8976 itg 01 introto itgovernance

8/12/2019 8976 ITG 01 IntroTo ITGovernance

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IT has become crucial in the support, the

sustainability and the growth of the business

The pervasive use of technology has createda critical dependency on IT

This calls for a specific focus on IT

governanceConsists of the leadership and organizational

structures and processes that ensure that the

organizations IT sustains and extends theorganizations strategy and objectives

(Grembergen et al., 2004)

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IT governance can be defined as specifying

decision rights and accountability framework

to encourage desirable behavior in the use of

IT (Weill & Ross, 2004)

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1) IT governance is the structures and

processes that ensure that IT supports the

organizations mission

The purpose is to align IT with the enterprise,maximize the benefits of IT, use IT resources

responsibly and manage IT risks

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2) A structure of relationships and processesto direct and control the enterprise in order

to achieve the enterprises goals by adding

value while balancing risk vs. return overIT and its processes

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3) IT governance is the responsibility of theboard of directors and executive

management (integral part of enterprise

governance) and consists of the leadershipand organizational structures and

processes that ensure that the

organizations IT sustains and extends theorganizations strategies and objectives

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4) IT governance is the system by which an

organizations IT portfolio is directed and

controlled

- Describes

- A distribution of decision-making rights &

responsibilities among differentstakeholders, and

- The rules and procedures for making and

monitoring decisions on strategic ITconcerns (Peterson, 2004)

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IT governance is a board or senior management

responsibility in relation to IT to ensure that: IT is aligned with the business strategy IT and new technologies enable the

organization to do new things that were neverpossible before IT-related services and functionality are

delivered at the maximum economical value or

in the most efficient wayAll risks related to IT are known and managed

and IT resources are secured.

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IT management is focused on the internal

effective supply of IT services and products, and

management of presentIT operations

IT governance is much broader, andconcentrates on performing and transforming IT

to meet present and future demands of the

business (internalfocus) and the businesscustomers (external focus)

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The domain of IT management focuses on

the efficient and effective supply of ITservices and products, and the

management of IT operations

IT governance faces the dual demandof

Contributing to present businessoperations and performance, and

Transforming and positioning IT for

meeting future business challenges ITG is both internally and externally

oriented

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A desirable behavior is one that is consistentwith the organizations mission, strategy, values,norms, and culture such as behavior promotingentrepreneurship, sharing, and reuse or

relentless cost reduction ITG is not about what specific decisions are

made (that is management)Rather ITG is about systematically determining

who makes each type of decision (a decisionright), who has input to a decision (an inputright), and how these people (or groups) are

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Good ITG draws on corporate governanceprinciples to manage and use IT to achieve

corporate performance goalsEffective ITG encourages and leverages

the ingenuity of all enterprise personnel inusing IT, while ensuring compliance withthe enterprises overall vision andprinciples

So, good ITG can achieve a management

paradox: simultaneously empowering andcontrolling (Weill, 2004)

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All enterprises have ITG

The difference is that enterprises with

effective governance have activelydesigned a set of ITG mechanisms

(committees, budgeting processes,

approvals, IT organizational structure etc)that encourage behaviors consistent with

the organizations mission, strategy,

values, norms, and cultureWhen the desirable behaviors change,

ITG also changes!

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ITG cannot be considered in isolationbecause it links to the governance of other

enterprise assets (such as financial,human, intellectual property, etc)

Governance of the key assets, in turn,links to corporate governance and

desirable behaviors In the models of corporate governance,

one can organize the variables and

concepts used to describe the complexityof corporate governance mechanisms intotwo main categories: capital-related andlabor-related

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The capital-related aspects contain

variables like ownership structure,

corporate voting, the identity of theowners, and the role of institutional

owners.

The labor-related aspects refer mainly tothe stakeholding position of labor in

corporate governance (employee

involvement schemes, participatory

management, co-determination etc.

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Became a dominant business topic in the

wake of the corporate scandals of midyear2002Enron, Worldcom, and Tyco

Interest in corporate governance is not

new, but the severity of the financialimpacts undermined the confidence of

institutional and individual investors, and

heightened concerns about the ability and

resolve of private enterprises to protect

their stakeholders

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Contributed to the downward pressure on stock

prices worldwide

New US Govt. legislation required CEOs topersonally attest to the accuracy of their firms

accounts and report results more quickly.

Corporate America increased the level of self-regulation

Professional investors are prepared to pay large

premiums for investments in firms with high

governance standards

Firms best on corporate governance could

expect an increase of 12% in market value

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Corporate governance is defined as providing thestructure for determining organizational objectivesand monitoring performance to ensure that

objectives are attained [Organization for EconomicCooperation and Development (OECD), 1999]

There is no single model of good corporategovernance, but in many countries corporate

governance is vested in a supervisory board that isresponsible for protecting the rights ofshareholders and other stakeholders

The board in turn, works with a seniormanagement team to implement governanceprinciples that ensure the effectiveness oforganizational processes

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Desirable behaviors are different in enterprises.

Behaviors and not strategies create value

For instance, J&J relied on autonomous businessunits(individual J&J operating companies) to

create shareholder value for nearly 100 years.

Later, J&J evolved to specify desirable behaviors

like lowering costs, creating mechanisms for better

understanding the unique needs of individual

customers.

Transferring employees across J&J companies tohelp them identify with the corporation.

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The lower half of the fig 2 identifies the 6 key

assets thro which enterprises accomplish their

strategies and generate business valueSenior executive teams create mechanisms to

govern the management and use of each of

these assets both independently and together

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Key assets include the followingHuman assets: people, skills, career paths,

training, reporting, mentoring,competenciesFinancial assets: cash, investments,

liabilities, cash flow, receivables

Physical assets: buildings, plant,equipment, maintenance, security,utilization

IP assets:IP including products, services,and process know-how formally patented,copyrighted or embedded in theenterprises people and systems

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Information and IT assets: digitized data,

information, and knowledge about

customers, processes performance,finances, Info systems

Relationship assets: relationships within

the enterprise as well as relationships,brand, and reputation with customers,

suppliers, business units, regulators,

competitors, channel partners

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Governance of the key assets occurs via

organizational mechanisms (structures,

processes, committee, procedures, and audits)Some mechanisms are unique to an asset (IT

architecture committee)

Others cross and integrate multiple asset types(the capital approval process) ensuring

synergies between key assets

Maturity across the governance of the assets

varies

Typically, financial and physical assets are the

best governed, and information assets are

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Creating common governance mechanisms

across assets will not only increase integration,

but the resulting smaller number of mechanismswill be simpler to communicate and implement.

Education of the senior management team

about how governance mechanisms combine towork for the enterprise, is an essential and

ongoing task for effective governance

Many tangible benefits await better IT

governance (Weill & Ross)

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In governing IT we can learn from good financial

and corporate governance - CFO doesnt sign

every cheque

Instead, she sets up financial governance (who can

make what decisions and how)

She then oversees the enterprises portfolio ofinvestments and manages the required cash flow

and risk exposure

Tracks a series of financial metrics to manage the

enterprises financial assets, intervening only if

there are problems or unforeseen opportunities

Exactly the same approach should be applied to

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IT governance: Specifying the decision rights

and accountability framework to encouragedesirable behaviorin the use of IT

Aims to capture the simplicity of ITG and also its

complexityThe senior management team designs the IT

decision rights and accountabilities to

encourage the enterprises desirable behaviors

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If desirable behavior involves independent and

entrepreneurial business units, IT investment

decisions will be primarily with the business unitheads.

In contrast, if desirable behavior involves an

enterprise-wide view of the customer with asingle point of customer contact, a more

centralized IT investment governance model

works better.More centralized models for HR (and other key

assets) would also assist in achieving a single

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Problems occur when there is a mismatchbetween desirable behavior and governance.

Examplea particular business unit wanted to

lead its financial services industry segment witha new IT-enables service providing alerts toimportant clients via their handheld devices

The business unit had to pay the entire cost ofthe wireless infrastructure plus the applicationdevelopment cost for the business process

But, other business units and product offerings

would probably use the same infrastructureThus the innovator was asked to bear all the

risk and other business units could then utilizethe infrastructure, if successful (irrational?)

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Rational Solutionwas to introduce a dividend

system consistent with the firms culture

For a potential multi-business unit applicationfor the infrastructure, the CEO would fund some

of the cost (20%) from corporate funds

The innovating business unit would make theremaining infrastructure investment

If other business units later utilized the

infrastructure, the innovating business unit

received a dividend of one-third its cost from

each business unit

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This approach encouraged early adopters and

created infrastructure to foster future innovation

across the enterprise.The new funding mechanism, implemented via

the executive management, capital investment,

and IT architecture committees, carefullybalanced risk and reward, encouraging rather

than discouraging desirable behavior

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The example highlights two complementary

sides of governance articulated by OECD

Behavioral sidethe way managers,

shareholders, employees, creditors, key

customers, and communities interact with each

other to form the strategy of the company

Normative sidethe set of rules that framethese relationships and private behaviors, thus

shaping corporate strategy formation. These

can be the company law, securities regulation.But, they may also be private, self-regulation

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8976 itg 01 introto itgovernance

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