[McKinsey] Five questions boards should ask about IT in a digital world

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On this subject, here is an article about IT in a digital world: CIOs, business executives, and board directors need a shared language to discuss IT performance in a fast-changing environment. Here’s a framework for those conversations.

Historically, boards have had a hard time assessing and discussing information-technology spending and capabilities. They associate IT with endless reviews of mammoth, years-long transformation projects or complex explanations by the CIO of ever-changing technologies and system requirements. And they try to decode the CIO’s reports using their first language, which is centered on traditional cost-related metrics, such as head counts and bottom lines.

In this era, companies are exploring digital business models, processes, and automation technologies, as well as seeking to hire and retain people with different skill sets—data analysts instead of data programmers, for instance. The IT organization can no longer be considered just a service provider; how it manages the integration of emerging technologies can help determine the success of a company’s digital strategy. Therefore, simply relying on cost-related measures will not provide a full picture of IT performance. And the CIO’s boardroom presentations will continue to get lost in translation.

Boards need to master a second language—one focused on digital themes, such as speed to market, agile product development, platform-based delivery models, and the benefits and challenges of analyzing various forms of corporate data. With a higher degree of digital fluency, boards can help C-suite leaders make better decisions about how to expand a company’s most successful technology initiatives and when to pull the plug on lagging ones. In our experience, board directors are more likely to gain such fluency if they routinely ask these five critical questions relating to the IT organization’s performance:

  1. How well does technology enable the core business?
  2. What value is the business getting from its most important IT projects?
  3. How long does it take the IT organization to develop and deploy new features and functionality?
  4. How efficient is IT at rolling out technologies and achieving desired outcomes?
  5. How strong is our supply of next-generation IT talent?

By systematically considering each question, boards can generate practical, detailed conversations about both IT projects and processes. This approach can help directors understand exactly how much value IT is creating for a company and how its IT capabilities stack up against those of competitors. Costs associated with IT performance will remain an important topic in the boardroom—hence the need to monitor returns on critical projects—but should not dominate the conversation, as they do currently. Making these questions a formal part of IT discussions can also help CIOs determine exactly which data relating to IT projects and processes will be most useful to the board (see sidebar, “Reporting metrics to the board”).

In this article, we explore the five questions and illustrate the benefits boards may gain by asking them. But first, let’s consider some of the challenges board directors, CIOs, and other executives face in today’s digital environment.

Making decisions about digital

According to a McKinsey survey, senior business and IT executives plan to increase their investments in new technologies from about 32 percent of overall IT spending today to about 40 percent in 2019.1 1.Partnering to shape the future—IT’s new imperative,” May 2016. In many instances, spending has been earmarked for critical digital initiatives—for example, building online channels or mobile applications and services. At board meetings, CIOs and IT organizations share detailed data about technology costs, operations, requirements, and outcomes. But board directors and business executives seem less sure than ever about how to identify the right areas for investment.2 2.“Adapting your board to the digital age,” forthcoming on Mckinsey.com. They face new realities about corporate technology usage and IT performance, among them:

  • Higher stakes. Technology is no longer just another business utility, one of many common inputs into operations. It is shaping strategies and business models as companies seek to meet their customers’ demand for tech-enabled products and services.
  • Greater complexity. The typical corporate IT landscape no longer comprises collections of “island” systems and applications. It is a complicated network of interlinked applications, interfaces, and databases—and many of them must be able to “speak” with external systems.
  • More risk. As companies begin to digitize more products and processes, breaches of security are becoming more common—think of the data losses that have occurred, in just the past few years, at large retailers, financial institutions, utilities, and healthcare companies. Cybersecurity has thus become a frequent point of discussion in the board-room. But in a 2015 survey of more than 1,000 board members, only 11 percent of the respondents said they had a high level of knowledge about the topic.3 3.The survey was conducted by the National Association of Corporate Directors. CIO Journal, “Cybersecurity: Boards must ask sharper, smarter questions,” blog entry by Kim S. Nash, July 2015, blogs.wsj.com.

Addressing the five IT questions

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