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
held accountable for their role 12
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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
ITG 29
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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
point of customer contact.31
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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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