IT Governance

ITU
Thursday, March 2, 2006 Michael Holm Larsen, Ph.D. E-mail: holmlarsen@gmail.com

Agenda
IT Governance: Learning Objectives Highlights from last lecture IT Governance Mechanisms IT Decisions IT Governance Archetypes Case: Novozymes IT Governance Review and Design Summary

Learning Objectives
To understand Concepts and Principles of IT Governance. To be able to reivew and design IT Governance structures in organisations.

Highlights from last lecture

E-Business Models

Elements of a Business Model

Definition: An architecture for product, service and information flows Business actors Actor roles Potential benefits Sources of revenue
Timmers (1998)

A List of E-Business Models

E-Shop E-Procurement E-Auction E-Mall 3rd Party Marketplace

(Taxonomi 2)

Virtual Community Value Chain Service Provider Collaboration Platform Information Broker
Timmers (1998)

Evaluation of an E-Business Model

- Lazer & Livnat (2001)
A five-step evaluation process of e-Business models based on specific questions regarding the economic viability of the e-Business model. These are:
1. 2. 3. 4. 5.

What market failures and transaction costs are addressed by the business model? How effective can the e-commerce firm be in reducing the market failures or transaction costs? Will the e-commerce company be able to expropriate benefits from customers? What are the necessary resources to conduct the business? Can competitors erode profits? (sustainable profits; risks (market, technology, financial); sensitivity)

The transaction costs address in particular sellers transactions costs of order taking costs, recording costs, display costs, mailing costs, and marketing costs; buyers transactions costs of transportation costs, timing of transactions, information gathering costs, information processing costs; and other benefits as personalization, price transparency, market making, and network externalities. Lazer & Livnat (2001)

Evolving the Business Model

4 mechanisms (cf. Applegate 2001): Enhance. By adding new features and improving existing ones. Expand. By adding new offerings or entering new markets with the same offering. Extend. By adding new BMs or new businesses. Exit. Exit the business or market or drop a product/service offering. Think also value webs as a supplement to value chains.
Applegate (2001)

IT Governance

What is IT Governance ?
Definition: IT Governance is defined as specifying the decision rights and accountability frameworks to encourage desirable behaviour in using IT.

Weill & Ross (2004:2)

What is IT Governance ?
Definition: IT Governance is defined as specifying the decision rights and accountability frameworks to encourage desirable behaviour in using IT. What do we need to investigate further:
Decision rights Accountability frameworks Encourage Desirable behaviour (for whom? individuals and groups) (IT Governance mechanisms) (empower & control) ( vision and values, strategy and policies, norms and culture) Weill & Ross (2004:2)

What kinds of decisions?

PERSPECTIVE

Outward

Accountability

Strategy

Inward

Monitoring

Policy

Past and Present TIME FRAME

Future

Alternative Definitions of IT Governance

Definition: IT Governance is defined as a structure of relationships and processes to control the enterprise in order to achieve the enterprises goals by adding value while balancing risk versus return over IT and its processes.
IT Governance Institute, www.itgi.org (2000)

IT Governance is the organisational capacity exercised by the board, executive management, and IT management to control the formulation and implementation of IT Strategy and in this way ensure the fusion of business and IT.
Grembergen (2002)

The Role of IT Governance

IT infrastructure management IT GOVERNANCE IT use management IT-based innovation

Project management

Source: Sambamurthy and Zmud, MISQ, June 1999

Exercise: Pair & Share

What kind of IT Governance Principles exists, and what is their purpose ?

IT Governance Mechanisms
Formal integration structures involve appointing IT

executives and accounts, and institutionalizing special and standing IT committees and councils (Decision structures)

Formal integration processes describe the formalization and

institutionalization of strategic decision-making/monitoring procedures and performance (Alignment processes)

participation of and collaborative relationships between corporate executives, IT management, and business management (Communication structures) and shared learning between principle business and IT stakeholders (Communication processes)

Relational integration structures involve the active

Relational integration processes describe strategic dialogue

How Are The Decisions Formed and Enacted ?

Governance Mechanisms
Executive committee IT council of business, IT executives IT leadership committee Architecture committee Business/IT relationship managers Process teams with IT members Service-level agreements Chargeback arrangements

Objective
Take a holistic view Focus on driving value Coordinate across the enterprise Identify strategic technologies Ensure feedback, good iteration Take a process view Specify, measure IT services Shape behavior, recoup costs

Effective IT Governance Principles - Examples

Decision-making structures
Business/IT relation ship managers Process teams with IT members Achitecture committee

Alignment Processes
Tracking of IT Projects and resources consumed Service-level agreements (SLAs) Formally tracking of business value of IT

Communication Approaches
Office of CIO / IT Governance Work with managers when they fail to follow the rules Announcements from senior management

5 Major IT Decisions

1. 2. 3. 4. 5.

IT Principles IT Architecture IT Infrastructure Strategies Business Application Needs IT Investments and Prioritasation

Elaborating the IT Decisions

IT Principles IT Infrastructure Strategies
High level statements about how IT is used in the business Strategies for the base foundation of budgeted-for IT capability (both technical and human), shared throughout the firm as reliable services, and centrally coordinated (e.g. network, help desk, shared data) An integrated set of technical choices to guide the organization in satisfying business needs. The architecture is a set of policies and rules that govern the use of IT and plot a migration path to the way business will be done (includes data, technology, and applications) Business applications to be acquired or built

IT Architecture

Business Application Needs IT Investment and Prioritisation

Decisions about how much and where to invest in IT including project approvals and justification techniques

Some Governance Modes

Monarchy (Centralisation)

Anarchy

Some Governance Modes

Feudalism (Decentralisation)

Federalism

IT Governance Archetypes
Execs Decision Rights or Input Rights Business Monarchy IT Monarchy Feudal Federal IT Duopoly Anarchy Individual or groups of CxOs Individual or groups of IT execs BU leaders, Pos or their delegates C-level Execs + min. 1 Business group IT Execs + 1 group Individual users X X X X X X X X X X X X Business Unit IT Leaders / Process Owners

3 Effective IT Governance Patterns

Weill & Ross (2004:133)

Domain Style Business Monarchy IT Monarchy Feudal Federal IT Duopoly Anarchy

IT Principles

IT Architecture

IT Infrastructure

Business Applications Needs

IT Investment & Prioritisation

3 1

3 2 2

3 1 1 3

Governance Performance = function of (cost effective use of IT, effective use of IT for asset utilasation, revenue growth, business flexibility)

Exercise: Pair & Share

Is IT Governance a process or an outcome ?

IT Governance Arrangements Matrix (GAM)

Domain Style

IT Principles
Input Decision

IT Infrastructure Strategies
Input Decision

IT Architecture
Input Decision

Business IT Investment and Application Needs Prioritization

Input Decision Input Decision

Business Monarchy IT Monarchy Feudal Federal Duopoly

IT Governance Design Framework (GDF)

Enterprise Strategy and Organisation

IT Governance Arrangements

Business Performance Goals

IT Organisation and Desirable Behaviour

IT Governance Mechanisms

IT Metrics and Accountabilities

Harmonise what ?

Harmonise how ?

Exercise: Group Work - The Case og Novozymes

Questions to consider:
1.

Which Governance Arrangements does Novozymes apply ? To what extend is the IT Governance Design of Novozymes harmonised ? To what extend is the current IT Governance structure sensitive to corporate and national culture (a Globalisation question) ? Which theoretical challenges/discussions may the case lead to?

2.

3.

4.

Readings (you may skip section 2): Larsen, M.H. & Pedersen, M.K. & Andersen, K.V. (2006). IT Governance: Reviewing 17 IT Governance Tools and Analysing the Case of Novozymes A/S. Proceedings of the Hawaii International Conference on System Sciences (HICSS-39).

Reviewing and Designing IT Governance

Map the organisations current governance
Governance Design Framework (GDF) Governance Arrangements Matrix (GAM)

As-Is Analysis

Gompare the GDF and GAM

How well are the objectives of the GDF achieved by the arrangements of the GAM? Focus on performance goals not being achieved. How might governance arrangements be tweaked to adress performance goals?

Audit IT Governance Mechanisms

How many mechanisms are in use? Do the mechanisms overlap across more than one key IT decision? Are the mechanisms also used to govern the enterprises other assets? Are the mechanisms effective independently and together?

Reviewing and Designing IT Governance

Design the To-Be Governance Structure

Debate GDF with senior management Particular focus on upper left and right boxes of GDF, and the middle box of GDF. Benchmark governance patterns with industry-leading organisations based on similar performance goals. Governance design: Tailor a Governance Template to the organisations culture, structure, strategy, and goals. Emphasis on alignment of incentive and reward systems with IT Governance.

To-Be Analysis

Transform to the To-Be of the GDF and GAM of the organisation

Implementation

Communicate, teach, convince, refine, and measure the success of IT Governance.

Variations in Governance Patterns

Factors: Strategic and performance goals Organisational structure Governance experience Organisational size and diversity Industry differences Regional and cultural differences

8 IT Governance CSFs
Critical Success Factors: 1. Transparancy 2. Actively designed 3. Infrequently redesigned 4. Education about IT Governance 5. Simplicity 6. An exeption-handling process 7. Governance designed at multiple organisational levels 8. Aligned incentives

Exercise: Pair & Share

McKinseys 7S Management Framework

Strategy Structure 7S Style Shared values Skills Systems

How does IT Governance affect management of the 7S of an organisation ?

Staff
Peters & Waterman (1982). In Search of Excellence.

IT Governance and Corporate Governance Definition of Corporate Governance:

Corporate Governance is defined as providing the structure for determining organisational objectives and monitoring performance to ensure that objectives are attained. (OECD 1999).

What is the relation between IT and Corporate Governance ?

Lessons Learned: Manglende Corporate og IT Governance Mekanismer i Lego

De rapporterings- og planlgningsvrktjer, vi havde i Lego var bygget til en anden verden. S det, jeg nok har lrt som bestyrelsesformand, er, at du selv er ndt til at g helt ned og sikre dig, at systemerne fungere selv om det lyder pedantisk og bogholderagtigt. Det er ikke nok at sidde og vre en stor strateg. Mads vlisen, Januar 2005.

Sprgsml ?