The Use of Partial Least Squares Path Modeling in IT Governance Discipline

Humam ElAghaFaculty of Information Technology

Royal University for Women West Riffa, Kindom of Bahrain

halagha@ruw.edu.bh

Abstract — As a consequence of the continuous increase in the importance of Information Technology as a critical component of an organization’s day-to-day operations and its strategic capabilities, organizations have raised their concern to establish and implement mature and effective IT Governance. Using data from 20 organizations within financial services, telecommunications, manufacturing, and public service, this paper focuses on identifying the most influential IT governance domain for increasing the level of IT governance maturity and identifying the most influential IT governance mechanism for increasing the overall effectiveness of IT governance. Using Partial Least Squares (PLS) Path Modeling, this study found robust empirical evidence that the most influential IT governance domain is Monitoring of IT Performance Measurement and the most influential IT governance mechanism is the implementation of Corporate Communication Systems.

Keywords: IT Governance Domains, Maturity, Mechanisms, Effectiveness

I. THEORETICAL BACKGROUND

Research conducted by Weill and Ross [1] suggests that an effective IT governance structure is the single most important predictor of getting value from IT. They contend that firms achieving above average returns from IT investments must be making consistently better IT decisions, and effective governance is one of the ways these firms do this. Effective governance actively generates aligned goals – it does not just enforce compliance. The IT Governance Institute (ITGI) holds that the activity of generating this alignment of goals has to be pervasive: “Leveraging IT successfully to transform theenterprise and create value added products and services has become a universal business competency.” [16]. Furthermore, the IT Governance Institute [19] argues that mature IT Governance focuses on the following areas IT Strategic alignment, Value delivery, Resource management, Risk management, and Performance measurement.

Previous studies examining the effectiveness of IT governance mechanisms have produced interesting results [8] & [1]. According to [8], whose respondents were 80 auditors in Queensland, Australia, found that certain individual mechanisms, such as an IT steering committee, involvement of senior management and corporate performance measurement systems, were correlated positively with the overall level of IT governance effectiveness. Weill and Ross [1] surveyed CIOs from 256 enterprises in the US and identified fifteen of the most common IT governance mechanisms, such as a senior

management committee, an IT executive committee, an architecture committee, etc.

The main purpose of this study is to identify IT Governance Domains that contribute to mature IT Governance within firms and to identify IT Governance Mechanisms that contribute to effective IT Governance within firms. Moreover, this study will shed light on PLS path modeling as Structural Equation Modeling (SEM) technique, to reveal the strengths and weaknesses of PLS in general, and to deliver guidelines for its use in IT Governance discipline in particular.

II. RESEARCH FRAMEWORK AND HYPOTHESES

For the purpose of this study, we adopt our recently proposed IT Governance Conceptual Framework [9] and its corresponding formulated research hypotheses. In this framework, Alagha argues that the effectiveness of IT governance is affected by five IT governance mechanisms. The five IT governance mechanisms include Ethics/Culture of Compliance (ECC), IT Strategy Committee (ITSTRC), IT Steering Committee (ITSTEC), Communication Systems (CS), and Involvement of Senior Management in IT (ISMIT).

Moreover, Alagha argues that the maturity of IT governance is affected by five IT governance domains. The five IT governance domains include Alignment of Business and IT (ABIT), Monitoring of IT Resources, Risks andManagement (MITRRM), Monitoring of IT Performance Measurement (MITPM), Evaluation of Value Delivery (EVD), and IT Governance Development (ITGD).

Based on our research framework, the research aims at testing the formulated hypotheses in [9] for the purpose of identifying the most influential IT governance domain for increasing the level of IT governance maturity and identifying the most influential IT governance mechanism for increasing the overall effectiveness of IT governance.

III. METHODOLOGY

The instrument used in this study is the questionnaire to measure the research’s different variables. A 5-point likert scale is used to increase distinction between different levels. The survey instrument was validated through a pilot test with a sample of 30 organizational participants who were not included in the sample frame for the subsequent data collection.

2014 11th International Conference on Information Technology: New Generations

978-1-4799-3187-3/14 $31.00 © 2014 IEEE

DOI 10.1109/ITNG.2014.97

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Obtaining the sample data by surveying 250 respondents at 20 Emirati organizations within financial services, manufacturing, telecommunications and public service, with a 60% response rate, the collected data was analyzed using SPSS and SmartPLS 2.0 software. Different methods of analysis were used to assess the data gathered through the questionnaire. The main method used is the Partial Least Squares (PLS) Path Modeling. Other methods used are Descriptive Statistics, Internal Consistency Reliability, Exploratory Factor Analysis (EFA), Composite Variables, Tests for Normality, Transformation, Test for Outliers, and Correlation Analysis.

IV. THE RESULTS DISCUSSION

Ten research hypotheses were tested using the PLS Path Modeling algorithm and Bootstrapping procedures available in SmartPLS. Statistical evidence was provided to conclude that the supportive results enable the researcher to accept the ten hypotheses.

The results of the statistical analysis indicate that there is a significant positive relationship (Path Coefficient = .568, t = 14.923, p < .001) between Business/IT Alignment and IT Governance Maturity. This means that Business/IT Alignment positively influences the level of IT governance maturity within organizations.

The results of the statistical analysis indicate that there is a significant positive relationship (Path Coefficient = .568, t = 10.871, p < .001) between Monitoring of IT Resources, IT Risks and IT Management and IT Governance Maturity. This means that Monitoring of IT Resources, IT Risks, and IT Management positively influences the level of IT governance maturity within organizations.

The results of the statistical analysis indicate that there is a significant positive relationship (Path Coefficient = .659, t = 15.139, p < .001) between Monitoring of IT Performance Measurement and IT Governance Maturity. This means that Monitoring of IT Performance Measurement positively influences the level of IT governance maturity within organizations. It was noticed that the Path Coefficient for this variable was .659, which was the largest score among other variables - contributing the most toward IT governance maturity. Similar results were found by Dahlberg & Lahdelma in [4] who contend that Monitoring of IT Performance Measurement is good indicator of IT governance maturity process. This result is consistent with other research results confirming the need to measure IT performance and review internal IT assessment measurements to achieve high level of IT governance maturity [15] & [17]. IT Governance Institute [16] assures the necessity of effective performance measurement mechanisms, such as an IT balanced scorecard, project tracking systems, and IT charge back systems to enable the management and the board to detect and correct any deviations and alter the strategy when necessary. Hardy contends in [18] that the use of a performance management system is an integral part in applying effective IT governance. The measurement, which incorporates a set of metrics, provides management with a regular and precise analysis of how IT is performing the current operations and the latest projects.

The results of the statistical analysis indicate that there is a significant positive relationship (Path Coefficient = .590, t = 14.031, p < .001) between Evaluation of Value Delivery and IT Governance Maturity. This means that Evaluation of Value Delivery positively influences the level of IT governance maturity within organizations.

The results of the statistical analysis indicate that there is a significant positive relationship (Path Coefficient = .586, t = 11.252, p < .001) between IT Governance Development and IT Governance Maturity. This means that IT Governance Development positively influences the level of IT governance maturity within organizations.

The results of the statistical analysis indicate that there is a significant positive relationship (Path Coefficient = .540, t =11.602, p < .001) between Ethics/Culture of Compliance and the effectiveness of IT governance. This means that the existence of an Ethics/Culture of Compliance in IT positively influences the effectiveness of IT governance within organizations.

The results of the statistical analysis indicate that there is a significant positive relationship (Path Coefficient = .577, t = 14.466, p < .001) between IT Strategy Committee and the effectiveness of IT governance. This means that the existence of an IT Strategy Committee positively influences the effectiveness of IT governance within organizations.

The results of the statistical analysis indicate that there is a significant positive relationship (Path Coefficient = .606, t = 12.966, p < .001) between IT Steering Committee and the effectiveness of IT governance. This means that the existence of an IT Steering Committee positively influences the effectiveness of IT governance within organizations.

The results of the statistical analysis indicate that there is a significant positive relationship (Path Coefficient = .613, t = 14.867, p < .001) between Communication Systems and the effectiveness of IT governance. This means that the implementation of Communication Systems positively influences the effectiveness of IT governance within organizations. It was noticed that the Path Coefficient for this variable was .613, which was the largest score among other variables - contributing the most toward the overall effectiveness of IT governance. This result matches the result of [20] who found that Communication Systems positively influences the overall effectiveness of IT governance. Weill and Ross in [3] reveal that the more that management communicate formally about the existence of IT governance mechanisms, how they work, and what outcomes are expected, the more effective are their governance processes. They argue that a huge barrier to effective IT governance is lack of understanding about how decisions are made, what processes are being implemented and what the desired outcomes are. Though there are many studies revealing similar findings [29], [30], & [31], this study provides empirical evidence based on an extensive survey in the context of the importance of corporate communication systems to IT governance.

The results of the statistical analysis indicate that there is a significant positive relationship (Path Coefficient = .481, t = 10.968, p < .001) between Involvement of Senior Management

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in IT and the effectiveness of IT governance. This means that the Involvement of Senior Management in IT positively influences the effectiveness of IT governance within organizations.

V. CONCLUSION

This paper sought to shed light on PLS path modeling as Structural Equation Modeling (SEM) technique, to reveal the strengths and weaknesses of PLS in general, and to deliver guidelines for its use in IT Governance discipline in particular.

The results from the research have implications both for practitioners and academia. From a practitioner’s point of view, the results imply that organizations should concentrate their IT governance improvements efforts to the IT governance domains that make a fundamental impact on the level of IT governance maturity. Moreover, the Research contributes to encourage organizations to concentrate their IT governance improvements efforts to the IT governance mechanisms that make a fundamental impact on the overall effectiveness of IT governance.

According to the results, the most influential IT governance domain for increasing the level of IT governance maturity is Monitoring of IT Performance Measurement. Also, the most influential IT governance mechanisms for increasing the overall effectiveness of IT governance are the implementation of Corporate Communication Systems and the existence of IT Steering Committee.

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