Overseeing the New Technologies

Boards of directors and executive committees must be trained to shepherd their institutional digital capabilities

AS 2017 BEGINS to unfold, it is clear that a number of technology developments will continue to affect the Canadian economy and public sector agencies in this country. So it’s timely to highlight these, but then put them in the context of what your organization — whether in the private or public sector — should be doing to better manage them.

 SMAC and More

One acronym that captures four of the disruptive technologies is SMAC: Social, Mobile, Analytics and Cloud. Let’s look at each in turn.

Social media is working its way into every nook and cranny of the economy, and society. Marketing, for example, is being changed fundamentally by digital channels such as Facebook. And when the final analysis of US President Donald Trump’s victory is made, I’m sure the role of his Twitter account will loom large.

The app economy, which is fueling the ubiquity of Mobile technology, is coming into its own. And it’s not just Uber. Virtually every aspect of human activity has an app (or several) that either enable the activity, or facilitate it, or support it in some meaningful manner. Especially for millennials and younger, the importance of the smartphone for commerce, entertainment, news, social cohesion, politics, health and much more cannot be overstated.

From the perspective of business and government, Analytics is also coming into its own. Sometimes colloquially known as Big Data, corporations and public agencies are harnessing the reams of personal and other information they are collecting every nanosecond. As they say, the dough is in the data. And we are starting to see a proliferation of artificial intelligence applications where the data is automatically mined, insights are garnered and specific actions are taken, all by means of computerized, automated processes. Picking stocks, healing the sick, predicting human behaviour, scheduling public and private transportation, predicting the weather, predicting wars, predicting buying habits, predicting elections (okay, that one is still not working well) and countless other activities will never be the same.

Buttressing all these trends is the fact that the infrastructure of computing, and related telecommunications, has never been less expensive and yet more powerful because computer resources can now be fairly inexpensively produced in the “Cloud.” Years ago a tech start-up would be looking at spending $5 million just to buy all the hardware and software it needed to get started; now it can get the same computing power, or better, for a fraction of the cost (in the range of $500,000) in the Cloud. Where you once needed at least a garage to launch a start-up, now a table and chair at a coffee shop will do.

This phenomenon is having a major impact on company creation and capital formation in Canada and around the world, and the implications for the innovation sector of the economy are enormous.

Beyond the SMAC items noted above, keep an eye on the following tech developments that are also starting to come into their own. While it may not become mainstream in highly built-up urban settings, drone deliveries in suburban and rural environments are starting to roll out, and a few months ago an Amazon pilot project was launched to test them.

Another product that may have once seemed the stuff of sci-fi is virtual reality, and augmented reality. In the financial services sphere, blockchain a distributed database that maintains a continuously growing list of ordered records called blocks is being implemented by banks in its applications; look for some very intriguing applications coming online by 2018.

SMAC Issues Aplenty

The SMAC technology trends (and possibly some of the others noted above) are certainly buffeting your organization already. And if they are not, it’s just a question of time because their momentum is inexorable, whether you work in the private or public sector.

Here’s a short list of key issues that will be on your agenda courtesy of the SMAC revolution and the other novel tech-oriented offerings coming your way. First, your core products and services will be undergoing a major transformation, both in terms of how you organize your supply chains, and how you deal with your customers. Second, while SMAC and other novel technologies present huge opportunities for you, they also present challenges such as cyber-
security. Therefore, applying risk-management principles to
SMAC concerns will become essential to your organization, and not only if you are a financial institution. Managing the legal, insurance and reputational challenges presented by SMAC will be every organization’s business.

Executive Committee Oversight

Given the centrality of the SMAC and the novel digital technology agenda to your organization and the related opportunities but also the risks presented by them it is worth asking how your organization should approach governance of these matters from the perspective of the C-Suite executive committee: the board of directors in the private sector, or the equivalent executive governance bodies in the public sector. Herewith are a few thoughts on this important, timely topic.

First, a preliminary consideration about board-level expertise: you should review whether at least one person on your board has sufficient expertise and experience in tech/IT/SMAC matters to serve as a credible resource for the board. Many boards are asking this very question, and a number of them are inviting onto the board someone with very direct and recent experience in the tech space. This makes sense, given that digital is clearly the way of the future.

Then there is the challenging question of how the board of directors should discharge its oversight function toward technology. Traditionally, this was done episodically, with the focus being on a cost analysis of major IT projects.

Let me give an example. Your organization is replacing its core IT system; that may be the policy/claims system of an insurance company, or the student information system of a university. This will be a very material project, it will bristle with new elements related to SMAC, and will cost, all in, many millions of dollars. Given its materiality, the chief information officer and possibly the chief executive officer will be asked to give a major report on it to the board at the outset, and then periodic updates as the project unfolds.

These reports typically track expenses to forecasted spending amounts. I’m not saying cost is not an important element, but in 2017 the board (or your executive committee) needs to develop a much more robust approach to exercising oversight of a major, transformative project such as this one.

New Board Metrics

The first thing the board needs to do when a big, new, transformational IT project comes before it for consideration is to require the CIO (and possibly the CEO) to outline a compelling business case for the new system. And cost is not the only metric to be taken into account.

In addition, the board should want to know how the new IT system is going to affect the procedures and processes of your organization. If it’s a customer-facing system, how is customer satisfaction being measured? That metric then needs to be reported regularly to the board, along with other metrics.

What the board wants to be able to do for a major project is track its progress against the initial business case, but using factors that drive sales and profitability to your organization (in the public sector it may be customer satisfaction with the new service delivery). In many organizations these statistics are collected as a matter of routine, but they are not distilled and shared with the board. They should be.

Institutional Digital Capability

It’s not enough for the board (or the cabinet committee) to exercise careful oversight in respect of your largest or most transformative IT projects. A board should also periodically (at least every six months) be reviewing how well management is performing on all its major projects. This can be tracked in the form of a “dashboard,” a computer screen template that shows the status of various workflows or obligations, or various aspects of a services relationship. The dashboard may already exist in the organization; if not, it can be created fairly easily and tailored to the board of directors.

But again, the point isn’t to simply measure cost and schedule, but to drill down into the various drivers of the business case for each of the different projects. For example, are the new digital channels drawing in new customers? In the public sector, are the new public tools for engagement leading to higher user satisfaction rates? In short, what are the tangible benefits and advantages from the new digital mechanisms that are being deployed?

From this more rigorous board oversight, higher-level analyses can be distilled over time. A key question to ask is, how well does our organization do large-scale organizational, technological or process change in light of the new digital dynamics buffeting the company or public agency/ministry? This is a vital inquiry, because if the answer is “not so well” then steps must be taken to rectify the situation. If you are in the private sector and can’t adequately adapt to the digital environment, someone else is going to eat your lunch (and breakfast and dinner). Proficiency in digital transformation is not a “nice to have” anymore. If you can’t do it, your organization will be relegated to the “has been” pile of history. And therefore meeting this challenge becomes a core, ongoing agenda item for your board.

George Takach is a senior partner at McCarthy Tétrault LLP and the author of Computer Law.