A recent MIS Quarterly research study found that investments made by companies in information technology increase profitability more than investments in advertising or research and development.
The research led to several key conclusions:
- Investments in IT have a greater impact on a company’s profits than comparable spending on either Advertising or R&D.
- There is significantly more variability in the effects of IT investments than in investments in Advertising or R&D.
- IT investments are more effective at improving profitability by increasing revenue than by decreasing operating expenses.
The results of this study underscore the profound impact of technology investments on business today. It not only validates the role of IT in driving organizational financials but also highlight the benefits for risk management. IT investments are fundamental to strategic opportunities or innovations. Moreover, IT influences the way companies communicate with the new generation of investors, employees and customers.
Technology is only going to become more important as we go forward, and without constantly improving our understanding of it, businesses are not going to do very well. Given the increasing dependency of technology in companies, IT has elevated itself to the boardroom.
One of the biggest challenges for board members is to understand the technology responsibilities of executives and their potential to deliver outstanding results. Now is the time to develop this skill in the board room because of the increasingly large amounts of capital investment in IT initiatives.
Although IT is pervasive in every level of the organization and receives significant capital, boards still tend to focus their attention primarily on other departments such as Finance, Human Resources, Marketing etc. Many boards even subordinate IT to the Finance function. They expect management to optimize IT efficiency and deliver projects on time and on budget. Yet, they don’t encourage CIO representation in the boardroom. Why?
Here are the main reasons why board members don’t give enough attention to IT:
- Lack of understanding of the state of technology and its associated benefits;
- Lack of skills and interest in IT related issues;
- IT governance not seen as important to board deliberations;
- Lack of necessary information to govern IT properly;
- IT governance viewed as an operational issue only.
There is no one size-fits-all model for board supervision of a company’s strategic IT needs. Developing the intellectual curiosity to understand IT issues may be the key. Board members need technical knowledge and experience to understand the strategic importance of IT. Boards must extend governance to include IT. I suggest that boards focus more on the governance of IT assets and processes given that so many strategic decisions are reliant on information supplied by IT systems.