ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Source: Managing the IT Resource – J. N. Luftman

IT Governance:Managing the Information Technology

Resource

Jason C. H. Chen, Ph.D.Professor of MIS

School of Business AdministrationGonzaga UniversitySpokane, WA 99223chen@gonzaga.edu

ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Chapter Outline• Definition of IT governance• IT governance as issue for organizations• Need for formal IT governance mechanisms• IT governance alternatives• Forms of governance and leadership roles in

cross-functional initiatives• Steering committees• Prioritizing projects and assessing risks• Global considerations

ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Why invest IT?

• improvement in the delivery of service to its customers/clients

• reduce the cost to manufacture or deliver some product or service to its customers/clients

• shorten the cycle time required to develop and produce some new product or service

ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

IT Governance

• Power– Who makes these decisions

• Alignment– Why they make these decisions

• Decision Process– How they make these decisions

ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

What is IT Governance?

• IT governance is the term used to describe the selection and use of organizational process to make decision about how to obtain and deploy IT resources and competencies.

• In short, IT governance is about:– Who makes these decision (power)– Why they make them (alignment)– How they make them (decision process)

ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Symptoms of Misalignment• Poor business understanding and rapport• Competitive advantage declines• Frequently fired IT managers• High turnover of IT professionals• Inappropriate resources• Frequent IT reorganizations• Lack of executive interest • Lack of vision/strategy• No communication between IT and users

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Symptoms of Misalignment

• Ongoing conflicts between business and IT• Unselective outsourcing of IT function• Productivity decrease• Projects not used, canceled, late• Redundancies in systems development• Absent systematic competencies• Systems integration difficult• Unhappy users/complaints

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Definitions and Implications of IT Governance

• 1. Operating model for how organization will make decisions about use of IT

• 2. Involves external relationships for obtaining IT relationships

• 3. Involves authority, control, accountability, roles, and responsibilities

• 4. Involves processes and methods for making decisions

• 5. Involves judgments about how well use of IT enables strategic direction

ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Why is IT Governance an Issue?

• Why despite the growing evidence that IT has become an integral part of business, IT governance is still an issue for many organizations?

• While the governance models for marketing or finance are rarely discussed, the governance of IT for many organizations is still neither well understood nor well executed, and becomes a topic of debate. Why?

ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Business Case Issues

• Balance all measurements• Balance impact on

– Customers/clients– Processes– People– Finance

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Organizations Just Do It

• Maintenance– Fixing application problems

• Government legislation requirements to ensure compliance

• CEO or senior executive idea receives top priority

• Competitor’s innovative application of IT

ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

• Senior executive support for IT• IT involved in strategy

development• IT understands the business• Business-IT partnership• Well-prioritized IT projects• IT demonstrates leadership

• IT/business lack close relationships• IT does not prioritize well• IT fails to meet commitments• IT does not understand business• Senior executives do not support IT• IT management lacks leadership

Enablers Inhibitors

Table: Enablers and Inhibitors to Alignment

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Diagnosing Poor or “Broken” IT Governance

• “We have too many people and organizations making decisions about technology.”

• “Business units aren’t accountable to corporate IT for any technologies they decide to employ.”

• “We heave no enterprise architecture because we cannot agree on how it will be established or maintained.”

• “We spend too much on hardware and software because we cannot agree on a common sourcing policy.”

• “We are measuring our performance, but the business doesn’t understand what our measures mean.”

• “We do not measure the success of IT. I would not know where to begin.”

ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Why Have Governance• 1. Insufficient resources to meet commitments• 2. Unreliable delivery schedules• 3. Lack of focus on daily operations• 4. Reduced quality of delivered projects• 5. Potential for working on wrong things• 6. Business functions move in their own IT

direction to satisfy own requirements • 7. Chaotic/nonstandard infrastructure• 8. Poor communications and relationships with

IT/Business

ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

How Critical is IT Governance for E-Business?

• Who makes decisions about which e-business initiatives to fund?

• Who has accountability for e-business IT architecture?• Who drives e-business initiatives?• How are e-business initiatives funded?• How will we measure the business value of e-business

initiatives?• How will we allocate resources to e-business

initiatives?• Will we outsource any of our e-business operations?• How will we leverage our strategic alliance, if at all?

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Fulfilling IT Promise to Business

• Decisions about IT use made jointly• Develop mutual and agreed-upon expectations• Help senior business management understand

costs and risks• Provide IT capabilities required to implement

decisions• Monitor and measure value of IT investments• Help senior business management understand it is

ongoing process

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Governance Alternatives• Budget• Career crossover• CIO-CEO• Communicate/market/negotiate• Competitive enabler/driver• Education/cross-training• Liaison• Location• Organization• Hybrid (or “Federated”)

ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Governance Alternatives• Organization

– Centralized, Decentralized, Hybrid • Partnership/Alliance management• Process• Shared risks, responsibilities, reward/penalties• Steering committees• Value Measurement

ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Steering Committees • Strategic• Tactical• Operational• Clearly state business role of IT• Identify alignment between organization vision and IT

vision• Establish principles for investing in IT• Establish ethical guidelines and policies• Establish architectural principles and standards• Establish goals and measurements for assessment

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Categories of Governance Alternatives

• Governance based on organization structure• Governance based on processes• Governance based on human relationships

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Forms of Governance

• Govern cross-functional initiatives by:– Assembling matrixed project team– Guidance and assistance provided by corporate

IT management– Recognizing human resources and intellectual

capital are geographically dispersed,

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Forms of Governance and Leadership Roles

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Effective IT Steering Committee

• Business Executive Committee• CIO• Chief Technology Officer• Divisional Business Heads• Head of Information Systems/Networking

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Considerations of Steering Committee

• Bureaucracy• Career Building• Communication• Complex Decisions• Influence/Empowerment• Low-Hanging Fruit/Quick Hits• Marketing• Objectives/Measurements

ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Considerations of Steering Committee

• Ownership/Accountability• Priorities• Relationships• Right Participants• Share Risks• Structure, Facilitator

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Group Projects Based On:

• Necessity, Opportunity, Desirability• Impact on organization• Likelihood of occurrence• Risk• Resource demands• Anticipated return

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Priorities

• Highest impact on firm• Highest likelihood of occurrence• Lowest combined attributes of risk• Least amount of resources demanded• Highest anticipated return

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Technology Risk Mitigation• Subject matter experts available• Establish emerging technology scanning function• Employ already known technology• Perform pilot projects studies• Attend conferences, read professional journals• Maintain professional memberships• Implement professional certification/study programs• Participate in master’s degree/master’s certification

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Development Risk Mitigation• Modularize projects• Employ project management with prior

experience• Establish development life cycle

methodology• Reduce scope of projects• Follow “best practices” model for software

engineering

ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Organizational Risk Mitigation

• Secure executive sponsorship• Joint accountability of business/IT management• Early and continuous involvement of stakeholders• Establish formal change management program• Establish formal communication channels• Establish formal and well-understood processes• Establish formal escalation processes

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Market Risk Mitigation

• Reduce initial scope of geographic coverage• Employ SME’ and consultants for expert

advice• Documentation and formal sign-off on

customer requirements• Establish customer “knowledge base”

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Global Considerations

• Global Exporter• Multinational• Multilocal• Transnational or Metanational

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Source: Daniels, J. and Caroline, N., in J. Luftman, ed., Competing in the Information Age: Strategic Alignment in Practice.” Oxford University Press (1996).

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Do’s of Vendor Management• Establish vendor management team• Monitor service levels and end-user

satisfaction• Track service/product market• Continually renegotiate contract• Keep business units accountable and involved• Think ongoing relationship• Use vendor’s expertise for solutions

ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Don’ts of Vendor Management

• Try to manage a vendor without adequate expertise available

• Ignore need to establish service level agreements• Fail to establish firm accountability• Understaff vendor management function• Rely solely on vendor’s expertise• Forget to keep eye on vendor reputation and

profitability

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Contract Renegotiation Processes

• Contract expiration• Material breach in contract by vendor• Major change in organization’s

management or industry• Significant change in price for same

services• New technology

ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Outsourcing Considerations

• Do:– Ask for and check references– Assess culture of outsourcing partner– Evaluate multiple options– Get it in writing– Metrics matter– Open kimono– Pick outsourcing partner with strong partner network

ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Outsourcing Considerations • Don’t:

– Buy on price alone– Overlook reference-checking process– Use price contract without consideration of long-

term consequences– Forget to provide for contingencies– Communicate via committee– Hand over project management– Rely on marquee references– Single-source– Let head be turned by goodies

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Insource or Outsource?

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Outsourcing RFP• Objectives and Scope• Background• Technology Vision• Services Requested• Transition/Migration Services• Performance Requirements• Resources• Requirements for Vendor Proposal• General Terms and Conditions for Proposal• Proposal Evaluation

ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices