1 How Do Organizations Need to Structure and Govern IT? Dr. Mary C. Lacity.

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How Do Organizations Need to Structure and

Govern IT?

Dr. Mary C. Lacity

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Assigned Readings:

Weill, P., "Don't Just Lead: Govern: How Top Performing Firms Govern IT," MIS Quarterly Executive, Vol, 3, 1, March 2004, pp. 1-17.

Ross, J., Creating a Strategic IT Architecture Competency, MIS Quarterly Executive, Vol. 2,1, March 2003, pp.

Feeny, D. and Willcocks, L., “Core IS Capabilities for exploiting Information Technology, Sloan Management Review, Vol. 39, Spring, 1998, pp. 9-21.

Feeny, Lacity, and Willcocks, "12 Supplier Capabilities," Working Paper, Oxford Institute of Information Management, 2004.

http://www.umsl.edu/~lacity/topperform.pdf

http://www.umsl.edu/~lacity/topperform.pdf

http://www.umsl.edu/~lacity/misqearch.pdf

http://www.umsl.edu/~lacity/coreIS.pdf

http://www.umsl.edu/~lacity/smr12capabilities.pdf

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“Don’t Just Lead, Govern: How Top-Performing Firms Govern IT”

Peter Weill, MISQE, 2004, pp. 1-16

“Top performing enterprises succeed in obtaining value from IT where others fail,in part by implementing effective IT governance to support their strategies andinstitutionalize good practices.”

Survey of 256 enterprises in 23 countries20 detailed case studies

5 Major IT Decisions:Input & Decision:

IT principlesIT architecture

IT infrastructureBusiness Application Needs

IT Investment & Prioritization

6 Governance Archetypes:Business Monarchy

IT MonarchyFeudalFederal

IT DuopolyAnarchy

Performance: 1. IT Governance as assessed by CIOs on scaleof 20-1002. Financial as measured by Return on assets Revenue growth Profit (Industry Adjusted)

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Governance Defined

“IT governance—specifying the framework for decision rights and accountabilities to encourage desirable behavior in the use of IT.” –Weill, MISQE, 2004

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Govern-ance

Arche-

type

Decision DomainIT Principles IT Architecture IT

Infrastructure

Strategies

Business Application

Needs

IT Investment

input decision input decision input decision input decision input decision

Business

Monarchy

IT Monarchy

Feudal

Federal

IT

Duopoly

Anarchy

Don’t Know

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Decision Domain

IT Principles IT Architecture IT Infrastructure

Strategies


Needs

IT Investment

High-level statements about how IT is to used in the business

Ex:•Leverage economies of scale•Standardize processes and technologies wherever appropriate•Common tools, i.e. one ERP system•Cost control and operational efficiency•Alignment and responsiveness to negotiated business requirements•Bench-marked lowest total cost of ownership•Rapid deployment of new applications

An integrated set of technical choices to guide the organization in satisfying business needs.

Hardware

Data Dictionary

Operating

Systems

Base foundation of centrally coordinated services such as firm-wide:

communication network services

Messaging services

Disaster recovery

Security

Help desks

Data centers

Business need for purchased or internally developed IT applications

CRM

ERP

KM

SCM

How much and where to invest in IT; Capital budgeting for IT

Project approvals

Prioritization

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Govern-ance

Arche-

type

Decision rights or input rights are held by: CXO

Level

IT

executives

Business unit leaders;

Process owners

Business

MonarchyCXOs; CIOs may be included X

IT Monarchy

IT executives only X

Feudal Business unit leaders or key process owners

Feudal lords maximizing own needs

X

Federal C level executive and at least one other business group; Like country and states working together

Takes a long time; compromises may result in no one happy

X X X

X X

IT

DuopolyIT executives and one other group X X

X X

Anarchy Small group of individual users

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Govern-ance

Arche-

type


Infrastructure

Strategies


Needs

IT Investment

input decision input decision input decision input decision input decision

Business

Monarchy

0 27 0 6 0 7 1 12 1 30

IT Monarchy

1 18 20 73 10 59 0 8 0 9

Feudal 0 3 0 0 1 2 1 18 0 3

Federal 83 14 46 4 59 6 81 30 93 27

IT

Duopoly

15 36 34 15 30 23 17 27 6 30

Anarchy 0 0 0 1 0 1 0 3 0 1

Don’t Know

1 2 0 1 0 2 0 2 0 0

MOST COMMON GOVERANCE PATTERNS:NOT TIED TO PERFORMANCE

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Govern-ance

Arche-

type


Infrastructure

Strategies


Needs

IT Investment

Business

Monarchy

IT Monarchy

Feudal

Federal

IT

Duopoly

Anarchy

TOP THREE PERFORMING PATTERNS AS MEASURED BY CIO ASSESSMENT

3 3

3

33

1

1

11

1

2

2

22

2

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Govern-ance

Arche-

type


Infrastructure

Strategies


Needs

IT Investment

Business

Monarchy

IT Monarchy

Feudal

Federal

IT

Duopoly

Anarchy

TOP THREE PERFORMING PATTERNS AS MEASURED BY:Asset Utilization (IT coordinates) Growth (Balance needs of entrepreneurial unitsProfit(Largely centralized to control costs) with business wide objectives)

G

G

G

G

G

AAAAA

P

P

PPP

P

No dominant patternOften multipleArchitectures & infrastructures

G

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Eight IT Governance Critical Success Factors

1. Transparency to all managers

2. Governance should be actively designed

3. Governance should be infrequently redesigned—takes 6 months to define one!

4. Educate managers to understand and use IT governance

5. Simplicity—based on small number of performance objectives

6. An exception handling process (UPS)

7. Governance should be designed at multiple organizational levels (enterprise/ division/geographic, business unit) 8. Align incentives

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Architecture Maturity

ModularRationalized Data

Standardized Technology

Application Silo

Local CustomizationsNon-core Business Needs

Local Knowledge Worker Support

Specific Business Needs

Strategic Choices

Process Optimization

IT EfficiencyLocal/Functional Optimization

Strategic Implications of IT

Data Center

Technology Standardization

Core Process Integration

Wired Business Core

Creating a Strategy IT Architecture Competency

“An enterprise architecture is the organizing logic for applications, data, and infra-Structure technologies, as captured in a set of policies and technical choices, Intended to enable the firm’s business strategy.” Ross, MISQE, 2003, p. 32

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Silo Standardized Rationalized Modular

Practice facilitating reusability.

Standardization and exception management.

Strategic Agility.ROI of standardization.

Create opportunities for new business models.

React to enterprise-wide needs

Components of technology, data & code; middleware provide access to shared data.

Firm-wide technology standards; centralized or federal IT organization; data warehouse for shared data.

Infrastructure includes core transaction processing; data integration for cross-functional processes.

Silos of applications with a data center for efficient transaction processing.

Create opportunities for core business support.

React to local needs.

Process integration for customer responsiveness.

Technology-enabled change management.

Speed to market.ROI of applications.

IT Capability Approach to Alignment Business Case for Architecture Key Learning

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Lessons: 1. Focus architecture on key business processes, not all processes

2. Don’t skip or rush through stages

3. Recognize that complex organizations have multiple architectures which may be at different stages

4. Institutionalize learning about architecture in appropriate governance mechanisms

5.Continue the Dialog

6. Keep an architecture capability in-house

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Core IT Capabilities

First developed by David Feeny and Leslie Willcocks:

Feeny, D. and Willcocks, L., “Core IS Capabilities for exploitingInformation Technology, Sloan Management Review, Vol. 39,Spring, 1998, pp. 9-21.

Updated in:

Lacity, M., and Willcocks, L., Global IT Outsourcing: Searchfor Business Advantage, Chichester, Wiley, 2000.

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Enduring Challenges in ITExploitation

Core IS Capabilities

Delivery of ISService

Design of IT Architecture

Business &IT

Vision

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Business and IT Vision

Delivery of IS Service


Business SystemsThinking

ContractFacilitation

ArchitecturePlanning

ContractMonitoring

VendorDevelopment

Making technology

work

RelationshipBuilder IS

Leadership;InformedBuying

Feeny & Willcocks: IT Capabilities

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•Fosters relationships with senior management

"I went to the city, I usually had one or two things to do. I made it a point when I went in, I went up to the chairman's office and many times his secretary was there when I'd get there. I'd say, 'tell the chairman and CEO, tell Harry I'm in the building. Could I talk to him? I'm available.' I went right down the hall to the president, who at the time was Michael, and said, 'I'm in town for a week if you have any questions about computing, I'd be happy to talk to you about it.' I would also visit every senior vice president on the executive floor. I would stick my head in the door and say, 'hey I'm in town, what can I do to help?'" -- VP of IS, PETRO2

IS Leadership

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• What are the characteristics of good CIOs?

Business and People skills are more important than technical skills:

“My advice to CEOs is this: Your IT function should be run by a great general manager, not by a traditional technology manager…More and more, business considerations rather than technical ones drive investments in IT. Our businesses are asking, “Why not buy solutions rather than build them? and “How can IT serve the critical needs of the business rather than those narrowly defined by accounting and human resources?” Far too many IT professionals don’t know how to frame questions like these, much less answer them.” -- Gene Batchelder, CFO, GPM Gas

IS Leadership

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In a survey of 64 CIOs, Applegate and Elam found that 30% had only a technical background; 33% had only a business background, and 37 had a “hybrid background”.

Practice often prescribed:

Have the CIO report to the CEO to ensure the CIO has enoughauthority and power to be effective.

IS Leadership• What are the characteristics of good CIOs?

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Business Systems Thinker

• Envisioning the business processes which technology makes possible• Focus on business process improvement rather than just IS improvement

“To serve customers well in 1995, companies need to be proficient in half a dozen key areas: reduced cycle times, reduced asset levels, faster development of new products, improved customer service, increasing empowerment of employees, and increased knowledge sharing and learning. Information technology is a key resource for accomplishing those goals” John Rockart, MIT

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Proven practices include:

IT representation on major business initiatives:• Business Strategic Planning• Operating Committees• Capital Budgeting Committees

Educate senior managers on IT capabilities:"We'd make it a point that every one of our executives attended that four day class. Every time we got as many as ten or fifteen people at the general manager level who had not taken the course. I'd call to schedule the course. And we'd schedule it and we'd get the CEO's signature saying, 'You've been selected to attend a computer concepts class. Please be at the homestead on four o'clock on Sunday, signed, Harry Thompson, CEO." -- VP of IS, PETRO2

Business Systems Thinker

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User-Business Relationship Builder

• Getting the business constructively engaged in IS/IT issues.

•Focus on ability to speak “business” language to gain credibility

• Working with business community to understand cost/service trade-offs,•what technology can and cannot do

When a unit manager requested a new system that would save$250,000, IT manager had to explain it would cost $500,000to build.

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Architect Planning

•Defining architecture standards•Centralized computing environment•Distributed computing environment•Technology renewal (n, n-1, n-2?)•Technology replacement•Security•Disaster recovery management

Creating the coherent blueprint for a technical platform that responds to currentAnd future business needs.

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Technical Doer:Making Technology Work

• Rapidly Troubleshoot Problems• Technical work-arounds• Bypass political bureaucracy

What are the stereotypical characteristics ofa technical doer?

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Outsourcing Roles

Business and IT Vision

Delivery of IS Service


ContractFacilitation

ContractMonitoring

VendorDevelopment

InformedBuying

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Informed Buying

•Develops a sourcing strategy•Analyzes external market for IT/IS services•Leadership of the tendering, contract, and service management processes

“If you are a senior manager in the company and you want something done, you come to me and I will go outside, select the vendor, and draw up the contract with the outsourcer, and if anything goes wrong it’s my butt that gets kicked by you.”

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Informed Buying

Proven practices include:

• Joint senior executive/IT manager development of IT sourcing strategy

• Creating RFP and inviting internal & external bids

• Short term contracts

• Detailed contracts

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Contract Facilitation

• Provide one-stop shopping for the business user• Develop user guides to the contract• Help manage user expectations of the contract• Assess and prioritize user demands• Determine if user demands will trigger contract excess fees• Determine if users are demanding too little

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Contract Monitoring

• Monitor vendor performance (service)• Review monthly bills (cost) • Solve disputes with vendor• Refine performance measures as needed• Benchmark existing contract against developing market capability• Escalation procedures • Negotiate detailed amendments

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Vendor Development

• Identifies opportunities for added-value:1. Business value-added, in which the supplier applies their expertise to help the customer exploit IT for business advantage.2. Capacity value-added, in which the supplier infuses new skills and technologies in an effective manner.3. Utility value-added, in which the supplier provides cheaper IT services.

• Focus on innovation and exploiting opportunities • Explores potential for new vendor services

“Yes, [the vendor] can achieve all the things that were proposed---but where is this famous "added-value" service? We are not getting anything over-and-above what any old outsourcer could provide.” -- IT Services Director, Aerospace Company

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Conclusion

Most critically, the core IS capability model implies migration to a relatively small ISfunction, staffed by highly able people.

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The Capabilities Your Suppliers Need to Make Outsourcing Work

Mary C. LacityProfessor of IS

Leslie Willcocks David Feeny

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RESOURCES

CAPABILITIES

COMPETENCIES

12 Capabilities to evaluate in your supplier

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Relationship Competency

TransformationCompetency

DeliveryCompetency

Planning &Contracting

Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program

Management

12 Capabilities to evaluate in your supplier

ProcessRe-engineering

TechnologyExploitationSourcing

BusinessManagement

DomainExpertise

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Delivery

Delivery Competency is based on capabilities which determine the extent

to which a supplier can respond to a customer’s day-to-day operational services

minimum requirement that customers seek in all suppliers

includes supplier’s domain expertise, business management capabilities, etc.

a supplier’s delivery competency--although crucial for success--may not serve to meaningfully distinguish suppliers.

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Transformation Competency is based on capabilities which determine the extent to which

a supplier is equipped to delivery radically improved services in terms of cost and quality

vitally important if the customer is seeking radical transformation of its back office from the outsourcing relationship.

includes the supplier's capabilities to exploit technology, redesign business processes, and empower staff to a customer-focused culture.

transformation capabilities must be exploited for the customer's benefit, not just to increase the supplier's margin.

Transformation

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Relationship Competency is based on capabilities which determine the extent to which a supplier is willing and able to align with the

customer's needs and goals

The relationship competency uses innovative plans, aligned contracts, and governance structures and processes to ensure the promise of win/win relationships.

This is the most difficult competency to find in a partner.

Size of deal important factor

Relationship

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Leadership:the capability to identify, communicate,

and deliver the balance of delivery, transformation, and relationship

activities to achieve present and future success for both client and provider.

Requires individuals who have the vision, experience, ability, and clout to serve as "CEO" of the relationship.

76 case studies of EDS, IBM, CSC, Accenture with similar contracts found customer/supplier leadership as main explanator of customer satisfaction

Every customer expects the supplier’s A team

Often customer demands a change in leadership with first few months—on both sides!


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program

Management ProcessRe-engineering


BusinessManagement

DomainExpertise

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Domain Expertise:the capability to apply and retain

sufficient professional knowledge of the process domain to meet user

requirements

Customer wants the supplier to manage transitioned staff to eliminate poor performers, adjust capacity, leverage untapped potential of best people

For body-shop outsourcing in which the customer hires suppliers for specific tasks, the customer should retain most of the domain expertise.

For outsourcing relationships where the supplier has more responsibility, it may be more economical and effective for the supplier to employ most of the domain experts.


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

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Business Management:the capability to consistently deliver against both customer service level

agreements and suppliers’ own required business plans

Savvy customers know that it is in their best interest to protect and ensure the supplier's financial health

Savvy suppliers are upfront about their margin requirements

Supplier

Winner's Curse

12 Cases

3 Cases

No Curse 19 Cases

51 Cases

Negative Outcome

Positive Outcome

Customer


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

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Behavior Management:the capability to motivate and

manage people to deliver service with a “front office” mindset

How do suppliers orient new employees to their culture?

How do suppliers reward and incent desired behaviors?

S2Tech, an Indian offshore supplier, hires only Indians with a minimum six years experience living in the U.S. & sets their hours as 1:00 to 10:00 to minimize time zone effects


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

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Sourcing:the capability to access whatever resources are required to deliver

service targets

Customer wants to benefit from supplier’s access to:

economies of scale lower unit labor costs from supplier’s offshore operations scarce professional skills superior infrastructure


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

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Process Improvement:the capability to design and implement changes to services processes to meet

improvement targets

Six Sigma, CMM, ISO certifications are only indicants of process improvement capability

Customers complain certifications benefit suppliers more than customers

Indian suppliers were all at level4 or 5

U.S. customers were all at level2 or below


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

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Questionable Value/Cost:

"the overhead costs of documenting some of the projects exceeded the value of the deliverables." – Pam, Global Team Leader member, Biotech

"You ask for one button to be moved and the supplier has to first do a twenty page impact analysis--we are paying for all this documentation we don't need." – Project Manager, Financial Services

“Mistakes upstream replicate downstream” -- Retail

“Certification is no substitute for experience” -- Everybody

Process Improvement:the capability to design and implement changes to services processes to meet

improvement targets


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

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Process CompetencyGoal is to redesign business processes to reduce costs and to improve quality through Six Sigma quality improvementdiscipline.

DPMO

6 3.4 99.99966%

5 233 99.9770%

3 66,807 93.3%

ProcessCapability

Defects Per Million YieldOpportunities

%

4 6,210 99.37%

2 308,000 69.2%

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Process Competency

Redesigning Processes such as Senior Leader Peer Review

Old process: 640 senior leaders did paper-based peer reviews, assisted face-to-face by HR personnel

New process: e-hr online peer review

"What would have happened before, thirty people would have happily expanded a task to fill three months and as it is now, eight people have been busy for a month--bang! Done." -- Mike Margetts, Head of Implementation, Xchanging HR Services

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Technology Exploitationthe capability to swiftly and effectively deploy technology in support of critical

service improvement targets

Technology is expensive and must be the master, not the servant

e-HR to implement standardization, shared services, and self-service CGI co-develops annual technology plan with customer and supplier Customer verses supplier investment


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

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Program management:the capability to prioritize,

coordinate, ready the organization, and deliver across a series of inter-

related change projects

Multi-phased approaches

Short cycles Balance paradox

of rigorous project management with flexible pragmatism

OperationalCritical activity

Preparation

Service

Set-Up

Process

People

Technology

Sourcing

Environment

Preparation

RealignmentStreamliningContinuous Improvement

2-3mths 3-6mths 6-9mths

Source: Xchanging


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

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Customer Development:the capability to transition users of an

internally provided service to customers who make informed decisions

about service levels, functionality, and costs

Requires aggressive communication and dissemination of the meaning of the partnership to all budget holders in the customer organization.

To avoid excess costs caused by runaway user demand, customer development requires customer stakeholders to understand the financial consequences of their demands.

Customer satisfaction monitoring and reporting

Allows customers to define services, service levels


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

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Planning and Contracting:the capability to develop and

contract for business plans which deliver ‘win/win’ results for

customer and supplier over time.

One supplier quipped, "If the customer says win/win, they really mean, the customer wins twice.“


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

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Planning and Contracting

Fee-for-service contracts are suitable when customers' requirements are definable and when customers are primarily seeking modest cost reductions, variable spend, and the ability to focus on more value-added activities

Previous strategic partnerships falsely assumed the customer had exploitable world-class back offices.

Newer partnerships focus upon the customer's back office transformation first, commercial exploitation second.

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Organizational Design:the capability to design and implement organizational

arrangements to realize plans and contracts

?


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

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Organizational Design: Offshore

Onsite SupplierEngagement Manager

OffshoreSupplierDelivery

Team

LocalBusiness

Units

Architects/DBAs/etc.

ProjectManagers


Team


Team

PMO

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Onsite SupplierProject Managers


Team


Team


Team

Onsite SupplierProject Managers


Team


Team


Team

Architects/DBAs/etc.

ProjectManagers

PMO

LocalBusiness

Units


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VP IS

Team Lead

Project Manager

Director

DevelopmentStaff

Team Lead

DevelopmentStaff

RelationshipManager

Team Lead

Anchor

Anchor

DevelopmentStaff

Team Lead

DevelopmentStaff

Kaiser & Hawk, 2004


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Governance:capability to define, track, assess

and fix performance

Joint Boards of Directors can create a managerial schizophrenia

Multiple Joint Boards help provide checks and balances among competing objectives

Joint Board of DirectorsJoint Service Review BoardJoint Technology Review Board


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

Example of Strategic/Enterprise Partnerships

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Prioritize supplier’s competencies based on your outsourcing objective

Main Customer Objective:

Supplier’s

Delivery

Competency

Supplier’s Transformation Competency

Supplier’s

Relationship Competency

Lower costs on baseline services

1st 3rd 2nd

Transformation of back office processes

2nd 1st 3rd

New business development

3rd 2nd 1st

ETC…

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Supplier Perspectives on Client

PotentialGrowthValue

of Client

Present Revenue Valueof Client

HIGH

LOW

HIGHLOW

Develop Re-commit

De-commitReap

and Retain

1 How Do Organizations Need to Structure and Govern IT? Dr. Mary C. Lacity.

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Transcript of 1 How Do Organizations Need to Structure and Govern IT? Dr. Mary C. Lacity.