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The do-or-die questions boards should ask about technology

•  2013-06-13
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The do-or-die questions boards should ask about technology

Board members should raise nine critical questions when discussing technology strategy with IT and business managers.

June 2013    by Paul Willmott

An article in the fall 2012 issue of McKinsey on Business Technology described how some organizations are creating new technology forums, building the expertise of corporate directors, and strengthening IT governance—all with the aim of allowing boards to guide management by asking the right questions about technology.¹1.For more information, see Michael Bloch, Brad Brown, and Johnson Sikes, “Elevating technology on the boardroom agenda” McKinsey on Business Technology, Number 27, Fall 2012.

But what are the right questions at a time when digital technologies are beginning to disrupt industries and mastering these technologies may be the key to long-term survival and success?

The particulars of each enterprise’s situation will, of course, determine the focus of the discussion and the detailed questions to ask. However, across industries, every corporate director—IT savvy or not—will benefit from reviewing the following questions as a starting point for shaping a fruitful conversation with management about what the company needs to do to become a technology winner.

1. How will IT change the basis of competition in our industry?

Technology is making boundaries between industries more porous and providing opportunities for attacker models. For example, in the banking industry, online consumer-payment products such as Square—a mobile app and device that enables merchants to accept payments—are challenging traditional payment solutions. Free Mobile, a French telecommunications attacker, has captured significant market share by offering inexpensive mobile voice and data plans, in part by offloading some of its traffic onto the home Wi-Fi access points used by its broadband customers.

For incumbents in many sectors, technology is becoming an arms race. Companies are harnessing technologies such as social media and location-based services to reinvent the customer experience and capture market share.

Questions to ask:

• Who are our emerging competitors?

• How is technology helping us win against traditional and new competitors?

• How can we use technology to enter new markets?

2. What will it take to exceed our customers’ expectations in a digital world?

Customers are being educated by e-commerce leaders like Amazon and Apple to expect an ultraconvenient experience, personalized in real time. Attackers in many industries are differentiating themselves from incumbents through convenience and service. Digital finance company Wonga, for example, settles loans in 15 minutes.

As a result, customer expectations are rising quickly. Simply meeting these enhanced expectations can be a major effort for organizations that were not born digital. For instance, retailers may need to step up their development of digital channels. Banks, insurers, and telecommunications players may need to automate end-to-end sales and service processes so that customers can interact with the company in real time in an error-free digital environment. The bar is high for delighting customers in a digital world. Often, doing so requires investment in sophisticated big-data capabilities that use social, location, and other data, for example, to attract potential customers to product promotions at stores in their vicinity.

Questions to ask:

• How does our customer experience compare with that of leaders in other sectors?

• What will our customers expect in the future, and what will it take to delight them?

• Do we have clear plans for how to meet or exceed their expectations?

3. Do our business plans reflect the full potential of technology to improve our performance?

Technology expenses can be high, but they are relatively small compared with their potential to boost the operating performance of the business. Technology can improve business performance by driving revenues (for example, by using big data for cross-selling in digital channels), reducing overall costs (for instance, by automating end-to-end processes), and lowering risk costs (for example, in insurance, by using social-media data to aid risk calculations). Technology can also have a negative impact on performance (for instance, by reducing margins given increased transparency about pricing in the market).

By seizing the opportunities and mitigating the threats, companies can dramatically improve their performance. One retailer has doubled revenue growth by investing in the digital channel. A bank is targeting a 10 percent reduction of operating costs through automation of end-to-end processes. Ultimately, the strategy that emerges from an assessment of opportunities and threats should be an integrated plan that shows how the business will beat the competition using information over a multiyear horizon, not simply a revised annual IT budget. With the right agreement on the scale and scope of the opportunity and threat, the level of investment in IT becomes an outcome rather than a constraint.

Questions to ask:

• Has the P&L opportunity and threat from IT been quantified by business unit and by market?

• Will our current plans fully capture the opportunity and neutralize the threat?

• What is the time horizon of these plans, and have they been factored into future financial projections for both business and IT?

For the further reading, visit the Insights &Publications of McKinsey &Company