5 IT Governance

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IT Governance

ITUThursday, March 2, 2006

Michael Holm Larsen, Ph.D.E-mail: [email protected]


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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


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Learning Objectives

To understand Concepts and Principles

of IT Governance.

To be able to reivew and design IT

Governance structures in organisations.


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Highlights from last lecture

E-Business Models


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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)


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A List of E-Business Models (Taxonomi 2)

E-Shop

E-Procurement

E-Auction E-Mall

3rd

PartyMarketplace

VirtualCommunity

Value ChainService Provider

CollaborationPlatform

Information

Broker Timmers (1998)


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Evaluation of an E-Business Model- Lazer & Livnat (2001)

A five-step evaluation process of e-Business models based on specific questionsregarding the economic viability of the e-Business model. These are:

1. What market failures and transaction costs are addressed by the businessmodel?

2. How effective can the e-commerce firm be in reducing the market failures ortransaction costs?

3. Will the e-commerce company be able to expropriate benefits fromcustomers?

4. What are the necessary resources to conduct the business?5. Can competitors erode profits? (sustainable profits; risks (market,

technology, financial); sensitivity)

The transaction costs address in particular sellers transactions costs of ordertaking costs, recording costs, display costs, mailing costs, and marketingcosts; buyers transactions costs of transportation costs, timing oftransactions, information gathering costs, information processing costs; andother benefits as personalization, price transparency, market making, and

network externalities.Lazer & Livnat (2001)


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Evolving the Business Model

4 mechanisms (cf. Applegate 2001):

Enhance. By adding new features and improvingexisting ones.

Expand. By adding new offerings or entering newmarkets 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)


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IT Governance


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What is IT Governance ?

Definition:

IT Governance is defined as specifyingthe decision rights and accountabilityframeworks to encourage desirable

behaviour in using IT.

Weill & Ross (2004:2)


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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 (for whom? individuals and groups) Accountability frameworks (IT Governance mechanisms)

Encourage (empower & control)

Desirable behaviour ( vision and values, strategy andpolicies, norms and culture)

Weill & Ross (2004:2)


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Past and

Present

Future

PERSPEC

TIVE

Outward

Inward

TIME FRAME

What kinds of decisions?

Monitoring Policy

Accountability Strategy


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Alternative Definitions of IT Governance

Definition: IT Governance is defined as a structure of

relationships and processes to control the enterprise inorder to achieve the enterprises goals by adding value

while balancing risk versus return over IT and itsprocesses.

IT Governance Institute, www.itgi.org (2000)

IT Governance is the organisational capacity exercisedby the board, executive management, and ITmanagement to control the formulation andimplementation of IT Strategy and in this way ensure

the fusion of business and IT. Grembergen (2002)


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The Role of IT Governance

IT-based innovationIT use management

IT infrastructuremanagement

Project management

IT GOVERNANCE

Source: Sambamurthyand Zmud, MISQ, June 1999


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Exercise: Pair & Share

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


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IT Governance Mechanisms

Formal integration structuresinvolve appointing ITexecutives and accounts, and institutionalizing special andstanding IT committees and councils (Decision structures)

Formal integration processesdescribe the formalization and

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

Relational integration structuresinvolve the activeparticipation of and collaborative relationships between

corporate executives, IT management, and businessmanagement (Communication structures)

Relational integration processesdescribe strategic dialogueand shared learning between principle business and ITstakeholders (Communication processes)


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How Are The Decisions Formed and Enacted ?

Service-level agreements

Business/IT relationship managers

IT council of business, IT executives

Architecture committee

Process teams with IT members

Executive committee

IT leadership committee

Chargeback arrangements

Specify, measure IT services

Ensure feedback, good iteration

Focus on driving value

Identify strategic technologies

Take a process view

Take a holistic view

Coordinate across the enterprise

Shape behavior, recoup costs

Governance Mechanisms Objective


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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


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5 Major IT Decisions

1. IT Principles

2. IT Architecture3. IT Infrastructure Strategies

4. Business Application Needs

5. IT Investments and Prioritasation


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Elaborating the IT Decisions

IT InfrastructureStrategies

IT Principles

IT Architecture

Business ApplicationNeeds

IT Investment and

Prioritisation

Strategies for the base foundation of budgeted-for IT capability(both technical and human), shared throughout the firm asreliable services, and centrally coordinated (e.g. network, helpdesk, shared data)

High level statements about how IT is used in the business

An integrated set of technical choices to guide the organization insatisfying business needs. The architecture is a set of policiesand rules that govern the use of IT and plot a migration path tothe way business will be done (includes data, technology, andapplications)

Business applications to be acquired or built

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


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Some Governance Modes

Anarchy

Monarchy(Centralisation)


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Some Governance Modes

Federalism

Feudalism(Decentralisation)


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IT Governance Archetypes

Individual usersAnarchy

X

XX

XIT Execs + 1 groupIT Duopoly

XX

XXX

C-level Execs + min. 1Business groupFederal

XBU leaders, Pos or theirdelegates

Feudal

XIndividual or groups ofIT execsIT Monarchy

XIndividual or groups ofCxOs

BusinessMonarchy

Leaders /

ProcessOwners

Business

Unit IT

Execs

Decision Rightsor Input Rights


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3 Effective IT Governance Patterns

Anarchy

ITDuopoly

Federal

Feudal

ITMonarchy

BusinessMonarchy

IT

Investment &Prioritisation

Business

ApplicationsNeeds

IT

Infrastructure

IT

Architecture

IT

Principles

Domain

Style

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

3 3 3

3

3

2

2 2

2

2

1

1 1

1

1

Weill & Ross (2004:133)


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Is IT Governance a process or an outcome ?


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IT Governance Arrangements Matrix(GAM)

Input Decision

IT Principles

Input Decision

IT InfrastructureStrategies

Input Decision

IT Architecture

Input Decision

BusinessApplication Needs

Input Decision

IT Investment andPrioritization

BusinessMonarchy

ITMonarchy

Feudal

Federal

Duopoly

Domain

Style


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IT Governance Design Framework(GDF)

EnterpriseStrategy andOrganisation

IT Organisationand Desirable

Behaviour

ITGovernance

Arrangements

BusinessPerformance

Goals

ITGovernanceMechanisms

IT Metricsand

Accountabilities

Harmonise what ? Harmonise how ?


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Exercise: Group Work- The Case og Novozymes

Questions to consider:

1. Which Governance Arrangements does Novozymes apply ?

2. To what extend is the IT Governance Design of Novozymes

harmonised ?

3. To what extend is the current IT Governance structure sensitiveto corporate and national culture (a Globalisation question) ?

4. Which theoretical challenges/discussions may the case lead to?

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 theHawaii International Conference on System Sciences (HICSS-39).


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Reviewing and Designing IT Governance

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

Gompare the GDF and GAM How well are the objectives of the GDF achieved by the arrangements of theGAM? 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?

As-Is Analysis


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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.

Transform to the To-Be of the GDF and GAM of the organisation Communicate, teach, convince, refine, and measure the success of IT

Governance.

To-Be Analysis

Implementation


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Variations in Governance Patterns

Factors: Strategic and performance goals

Organisational structure Governance experience

Organisational size and diversity

Industry differences

Regional and cultural differences


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8 IT Governance CSFs

Critical Success Factors:1. Transparancy

2. Actively designed

3. Infrequently redesigned4. Education about IT Governance

5. Simplicity

6. An exeption-handling process7. Governance designed at multiple

organisational levels

8. Aligned incentives


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Structure

Style

Sharedvalues

Staff

Skills

Systems

Strategy

7S

McKinseys 7SManagementFramework

How does ITGovernance affectmanagement of

the 7S of anorganisation ?

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


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IT Governance andCorporate Governance

Definition of Corporate Governance: Corporate Governance is defined as

providing the structure for determining

organisational objectives and monitoringperformance to ensure that objectives areattained. (OECD 1999).

What is the relation between IT andCorporate Governance ?


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Lessons Learned: Manglende Corporateog IT Governance Mekanismer i Lego

De rapporterings- og planlgningsvrktjer, vihavde 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, atsystemerne fungere selv om det lyder pedantisk ogbogholderagtigt. Det er ikke nok at sidde og vre en

stor strateg.

Mads vlisen, Januar 2005.


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5 IT Governance

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