schwarz it governance

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IT Governance

Dr. Andrew SchwarzAssociate Professor, ISDS

May 19, 2010


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Flores MBA Program E. J. Ourso College of Business

The Importance of IT

Governance The IT Governance Global Status Report (2004)

80% of CEOs recognized that IT governance or some thereof is required to

resolve IT issues

57% of CEOs looked to IT governance to align IT strategy (and 53% to manageIT risks)

The report concluded that solutions in this domain are not yet available

Gartner

Firms with superior IT governance have at least 20% higher profits (ROA) thanfirms with poor governance given the same strategic objectives

Blind consulting report 87% of executives believe that IT is critical to their companies strategic success

33% of leaders reported that IT is very involved

30% reported business executive responsible for strategy works closely with ITdivision


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Characteristics of High IT

Governance Performers More focused strategies

Greater differentiation between customer intimacy, product innovation,or operational excellence

Clearer business objectives for IT investment Greater differentiation between supporting new ways of doing business,

improving flexibility, or facilitating customer communication

High level executive participation in IT governance

Greater involvement, impact of CEO, COO, Business Heads, BusinessUnit CIOs and CFO

Who could accurately describe IT governance arrangements

Stable IT governance, fewer changes year to year

Well functioning formal exception processes

Formal communication methods


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Governance and Strategy If strategy is where we are headed, governance defines

how we make the decisions that we need to execute our

strategy Research has suggested that structure follows strategy

(Chandler)

Strategy dictates what the organization needs

Single product, single plant, single function organizations tend to besingle-owner with no clear functional differentiation of strategic,administrative, and operating decisions

Single product, multi-plant, multi-function organizations tend to havea functional structure

Multi product, multi-plant, multi-function organizations tend to have

a multi-divisional structure


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Governance and Strategy (2) However, structure also restricts strategy

Organization can restrict the ability of the organization to quicklyreact to changing market conditions

Thus, there is a mutually enhancing relationship betweenstrategy and structure

However, at a higher level, it is crucial that strategy and structurealign with one another

Alignment is therefore the degree to which the informationtechnology mission, objectives, plans, and technology support andare supported by the business mission, objectives, plans, andbusiness processes


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Impact of IT-Business

Alignment

IT-BusinessAlignment

Firm

Performance

ITEffectiveness


7/37Flores MBA Program E. J. Ourso College of Business

Impact of IT-Business Mis-Alignment

IT-BusinessMis-Alignment

Little return forIT investments

Poor utilizationof IT resources

Sub-optimalfirmperformance

Higher ITspending

Missed ITopportunities



Types of Alignment Strategic alignment

Congruence of the firms IS strategy with the business

strategy

Structural alignment

Congruence of the business and IS structures withinthe organization

Social alignment

The level of mutual understanding of and commitmentto the business and IT mission, objectives and plans



Key Issues in Strategic

Alignment Key considerations

Linked business and IS missions, priorities,and strategies

Interconnected business and IS planningprocesses, and resulting plans

Goal IS priorities, capabilities, decisions, and

actions to support those of the entire business



Key Issues in Structural

Alignment Key considerations

Location of IT decision-making rights

Reporting relationships

(De)centralization of IT services andinfrastructure

Deployment of IT personnel Goal

IT and business structures to supportorganizational objectives



Key Issues in Social Alignment Key considerations

Ensure line and IS executives arecommunicating

Obtain buy-in from line executive commitmentto IS issues and initiatives

Goal Ensure both business and IS executives have

a similar view of the role of IT in the firm



Study #1:

European Firms Randomly selected 500 organizations

across Europe

Annual survey of IT diffusion

CIO or IT executive respondent

Data modeled for organizationsparticipating in two subsequent years

58 firms in 2003 and 2004



Study 1 Results

Year 1IT-Biz Alignment

Year 1IT-Enabled

Biz Processes

Year 1StrategicImpact

Year 2

StrategicImpact

Year 1Operational

Impact

Year 2OperationalImpact

Impacts Y1 Strategy& Y1 Operations

Impacts Y1 Strategy& Y1/Y2 Operations



Study #2:

German Banks 1,020 questionnaires mailed to Germanys

largest banks

Chief Lending or Chief Credit Officer

Data modeled for those returning thesurvey

136 fully answered


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Study 2 Results

ITFlexibility

SocialAlignment

StructuralAlignment

Business ProcessPerformance


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IT Governance Defined The assignment of decision rights and the

accountability framework to encourage desirable

behavior in the use of IT Governance is really composed of three things

What decisions are to be made

Who will make each of those decisions What process will be used to make and communicate

those decisions


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Decision Categories1) IT Principles

High-level statements about how IT will be used to createbusiness value

2) IT infrastructure strategies State the approach for building shared and standard IT

services across the enterprise (typically technical)

3) IT architecture The technical choices that will meet business needs

4) Business application needs Where the business defines its application needs

5) IT investment and prioritization Defines the process for moving IT-based investments through

justification, approval, and accountability


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Decision Makers Governance defines two types of rights

Decision rights = who has the right andresponsibility to make a decision about how ITis used

Input right = who has the right to provide input

to a decision, but not make a decision?


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Decision ProcessStyle Definition Mechanism

BusinessMonarchy

C-level executives hold the rightto make decisions

Executive committee or ITcouncil with executivecommittee members

IT Monarchy IT executives hold the right tomake decisions

IT leadership council thatincludes corporate and businessunit CIOs

Feudal Business unit leaders havedecision or input rights

Business-only committee

Federal Rights are shared by C-level

executives and one other tier ofthe business hierarchy

Committees that draw from

several organizational levels

Duopoly One IT group and one businessgroup share a right

IT-business unit committee

Anarchy Individual end users hold a right None


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Allocating Decision and Input

Right Governance is concerned with who gets to make the

decisions for the 5 areas versus who gets input

What role do users play? What role does top management play?

Are there decisions that should be made by IT versus those thatshould be made other business units?

Who has the decision and input rights?

IT dominates or

User dominates


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Drivers towards User Dominance

User demand

Need for flexibility

Easy to buy pre-packaged software

Users desire to control their own destiny

Need for global firm, but local sensitivities


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Drivers towards IT Dominance

IT has skills that business unit does not Need for standardization and ensuring system

stability Business leaders not adept at envisioningpossibilities with IT, nor at determining feasibility

Need for corporate-wide data management Eliminate stovepipes

IT better at cost estimation and analysis


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Governance FrameworkBusinessMonarchy

IT Monarchy Feudal Federal IT Duopoly Anarchy

IT Principles

ITInfrastructure

ITArchitecture

Applications

ITInvestment


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Input and decision style patterns in IT governance of a range of organizations

Numbers are percentages of the 256 Gartner for-profitand not-for-profit enterprises studied in 23 countries in2002

Input Decision

IT principles0 27

1 18

0 3

83 14

15 36

Input Decision

IT infrastructurestrategies

0 7

10

1 2

59 6

30 23

Input Decision

IT architecture

0 6

20

0 0

46 4

34 15

Input Decision

Businessapplication needs

1 12

0 8

1 18

81 30

17 27

Input Decision

IT investment andprioritization

1

0 10

0 3

93 27

306

BusinessMonarchy

ITMonarchy

Feudal

Federal

Duopoly

0 0 0 1 0 1 0 3 0 1Anarchy

1 2 0 2 0 1 0 2 0 0Dont Know

2002 MIT Sloan Center for Information Systems Research (CISR). This framework is adapted from Weill & Woodham's work originally published and

copyrightedby the MIT Sloan CISR as Working Paper No. 326, "Don't Just Lead, Govern: Implementing Effective IT Governance," April 2002, and is usedby Gartner with permission.

Common decision rights styles

Common input styles

Domain

Style

30

7359

27


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Business and IT executive collaboration mark high IT governance performers

2002 MIT Sloan Center for Information Systems Research (Weill) and Gartner, Inc, drawing on the framework of Weill and Woodham, 2002.

IT principles IT infrastructurestrategies IT architecture Businessapplication needs IT investment andprioritizationBusinessMonarchy

ITMonarchy

Feudal

Federal

Duopoly

Anarchy

Domain

Style

Top three performers as measured by governance performance

1 2 3


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Not Effective Very

2002 MIT Sloan Center for Information Systems Research (Weill) and Gartner, Inc.

Top IT governance mechanisms focus on business and IT relationships

% respondentsusing

85

87

71

89

86

96

89

56

67

62

79

62

IT Governance mechanism effectiveness

1 2 3 4 5

Chargeback arrangements

Web-based portals, intranets for IT

Formally tracking ITs business value

Architecture committee

Capital approval committee

Service level agreements

Tracking of IT projects and resources

Process teams with IT members

Executive committee

IT council of business and IT executives

IT leadership committee

Business/IT relationship managers


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Example of an effective IT governance arrangements matrix

2002 MIT Sloan Center for Information Systems Research (Weill) and Gartner, Inc. drawing on the framework of Weill and Woodham, 2002.

Exec comm

Biz leaders

Exec comm

IT leadership

CIO

IT leadership

Exec comm

Biz leaders

CIO

IT leadership

Biz leadersBiz pro own

Biz/IT rel mgs

Exec comm

Biz leaders

Biz leaders

Biz pro own

Cap appr

comm

Biz leaders

Biz pro own

Business/IT relationship managersBiz/IT rel mgsCIO, CIOs office and biz unit CIOs IT leadership

Business process ownersBiz pro ownBusiness unit heads/presidentsBiz leaders

Exec comm subgroup, includes CIOCap appr commExecutive committee C levels)Exec comm

Input DecisionIT principles

Input Decision

IT infrastructurestrategies

Input Decision

IT architecture

Input Decision

Businessapplication needs

Input Decision

IT investment andprioritization

BusinessMonarchy

ITMonarchy

Feudal

Federal

Duopoly

Governance mechanisms

Domain

Style

Input rights Decision rights


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Governance Best Practices There is no one best governance

arrangement

Tends to be.

Those seeking synergies among business unitsenforce-top down decisions

Those with autonomous business units emphasizelocal decision making

Those with both synergy and autonomy try toencourage faster decision making


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What is your Business

Orientation? Autonomy

Highly localized pressures

Business processes distinct

Synergy

High standardization pressures

Business processes integrated

Agility

High speed, flexibility pressures

Business processes adaptable


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Business & IT Orientation Autonomy

Emphasize BU decisions, negotiation, peer

socialization Synergy

Emphasize enterprise-wide styles and mechanisms

Agility

Emphasize ITs role in agility, the use of principles,

education


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Implement key IT governance styles and

mechanisms for your business orientationSynergistic enterprises Agility-focused

enterprisesAutonomy-focusedenterprises

Decision-making

styles

Tight corporate couplingbetween business and IT

executivesTop down mandatedtechnology decision making

Business and IT leaderscombine for specific

purposesEnterprise-widearrangements emphasizecoordination & learning

IT works with individualbusiness units and process

owners Emphasis on local businessdecision making

Focus of keymechanisms

Well developed businessand decision processesExecutive-level committeesHigh level centrallyreporting business-ITrelationship managers

Extensive use of ITprinciples Business ownership ofIT projects Planned IT-businesseducation experiences Transparency andCommunication

CIOs work through 1/1negotiationStandards achieved throughsocialization and peerpressure Business-IT servicearrangements are in place


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Top Performing Enterprises Top-performing enterprises govern IT differently from each other

and from average enterprises

Firms leading on growth decentralize more of their IT decision rights

and place IT capabilities in the business units

Firms leading on profit centralize more decision rights; seniorbusiness leaders make the major IT decisions

Top performers design their IT governance to reinforce theirperformance goals and link IT governance to the governance of their

other key enterprise assets and desired behaviors.


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Emerging Trends Organizational governance is less likely to be centralized or

decentralized

Hybrid, federal, or dispersed allocation of decision rights

Focus on demand side and supply side governance

Management of risk, finance, and outsourcing will become significant We do not know how to do this yet

Emerging models for governance

Emergence/proliferation of new organizational roles

CIOs will have to balance their roles between Managing the IT business of the business

Seeding, stimulating, influencing, and driving IT-enabled businessinnovation


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Business Technology

Council

Project Managers

Business Analysts

Technical Analysts

IT Investment Board

Office of Architecture

& Standards

Head of Enterprise Architecture

Business Architects

Technical Architects

CIO

CTO

Head of IT Finance

(e.g. CFO of IT)

CIO

CFO

Selected Business

SVPs

Developers

Trainers

Head of IT Strategy

CIO

Selected Business SVPs

Head of IT Applications

Functional Area Leads

Client Relationship

Managers

Project TeamsFunctional

Groups

IT Director

IT Strategists

Business Analysts

Office of the CIO

Head of IT HR

Head of Vendor Management

Head of IT Application Areas

Head of Portfolio & Program Mgt.

Head of Enterprise Architecture

Head of IT Communications

Chief Information Officer (CIO)

Chief Technology Officer (CTO)

Head of IT Security

Head of IT Risk

Head of IT Finance

Head of IT Strategy

Corporate Project

Approval Committee

Head of Portfolio &

Program Mgt.

Head of Enterprise

Architecture

Head of IT Strategy

Business Strategy Analyst

Finance Representative

Divisional Project

Approval Committee

Divisional Functional Heads

Divisional CFO

Divisional PMO and Finance rep.

Divisional CIO, Divisional CTO

Enterprise Functional Leads

IT Directors

Proliferation of IT Roles


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How do I Know if I am

Successful?Financial Goals

How should we appear tostockholder?

Vision:Metrics:

Performance:

Internal Business Process

What business processesshould we excel at?

Vision:Metrics:

Performance:

Customer Goals

How should we appear to

our customer?Vision:

Metrics:

Performance:

Learning and GrowthGoals

How will we improveinternally?

Vision:

Metrics:

Performance:


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Concluding Thoughts Getting governance right matters

Proliferation of methodologies

COBIG, ValIT, and others

All helping you to allocate decision andinput rights using different approaches

Innovation matters


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Thank You!

Dr. Andrew Schwarz

Louisiana State UniversityE. J. Ourso College of

Business

[email protected]

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