Do Boards Need a Technology Audit Committee?
What does FedEx, Pfizer, Wachovia, 3Com, Mellon Financial, Shurgard Storage, Sempra Energy, and Proctor & Gamble have in common? What board committee exists for the most effective 10% of publicly traded corporations but generates 6.Five% more returns for those corporations? What is the single largest budget item after salaries and manufacturing gadgets?
Technology decisions will outlive the tenure of the management crew making those decisions. While the contemporary rapid tempo of technological trade method that company era selections are common and a ways-attaining, the consequences of the decisions-each good and horrific-will stay with the firm for a long term. Usually, technology definition decisions are made unilaterally in the Information Technology definition (IT) group, over which senior management chose to have no enter or oversight. For the Board of a commercial enterprise to carry out its duty to workout enterprise judgment over key choices, the Board needs to have a mechanism for reviewing and guiding technology decisions.
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The latest example wherein this type of oversight might have helped the Enterprise Resource Planning (ERP) mania of the mid-1990s. At the time, many agencies invested tens of tens of millions of dollars (and occasionally masses of tens of millions) on ERP systems from SAP and Oracle. Often those purchases had been justified via executives in Finance, HR, or Operations strongly advocating their buy as a way of preserving up with their competitors, who have been additionally putting in such systems. CIO’s and line executives frequently did not deliver enough concepts to the hassle of making a hit transition to these very complicated structures. Alignment of corporate sources and management of organizational exchange delivered using these new systems changed into neglect, frequently resulting in a disaster. Many billions of bucks have been spent on structures that both need not have been bought at all or had been offered before the patron agencies had been prepared.
Certainly, no successful medium or massive enterprise can be run today without computers and the software program that makes them useful. Technology additionally represents one of the single biggest capital and working line objects for commercial enterprise expenditures, out of doors of exertions and manufacturing gadgets. For each of these reasons, Board-level oversight of generation is suitable at a few stages.
Can the Board of Directors maintain to go away those essential decisions solely to the present-day control group? Most big-generation decisions are inherently unstable (studies have proven much less than half of supply on guarantees), while bad choices take years to be repaired or changed. Over half of the era investments are not returning expected gains in overall business performance; Boards are consequently becoming worried about technology choices. Surprisingly, only ten percent of the publicly traded businesses have IT Audit Committees as a part of their forums. However, those agencies enjoy a clear aggressive benefit within the shape of a compounded annual goes back 6.5% extra than their competitors.
Tectonic shifts are beneath way in how generation is being supplied, which the Board desires to apprehend. IT enterprise consolidation seriously decreases strategic flexibility by undercutting management’s potential to consider competitive options, and it creates potentially risky reliance on only a few key suppliers. The flourishing and lasting enterprise’s core asset is the capability to respond or maybe anticipate the effect of out of doors forces. Technology has ended up a barrier to organizational agility for several reasons:
o Core legacy systems have calcified o IT infrastructure has failed to hold tempo with changes in the enterprise o Inflexible IT architecture effects in a high percentage of IT expenditure on the preservation of existing systems and no longer enough on new talents o Short-term operational selections infringe on business’s longtime functionality to stay competitive Traditional Boards lack the skills to invite the proper inquiries to make certain that generation is taken into consideration in the context of regulatory necessities, hazard, and agility. This is because the era is a distinctly new and speedy-developing profession. CEOs had been around, considering that the beginning of time and financial counselors had been evolving over the past century.
But technology is so new, and its fee for deploying changes dramatically, that the technology career continues to be maturing. Technologists have worked on how the systems are designed and used to resolve troubles facing the commercial enterprise. Recently, they identified a need to understand and be worried about the enterprise strategy. The commercial enterprise leader and the financial chief neither have the history nor enjoy utilizing era and making key era selections. The Board needs to be involved with the executives making generation selections, simply as the era leader wishes Board guide and steerage in making those selections.
Recent regulatory mandates, which include Sarbanes-Oxley, have modified the enterprise chief and monetary chief’s relationship. They, in flip, are asking for comparable assurances from the generation chief. The commercial enterprise chief and monetary leader have professional advisors to guide their selections, consisting of attorneys, accountants, and investment bankers. The technologist has relied upon the seller community or consultants who have their own perspective and who may not continually provide hints in the employer’s first-class interests. The IT Audit Committee of the Board can and needs to fill this gap. What function has the IT Audit Committee played in the organization? The IT Audit feature inside the Board have to contribute towards:
1. aligning technology strategy with commercial enterprise strategy.
2. Ensuring that era selections are within the nice hobbies of shareholders.
3. Fostering organizational development and alignment among business devices.
4. Increasing the Board’s usual information of technological problems and results inside the organization. This kind of expertise can’t come from the monetary evaluation on my own.
Five. Effective communique among the technologist and the Committee members.
The IT Audit Committee does not require extra board members. Existing board contributors may be assigned the responsibility and use experts to recognizing the problems sufficiently to offer guidance to the technology leader. An overview of current IT Audit Committee Charters shows the subsequent common characteristics:
1. Review, examine and make pointers on technology-based problems of importance to the enterprise.
O Appraise and severely overview the economic, tactical, and strategic blessings of proposed principal technology-related tasks and generation structure options.
O Oversee and seriously overview the development of principal technology-associated initiatives and technology structure selections.
2. Advise the senior generation management group on the firm
3. Monitor the great and effectiveness of technology structures and procedures that relate to or affect the firm’s internal control systems.
Fundamentally, the Board’s position in IT Governance is to ensure alignment between IT tasks and enterprise goals, monitor actions were taken by way of the generation steering committee, and validate that era processes and practices are turning in cost to the business. Strategic alignment among IT and the commercial enterprise is fundamental to building an era architectural foundation that creates agile businesses. Boards ought to be privy to technological hazard exposures, control evaluation of those dangers, and mitigation techniques considered and followed. There are not any new ideas here-only confirmation of current governance charters. The execution of generation choices falls upon the control of the agency. The oversight of control is the duty of the Board. The Board wishes to take suitable ownership and emerge as proactive in the governance of the generation.