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Guidance for Directors on Disruptive Change

Every organization needs to be able to not only anticipate and address the inevitability of change that might disrupt its business, but be prepared to take advantage of the opportunities that will present themselves.

We talk about risk as if every uncertainty has a downside.

We talk about opportunity as if it is something that we choose to seize or not, and do little to ensure we identify and take full advantage. How do we expect to optimize our performance when we are cavalier about moving quickly to take advantage of opportunities that may rise and disappear quickly?

We talk about resilience as if we should stand tall, like a wall, in the face of disruptive change. Perhaps we should move, either out of the way or to align ourselves to benefit from the movement (think Aikidao).

In fact, all of these come into play. Situations and events can have multiple possible effects, some good and some bad, and are not limited to one outcome at a time. As a simple example, the loss of one employee is the opportunity to hire somebody with different skills, reorganize the function, and so on.

What distinguishes our times from years past is the pace of change.

Deloitte recently published Directors’ Alert 2014: Greater oversight, deeper insight: Boardroom strategies in an era of disruptive change. Here are some excerpts:

“Sometimes, changes occur that are more dramatic. In the past, disruptive changes usually happened only periodically and resulted in a sustained plateau – the automated assembly line, for example, which revolutionized industry in the early twentieth century, continues to be a central feature of modern manufacturing. Today, however, disruptive change has become a perpetual occurrence in which one change instantly sparks a chain of others. What’s more, these changes are being generated by a variety of factors – digital disruption created by continuing technological advances, regulatory reforms, economic turmoil, globalization, and shifting social norms and perceptions.”

“In this environment, everything and anything may change at any time as category boundaries are blurred, supply chains are disrupted, and long-standing business models become obsolete. With change, however, comes opportunity. Technological advances enable organizations to generate new revenues by targeting new customers, new sectors, and access new geographies while more fully automating back office activities and divesting of declining assets to reduce costs. The challenge for organizations is to recognize when disruptive change is occurring and to act quickly and decisively when it does.”

“In this environment of ongoing, tumultuous change, organizations and their management and boards of directors must respond quickly and adeptly if they are to effectively address all the disruptive changes that surround and affect them. For boards of directors, this often requires greater oversight – expanding their scope to include activities and areas that were not traditionally part of their mandate. At the same time, boards must ensure that management provides them with deeper insights into the organization’s activities so directors can clearly understand all of the potential opportunities and risks.”

Deloitte takes each area of major change (such as strategy, technology, taxation, regulatory compliance and so on) and includes questions for directors to use in discussions with management.

I am working with ISACA on guidance for directors and executives on how disruptive technology might affect corporate strategy. I came up with a few questions of my own that directors and top executives might use:

  1. How does the organization identify the new or maturing technologies that might be of value and merit consideration in setting or adjusting strategies, objectives, and plans?
  2. Who is responsible for the assessment process?
  3. Who determines whether existing strategies, objectives, or plans should be adjusted?
  4. Does the assessment consider the potential for value to be created in multiple areas of the organization, or does each functional area act on its own?
  5. Does the assessment consider, with inclusion in the process of related experts, potential compliance and other risks?
  6. Does the assessment consider the potential actions of competitors, suppliers, customers, and regulators?
  7. Does the board discuss the potential represented by new or maturing technology on a regular basis and as part of its discussions of enterprise strategy?

Do you think these are the right questions? How would your organization fare?

I welcome your comments.

  1. Linda DiPaola, CPA CISA CGEIT
    July 7, 2014 at 8:56 AM

    Good comprehensive alert. One thing that was implied but not emphasized enough in succession planning is cross-training of critical functions. This has been a focus in IT for years, but I think it gets missed occasionally on the finance side of the house, and is actually the down-side of downsizing – running lean and having critical functions concentrated in only a few, with no backup in case of employee turnover. This can be very disruptive to smaller companies if these people decide to either hold the company hostage for higher pay, or quit with no notice.

  2. Richard Fowler
    July 15, 2014 at 11:18 AM

    As an additional resource to consider, the Deloitte University Press recently published a white paper “Of Waves and Ripples,” a discussion on some recent reviews of disruption theory. When looking at disruptive technologies, a little background in how disruption impacts the organization in both positive and negative ways can greatly inform the decision.

  1. July 7, 2014 at 2:12 PM

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