on revenue growth.

·       Top 5 Business Priorities of Board Directors:
a.    Attracting new customers
b.     Retaining and enhancing existing customers
c.      Focusing on core competencies
d.     Maintaining competitive advantage
e.      Fostering innovation

  • Top 5 Investment Priorities of Board Directors
    1. Information Technology
    2. Sales
    3. Product enhancement
    4. Partnerships, alliances, and value networks
    5. Risk Management

3  IT Oversight

 Technology continues to evolve rapidly. From concerns about cyber-hacking and customer privacy to the use of emerging technologies to leapfrog competitors, IT has become a key area for director attention. PWC Studies indicate that the average age of directors is around 62. Accordingly, it’s not surprising that some directors may find challenging to understand the latest technological advances. Of course, many directors are quite technologically savvy, but those who are not may have less confidence in the effectiveness of their IT oversight.

From PWC survey:

  • Understanding the importance of IT to the company’s business model is important for effective oversight of technology initiatives. the survey finds that over half of directors (56%) believe IT is “very important” or “critical” to their companies, while only a small minority  (7%) still think of IT as “primarily infrastructure.”
  • IT becomes part of the overall strategy: Technology is rapidly becoming an integral part of many companies’ strategic plans. Most directors (77%) believe their company’s approach to managing IT risk and strategy at least “moderately” aligns with the company’s overall strategy.
  • Not doing Enough from IT: However, a substantial number of board members don’t believe that their companies are exploiting the opportunities inherent in emerging technologies. In fact, more than one-third (36%) believe their company's approach to anticipating competitive advantages from emerging technologies needs improvement.
  • Understanding who on the board oversees IT is important. At present, over half of the boards (56%) delegate this responsibility to the audit committee, while one-quarter (25%) view IT oversight as a full-board function. Even for companies that consider IT critical to creating shareholder value, the audit committee is still the main group responsible for overseeing IT; only 5% delegate oversight to a separate IT committee.
  • Need more IT Expertise on Board: One way to increase a board’s comfort level could be to have IT expertise on the board—but a separate study reveals that fewer than 1% of today’s Fortune 500 directors have an IT background. the survey shows that boards aren’t aggressively seeking directors with IT expertise, despite their elevated concerns; In fact, only 30% of directors find IT expertise a “very important” attribute in new directors, and 31% are not seeking this skill set at all.
  • Talking to the CIO: Boards’ IT oversight may include meeting with the company’s Chief Information Officer (CIO). Nearly 30% of directors meet with the CIO once a year, and about one in five (18%) meet with the CIO at each formal meeting. Some boards (14%) have no formal interaction with the CIO. Not surprisingly, directors at companies where IT is considered “very important” or “critical” meet with the CIO more frequently than those where IT is considered to be more of a commodity; Almost 60% of directors want to spend more time on IT in the coming year, a significant increase from 36% in 2011.
  • IT fundamentals get more attention: Directors are particularly involved in overseeing and understanding more traditional IT issues, such as the status of major IT project implementations (76%), and their companies’ annual IT budgets (57%). Given the increase in cyber attacks, it’s no surprise that nearly three-quarters (72%) of directors are engaged with overseeing and understanding data security issues and risks related to compromising customer data.  
From the Gartner survey:

-  IT is More Strategic: 86% of Respondents who expect the strategic contribution of IT to the business to increase by 2014.
-Fastest Risers: Pursuing Portfolio Diversity, New Markets, and Cultural Change
-Top Two Investment Priorities: IT & Sales- Risk Management: Least Likely to See Investment Reduction.

In conclusion, a tale of two boardroom surveys delivers the consistent message: IT becomes more strategic than ever, risk management is also at the top of board agenda, business strategy, human capital, culture changes are frequent topics at board room to adapt to accelerated changes facing in business today.


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