Digital efforts due to their profound impact on business landscapes require establishing a Board Committee with a mandate to guide the company’s strategies and govern the realization life cycle spanning opportunity identification, investment decisions and implementations.

Businesses pursuing a strong growth agenda are realizing that technology is inextricably linked to their actions on the ground.  Their business strategy and technology strategy are increasingly becoming indivisible as they attempt to harness IT solutions to effectively compete and sustain growth in the market place. A study by Gartner on CEOs’ priorities for next two years indicates the importance CEOs have placed on technology.  In the study, IT is ranked 5^th surprisingly ahead of profits and new product that are ranked 6^th and 8^th respectively.

There is no industry that has not been impacted by digital. The intensity may vary but not the intent. Companies can hardly take a ‘will not affect us’ position when they witness changes around them. Hence, it is impinging on them to be pro-active and continuously reshape their strategy fusing strong business models and impactful technologies.

As digital takes the centre stage in the strategy conversations, companies try to ascertain who should lead the digital programs; whether it is CEO, CMO or CIO or the need for a new role like Chief Digital Officer and who the principle stakeholders are. However, while this debate gets traction, one group of key stakeholders does not seem to appear frequently in the deliberations; the Board of Directors. The Board’s involvement seems to be largely limited to providing approvals for digital investments and possibly review them if they come up during Board meetings.

When we try to investigate the extent of Board’s involvement, a quick scan of the constitution of the Board of a few randomly picked companies, would tell us that most of them, including a few leaders, do not have a Board committee for technology. While it is common to find committees for Audit, CSR or Shareholder Relations there is not one for technology and /or innovation. There could be reasons that are legacy related but as the businesses are increasingly driven by technology, one wonders whether the Board should play a more active role than be a passive participant. Consider the following:

• Technology is no longer seen as a mere enabler of business process but a strategy that can shape and employ new business models
  
• Nimble and new age competitors that have technology as the core of their businesses have the potential to disrupt the incumbents to the extent of even marginilising them in the market place
  
• Relationships with customers and vendors are increasingly determined by technology savviness than purely based on traditional strengths like brand or products.  A study by McKinsey suggests that about half of M&A successes depend on IT, which emphasises the strategy play of IT.
  

Given the high stakes, the rationale for the existing committees could well be applied to justify the need for a technology committee or better, a broad based digital committee. It can be modeled along the constitution of other committees with an aim to provide guidance and conduct periodic reviews of the digital programs.  The charter of a Board committee normally covers the mission, membership, meeting frequency and duties and responsibilities. Let us see how these apply to a digital Committee.

The Mandate

The mandate of the digital Committee would be to assist the Board and guide the company in the digitization efforts.  The committee can support the executives to strategise transformative digital programs to be an early mover in the market or quickly respond to competitors’ actions that may threaten the company’s position. The role of the Board committee becomes more prominent for small and mid-sized companies that may lack credible leadership across levels and resources to pursue successful digital programs.

Membership and Meetings

The committee should ideally be chaired by an independent director in the Board and can consist of fellow directors with need based support from executives. They can enlist experts and consultants to guide them where required. The committee can work with a structured plan that can act as a baseline and meet as frequently as possible with agreed minimum number of meetings.

The Responsibilities

The digital Committee needs to focus inter alia on 4 areas:

1. Digital Strategy

2. Portfolio Management

3. Leadership and Resource Management

4. Program Management

Digital Strategy - Asses Strategic Importance of Technology

A starting point for the committee could be to measure the effectiveness of existing technologies in their capability and flexibility to address the current business issues, respond to changing market conditions and scale up for future possibilities. The committee should guide formulating a digital strategy that can propel the company into the desired growth trajectory. The committee should also help move the strategy exercise beyond the CIO’s office by encouraging organization-wide participation and enlisting customers, business partners and industry experts where required.

The committee should continuously challenge their CxOs to ably leverage technology to further gains in areas such as business performance, employee comfort and customer satisfaction.  Their readiness should be measured against the new-age or technology savvy competitors’ efforts that may have the potential to threaten the position of the company in the immediate or near terms.  Armed with such reviews, the committee should periodically monitor the progress of technology strategy execution and ensure alignment and refinement to the changing business contexts.

In short, the committee should direct digital strategy in the following ways:

• Establish a ‘Digital Maturity’ scale that can reflect company’s position and market actions and that can measure the effectiveness of the current usage of technology and plans for the future.
  
• Collaborate with the leadership team, customers and business partners  to jointly formulate or refine technology strategy
  
• Periodically review the technology strategy execution and jointly address implementation issues.
  

Portfolio Management- Construct a right portfolio of digital programs

IT Portfolio management would typically mean optimizing the IT assets of the company by refreshing the portfolio through introducing or dropping IT assets due to technical reasons such as obsolescence, scalability etc. Such decisions normally fall in the domain of CIO. However, companies need to take portfolio management to a more strategic level where the decisions are based on business imperatives and future demands. This is where the Board committee can step in and guide the executives.

In most organizations, a substantial portion of the IT budget, even to the extent of 70% go to maintenance of existing IT assets and the rest on fresh investments. This undermines the company’s ability to explore and invest in future-ready technologies. The Board should guide the company to swap the ratio in gradual manner.

The future-ready can be looked at in two categories – the near future state and future state; the near future state is those technologies that have been proven but not yet part of the mainstream usage. An ideal company would have tested and accepted prototypes or already using these technologies in a small way. SMAC stack can be a good example for this category. The future state is the technologies that are in early stages of development, not yet proven but the company can start building prototypes. A good example could be IoT or Cognitive solutions. The Board would need to ensure appropriate investments in the future technologies while optimizing the spend on operational systems.

To summarise,  the Board’s involvement in this area could cover the following:

• Ensure the company bets on immediate and future technologies
  
• Budgeting that  commensurate with the bets
  
• Align performance measures and reviews to the investments
  

Leadership and Resourcing- Enlist right owners and adequate resources empowering them for success

Some companies still see digital as a technology foray and any attempts on digitization land at the door of CIO.  A seasoned CIO could be qualified to lead digital programs, however it may not always be effective as digital is often and should be deeply welded into the differentiators be it customer service, marketing or operations.  Hence, in order to realize the intended benefits and to fix end-to-end ownership, the efforts may need to be led by the most appropriate head. It could be function heads such as the CMO or Chief of Operations by a CDO.

The Board Committee is best placed to formulate guidelines on ownership and governance for digital programs that can cut out layers of decision making and minimize ‘baton-passing’ risks. The framework thus developed could empower and encourage the right owners to lead and navigate through the complexities of business models, technology and people alignment. A number of digital programs may need to be executed rapidly to either grab an opportunity or solve a pressing problem. Such fast paced moves bound to have their share of missteps, hence it is important that the framework encourages owners to take risks without the fear of failures.  The Board may choose to intervene to sufficiently resource the programs to ensure there the programs do not face any hurdles.

Hence, the Board can assist in the area of leadership and resourcing in the following ways:

• Formulate guidelines and mechanisms to plan and execute digital programs
  
• Bring in the right leadership to own the programs and ensure adequate resources to support the programs
  
• Evaluate business case and approve investments
  
• Help bring an high performing culture and encourage the teams to take risks and not intimidated by failures
  

Program Management – Provide for execution oversight and course corrections to ensure benefit realization

Execution is where the rubber meets the road and comes with inherent risks due to complexities involved. Many technology projects fail due to increased costs, inordinate delays and poor outcomes. According to an Oliver Wyman analysis, the world’s largest 500 com­panies lose more than $14 billion every year because of failed IT projects. 

The Board has to take active role in reviewing the progress of the digital initiatives periodically and ensuring the value is realized on the investment.  Where possible, one of the members of Board digital Committee can be drafted into the Steering Committee of implementation projects to monitor the progress and intervene when required.

Digitization is generally an enterprise-wide effort and depending on the areas could also focus on extended enterprise involving business partners and customers. The transition could be quick and may disturb the existing structures and positions.  Hence, driving change is crucial to achieve desired results.  The committee needs to strategise change management programs, communicate frequently with stakeholders to demonstrate that they are fully behind the initiative and ensure participation across groups. 

Most companies miss out on learning and gaining knowledge. What one arm of the organization does is not known to other arm. It is critical to bring in a learning culture in the company to know what works and what doesn’t and use the learning to improve in the execution of digital programs.  The Board committee should address this common flaw and force executives to share experiences across functions and group companies.

In short, the Board can involve in execution in the following ways:

• Measure value of incumbent IT projects and ensure they are in right track, adjust project mandates on the fly to suit business conditions
  
• Drive change, connect with stakeholders more frequently to know their feedback and ensure course corrections
  
• Encourage organizational learning that cuts across past and on-going programs
  

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The responsibilities outlined may indicate a higher involvement of Board in areas that normally fall in the executive domain. So do we expect the Boards to be more ‘hands-on’?  To what extent can they question and challenge the plans and proposed decisions of the executives?  The answer lies in recognizing what digital can bring in. It can both be an opportunity and a threat; when pursued incisively by the company it has the power to shape the business for the future, on the other hand competitors can potentially destroy the position of the company by their calculated moves.  The companies thus face opportunities beckoning growth on side and threat of even closure due to early start competitors on the other side.  Because such changes are rapid, Board’s direct involvement will ensure that the company’s sails are set in the right direction to navigate through a rough and highly competitive business environment.   

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ERP implementations involve high investments in terms of funds and effort though in recent times we see a number of ways ERP vendors attempting to reduce both. Having incurred large sums of money, businesses would like to know whether the implementation can be termed a success and if so what have been the returns of the investments. There can be a number of methods to assess the impact of the implementation. We may look at whether there has been better control of inventory or if there is more conversion of sales enquiries to order.   Here is a set of 10, completely different kind of measures, though off-beat, provide a good indication that the effort has indeed been rewarding. An advantage of these measures is that they can easily be observed.

1. The CEO (and CXOs) conduct their operational review using reports generated from ERP

This indicates the system has been fully tested and at that level, the leadership has faith in the system. Rest of the organization would be expected to follow suit.

2. People in Finance function leave on closing hours and don’t come on weekends

In islands of systems, finance function takes the entire load of integrating the data as Finance is the destination system. In an integrated system like ERP, the finance would get all the transactions by design. Hence, finance function may suddenly find they have lesser load.

3. Users find ERP functionality not adequate

When users get the benefit of the system to support their regular issues, they normally find the functionality inadequate because they tend to solve more work problems than the system is configured for.

4. Users don’t argue over correctness of data

A poorly implemented system would result in data integrity issues leading to unnecessary effort in reconciling data and inevitable blame game on who have lost the control on data.

5. XL no longer used as parallel recording / reporting system

The affinity to XL for those who are familiar with it does not go off easily. If users perceive some gaps, they would try to fill that using XL – these could be in the form of some additional transactions, calculations or reports.

6. IT folks learn more from the users than the other way

Due to continuous usage, users pick up more knowledge about the product than the IT follks who may not have seen all scenarios.

7. Review meeting has more of business representation and less of IT folks

When there is no confidence in the system, the business review meetings would tend to have IT folks who understand the system for just in case situations – where IT folks would try quick fixing problems that get reported.

8. ERP vendor frequently asks for referral visits

There is no better marketing tool than sharing user experience. If users feel comfortable they may be flooded with requests for referral visits / calls from the ERP vendors.

9. There is no loaded truck waiting at the out-gate due to system issues

A common occurrence of a problem system is during despatch, a truck would be physically loaded with goods for transportation, but the transaction would not be completed - invoice cannot be generated or the system would show wrong goods – delaying the departure of the goods.

10. CIO spends most of his/her time with business than with IT

An indication of good implementation would be less of fire-fighting on maintenance and upkeep issues. A CIO spending his/her time more for business would mean less of maintenance issues and more focus on planning.

In this second part of the blog, we will discuss the process to be followed in a benefit oriented approach to implementing ERP at SMBs. Appointing a Benefit Realization Manager (BRM), the role we discussed in Part I, and following the process recommended in this edition can help SMBs realize better returns to their investments in ERP.

Generally, ERPs will be expected to bring in a more disciplined approach to conducting the business with their ‘single source of truth’ premise and integration features. However, these benefits may not necessarily result in business value measured in terms of revenues, costs or customer service that commensurate with the high investments of such initiatives. Hence,SMBs, embarking on these programs, need to ensure that their efforts,significant in most cases, are influenced by business outcomes than technology gains right from the planning stage through the succeeding stages.

Planning Stage - Preparation of Business Case

Companies would typically require a strong business case to proceed with ERP investments. The document would include inter alia the need analysis, investments and the benefits expected. However, in most cases the benefits stated tend to be more qualitative like improve operations or achieve data integrity. However, in our approach, the Benefit Realization Manager (BRM) would need to document the benefits with reference to the outcomes and measures. Such outcomes and measures should be aligned to company’s business goals and agreed with the management.

Let us consider a company which is seeking revenue growth and operational efficiency. The benefits expected and the related measures could be illustrated in the following way:

This could be further detailed out along additional business goals and made specific to business units or regions if required. The business case document would then serve as the baseline requirements document during the implementation stage.

The BRM may need to document the current performance of the company against the listed measures to facilitate a pre and post ERP evaluation. Additionally, functional areas that need re-orientation in terms of process simplification or delegation in decision making could be marked at this stage and taken up for specific considerations during the implementation stage.

Post Implementation Stage - Benefit Realization Reviews and Course Corrections

After the system stabilizes with continued usage which may be for a period of 6 months, the BRM needs to conduct a comprehensive review of the system against the intended outcomes and measures.The review could cover the four areas indicated in Part I of the blog; business outcomes, process simplification, people empowerment and IT Costs. The measures can be compared against those taken earlier to see possible improvements. The review should ideally be repeated after another 6 months where the ERP would have processed a year’s transaction and results compared with the earlier ones.Changes should be analysed for course corrections if any. Such corrections may require additional functionality to be built or further simplification of the processes. 

As conclusion, SMBs would gain by following a benefit based approach than a technology implementation and would do well by entrusting such a responsibility to a Benefit Realization Manager - a senior professional in the organization. The BRM would need to work closely with the implementation team, communicate the benefits expected and follow a rigorous process of testing and review to ensure that the solution is indeed tuned to achieve the desired outcomes.

SMBs should follow a benefit oriented approach to ensure they get the maximum returns on their ERP investments and avoid the project being dictated by technology demands. Part I of the blog discusses the role of a Benefit Realization Manager and Part II, the process to be followed for in such an approach.

ERP Systems constitute the core of the IT landscape of many businesses now. For a long time, due to the high costs, they were largely a prerogative of large companies in India. That situation may be changing now as we find a number of SMBs (small and mid size companies) opting for these solutions. There could be several factors for this shift. The important among them may be the realization at ERP vendors that they are losing out on a large market base and as a consequence rushed to occupy that space with quickly rustled up stepped-down variants of their products. These were priced lower than the original versions and came with reduced scope that seems adequate for SMBs. To some extent, the advancements in technology such as cloud and falling hardware costs have also contributed to higher adoption. Further, the expanding vendor base of ERP developers, re-sellers and implementation agencies have come together to provide meaningful choices to SMBs to select the best fit ones that suit their businesses.