Digital Governance

Leading and Thriving in a World of Fast-Changing Technologies

Jeremy Green, Stephen Daniels

• Publisher: Routledge
• Year: 2019
• ISBN:
  9780429663710
• Edition: 1
• Topic: Business
• Subtopic: Corporate Governance
• Index: Business

Digital Governance provides managers with a simple and jargon-free introduction to the impact that digital technology can have on the governance of their organisations. Digital technology is at the heart of any enterprise today, changing business processes and the way we work. But this technology is often used inefficiently, riskily or inappropriately. Worse perhaps, many organisational leaders fail to grasp the opportunities it offers and thus fail to "transform" their organisations through the use of technology.

This book provides an explanation of the basic issues around the opportunities and risks associated with digital technology. It describes the role that digital technology can play across organisations (and not just behind the locked doors of the IT department), giving boards and top management the insight to develop strategies for investing in and exploiting digital technology as well as arming them with the knowledge required to ask the right questions of specialists and to detect when the answers given are evasive or irrelevant.

International in its scope, this essential book covers the fundamental principles of digital governance such as leadership, capability, accountability for value creation and transparency of reporting, integrity and ethical behaviour.

1

Introducing digital governance

Summary

Digital governance involves the creation and monitoring of policies for investments in and use of digital technology across an organisation. The increasing power of computers combined with lower prices means that digital technology is now ubiquitous. As well as providing the communication and data processing traditionally managed by IT departments, digital technology impacts on the way people work, the efficiency of factories, the ability to sell to consumers, and the strategic management of organisations. Ultimately it is concerned with the long-term strategic issue of how organisations can thrive during a time of rapid technological change.

With this extended impact come extended risks and ever-growing opportunities. Digital technology is now far too important to be governed by one element of an organisation. It is a strategic issue that needs to be addressed at the very highest level, by the leaders of organisations. This is the manifesto that this book sets out: the boards of organisations need to take responsibility for setting the digital technology agenda, identifying the opportunities it brings and ensuring the associated risks are appropriately managed. It is only the board, with their viewpoint extending across the whole organisation, that can do this effectively.

A digital governance manifesto

We live in turbulent times. The scale and nature of emerging risks around the use of digital technology in businesses and other organisations, including privacy, security and mental well-being, represent a real threat to organisational survival, let alone success.

At the same time, public expectations are on the increase, often out of line with what is possible for organisations to deliver. And alongside these expectations, new regulatory and legislative obligations, often transnational in effect, are also emerging.

In addition, there is a growing perception that the leaders of many organisations have failed to make the grade in terms of governance. Shareholder revolts, which have become increasingly common, are a symptom of this, often triggered by perceived or actual under-performance.

Why is this happening? We believe it is because we are living through a digital revolution that has been progressing at a breakneck pace for the last 20 years, a revolution that sometimes seems as if it is leaderless, rudderless and out of control.

This revolution is being driven by a number of new realities. Computers are ever-cheaper with more processing power. Machines continue to shrink, making them easier to embed in other machines. The interfaces between computers and humans are becoming more effective, meaning that some computers can actually be considered for physical embedding in people. Software development costs are falling, facilitating innovation. Enhanced sensors and extensive connectivity provide improved data collection, sharing, access and tracking. And new business services offering the opportunity for small organisations to rent massively powerful computing by the hour create an asymmetric environment where small and agile companies can now compete with international corporations without the need for huge investments in technology.

A common and widespread reaction of many leaders to this seems to be to treat digital activities as either a veneer on the traditional organisation, or a side issue to be delegated to an IT director or even some sort of stand-alone element of the organisation such as a digital division.

This treatment is then used to justify limited engagement with digital technology at board level, and to validate a perception that there is little or no need for the board to learn new skills to manage it.

We believe this attitude to be a critical mistake. Digital technology is of fundamental strategic importance to any organisation. And so, it follows that digital governance is also of fundamental importance to the organisation – and to its leaders.

This is the manifesto that we outline in this book: governing bodies must engage closely with digital technology and treat it as central to their governance activities, just as they treat issues such as cash flow, talent management and corporate reputation.

Understanding how digital technology should be governed is no easy task, however. For a start, there are many digital untruths that cloud judgements and decision making. You will probably have heard, and may even have believed, a number of widely accepted statements such as:

• Everyone shops online these days. Even if this were true, which it isn’t, 80% of UK retail is still offline (1) and the figure for the USA is nearer 90% (2).
• No one watches TV anymore. UK adults watch 3 hours and 20 minutes of television a day on a TV set (3) and even 18- to 34-year-olds watch over 2 hours a day on average, a third of which is online, e.g. Netflix and BBC iPlayer (4).
• Direct mail doesn’t work anymore. The return on direct mail is still an average of £3.22 for every £1 spent (5).
• You don’t need anti-virus software on an Apple computer. Apple admitted that its devices are not immune from malicious software back in 2012 (6).
• Everyone has a smartphone these days. Not quite: around 20% of people in the UK and 45% of people in Japan don’t own a smartphone (7) and globally the figure is nearer 60% (8).

Even if you avoid believing untruths, deriving an appropriate strategy and framework for digital governance is by no means an easy thing to do. There are numerous considerations, often conflicting. Trade-offs will undoubtedly be the order of the day and collaborations, for instance within trade associations or value chains, will be key – even if that means you are sitting down with the enemy.

Hard decisions will be needed. How can we decide between what is possible to do and what is worthwhile doing? Should we be at the bleeding edge of technology or should we be followers? Should we follow a stepped approach to digital transformation, or do we need a big bang? Should we be loud and proud about digital investments (which might go wrong) or quiet and reserved? The list is a long one.

Certainly, the only things about digital governance that there’s agreement on are: there’s no “one size fits all” answer; best practice is still being identified and codified in standards; and there’s a dearth of success stories out there.

Some definitions

Throughout this book we have used “governing body” and “the board” interchangeably. We have done so as we believe that the substance of this book is applicable to all organisations. Similarly, if we have used “company” elsewhere, that is not intended to limit our message to commercial organisations.

Our use of “top management” is a reference to the executive community as against the board of directors or governing body to which it is normally subservient, as the duties of each are materially different, remembering of course that in many organisations some board-level directors will have an executive function.

The scope of digital governance

All organisations use digital technology to communicate with their stakeholders, to manage and transfer money, and to enable their operational processes. Technology underpins the money and people in organisations. It needs to be a key focus of organisational leaders and of top management reporting on its executive activity to the governing body.

The Institute of Charters Accountants in England and Wales (ICAEW) (9) defines corporate governance as follows: “Corporate governance is about what the board of a company does and how it sets the values of the ­company, and it is to be distinguished from the day to day operational management of the company by full-time executives”. (10) This definition neatly summarises the split of responsibilities and validates that digital governance is therefore merely one element of corporate governance – but an ever-more fundamentally important one.

It should also be noted though that digital governance and IT governance are not the same. IT governance can be defined as the processes that ensure the effective and efficient use of IT in enabling an organisation to achieve its goals. It is very much the responsibility of the people who head up the IT function in organisations and its concerns are often short-term.

Digital governance is wider than this. Yes, it encompasses IT and the processing of data and information. But it is also concerned with the way that data can be used to make strategic decisions. It is concerned with the way that people’s work and home lives are affected by the way they use digital technology during work hours. It is concerned with the way that factory machines can be designed and maintained with the help of digital technology such as augmented reality and digital twins. Ultimately it is concerned with the long-term strategic issue of how organisations can thrive during a time of rapid technological change.

As with corporate governance more generally, digital governance requires that we consider a number of elements when thinking about how digital governance needs to be established:

• Corporate objectives and values. Governance starts with the mission, values and goals of the organisation and how they are achieved. In the case of digital governance, there is a need to understand how the use of existing or eme...