Presentation on theme: "Chapter 9 Governance of the IT Function"— Presentation transcript:
1 Chapter 9 Governance of the IT Function Lecture 17Chapter 9Governance of the IT Function
2 Final Module: IT Leadership IT increasingly fundamental to businessLeadership of the IT function must changeCore leadership issues:How to organize IT to support and enhance business activities?How to govern IT to minimize risk and maximize value of information assets?What IT leadership approach best fits the role of IT in the company?In many companies, IT has become fundamental to support, sustain, transform, and grow the business. This pattern has elevated the importance of IT leadership and governance within the company, and dramatically changed the core management and leadership issues in many cases. What kind of leadership is appropriate, given the role that IT plays in the firm? How should IT be organized to best support and enhance business activities? How should IT be governed overall, in order to manage the risk and ensure the value of what is now a strategic and indispensable business asset?The chapters, article, and cases in this module provide a basis for discussing the high-level management, leadership, and governance activities that set the organizational context for leveraging IT-enabled strategic insight and ensuring IT-driven operational excellence.
3 Overview of Chapters Chapter 9 Chapters 10 Discusses themes and issues in IT governanceChapters 10Explores a way of defining and evaluating IT leadershipThe chapters, article, and cases in this module provide a basis for discussing the high-level management, leadership, and governance activities that set the organizational context for leveraging IT-enabled strategic insight and ensuring IT-driven operational excellence. Chapter 9 explores the concept and practice of IT governance, discussing the connection between IT governance and corporate governance responsibilities, and offering recommendations for initiating and improving IT governance efforts. Chapter 10 presents a contingency framework for considering IT leadership needs and responsibilities, based on the role that IT plays in a company. Acknowledging that the role of IT is shaped by both internal and external factors in organizations and industries, it offers recommendations for practice that account for differences and transitions in the role of IT.The article and two cases integrate concepts discussed throughout this book. They are intended to help readers explore the dynamics of business strategy, information technology use, and leadership.
4 IT and the Board of Directors Increasing cost, complexity, and consequences of technologyOrganizations varyOperational dependence on information systemsStrategic influence of information technologyBoard supervision of IT should “fit” company’s use of ITWhat can we learn from this articleWhy company boards should be involved in IT governanceHow boards can start to shape IT decisionsCorporations are increasingly dependent on information technology, while information assets account for a large and growing percentage of their capital spending. Failure of boards to understand IT spending and strategy can put a firm at risk, while effective board-level IT governance can enable firms to reap competitive advantage from their IT. Companies that have established board-level IT governance committees are better able to control IT project costs and carve out competitive advantage. But there is no one-size-fits-all model for board supervision of a company's IT operations. The correct approach depends on what strategic "mode" a company is in--whether its operations are extremely dependent on IT and whether it relies heavily on keeping up with the latest technologies. This article describes how boards can determine an appropriate level of involvement in IT decisions, explaining how board members can recognize their firm’s IT risks. It offers recommendations for developing and modifying organizational structures and IT policies that take into account an organization’s changing operational and strategic needs. Appropriate board governance can go a long way toward helping a company avoid unnecessary risk and improve its competitive position.
5 Volkswagen of America Scarce IT resources Implementation of IT project prioritization processAim to align IT activities with business strategyPressure from businesses to bypass prioritization processExplore justifications for processExplore justifications for exceptionsExamine CIO’s responseWhat can we learn from this caseUnderstand factors that affect project delivery and how IT leaders can better manage themIn this case, Volkswagen’s U.S. subsidiary has launched a new process for allocating scarce IT budgets across a portfolio of project requests, in an effort to align IT activities better with corporate strategy. Now that they have used the process for the first time, though, and arrived at a list of approved projects, no one seems happy with the outcome. This case provides an opportunity to discuss the difficult governance issues that arise in making IT investment decisions. As you read the case, consider these questions: What is your assessment of the new process for managing priorities at Volkswagen? Are the criticisms justified? Is it an improvement over the old process? Who controls the budgets from which IT projects are funded at Volkswagen of America? Who should control these budgets? How should Matulovic respond to his fellow executives who are calling to ask him for special treatment outside the new priority management system?
6 The AtekPC Project Management Office Increasing price competition and consolidation in PC industryFocus on cost-reduction and renewed growthFormation of Strategic Planning OfficeIT at AtekPCOperational and maintenance focusLittle cross-functional integration of applications or information servicesProject Management OfficeGoal of better and more coherent project delivery capabilityPossibility to leverage PM skill from IT projects to broader enterpriseWhat can we learn from this caseHow key factors influence the success of PMO implementationsUnderstand leaders’ role in shaping those factorsWith the ever increasing challenge of successfully managing information technology (IT), organizations are recognizing the need for greater discipline in managing IT projects. For many organizations, this means establishing or enhancing project management skills, processes, and governance structures within the organization. The case presents AtekPC’s efforts to implement a project management organization, or PMO, and the challenges they faced in doing so. John Strider, AtekPC's chief information officer (CIO), had strong convictions that the PMO-light model was the way to go. He had held back on hiring full-time employees for the PMO and was moving very slowly and cautiously so as not to violate AtekPC's culture. He was also concerned about the many issues that the PMO implementation had already raised. Were small steps building on small successes going to get the job done fast enough? Issues brought out in the case include defining the PMO's purpose and mission, the structure and governance of the PMO, and how to successfully implement it in what appears to be a resistant culture. As you read the AtekPC story, consider the following questions: What is the purpose and mission of a PMO? What are the main challenges and obstacles in implementing a PMO? Can you identify structures and governance mechanisms that are critical to effective PMO implementation?
7 Governance of the IT Function Key Learning Objectives for Chapter 9Understand the concepts of enterprise governance and IT governance, and the connection between the twoUnderstand the need for IT governance and the potential benefits of good IT governanceRecognize the primary domains of IT governance and learn about effective approaches for developing an IT governance framework
8 What is governance?Governance is the process of structuring, operating and controlling the organization with a view toachieving its long-term strategic goalsServing the interests of stakeholdersComplying with legal and regulatory requirementsGovernance involves establishing chains of responsibility, authority, policies, standards, measurements and control mechanismsEstablishes expectations, allocate resources, manage risk, verify performance
9 IT Governance Responsibilities Increase effectiveness of organization through ITAlign with corporate goalsProtect investmentsAddress IT-centric business issuesOverall effort to devise integrated approach, operating performance, strategic control, risk management, value alignmentDiffers from project management in the strategic level of focus
10 Essentials of Enterprise Governance Enron exampleEnsures employs act in a way that benefits the companySet controls – what variables need to be monitored, how, and how to respondGood governance gains credibility in marketplace
11 Impetus for Better IT Governance Ensure that IT creates value by better alignment of IT with businessCan you track where the IT money goes?Can you identify the benefits and risks?IT is an enabler of better governanceNo formal government requirements
12 Benefits of Effective IT Governance Correlated to good business performance in terms of cost reductions, customer satisfaction, securityEmphasis on quality of IT, reduction of riskReduction in major IT delivery problemsAccurate understanding of support needsGood electronic archiving and storage processes have benefits
13 Scope and Practice of IT Governance IT-business alignmentInvestment ValueProject DeliveryService deliveryResource ManagementMeasurement of IT performanceRisk of IT performance
14 Designing IT Governance Intentional but minimalist designBoard-level leadershipBroad-based executive involvementClear ownership but broad participationEnforce Execution but Accommodate ExceptionDefine benefits and target expectationsAim for evolution not revolution in implementation
15 Managing IT Outsourcing Focus on major projects rather than incrementalLarger investmentsHigher riskGreater overall management complexity8 to 10 yearsEnvironment of change makes long term difficult to projectBenefits to each party very differentPath uncertainty can lead to conflictDifferent from offshoring
16 Key challenges First year large capital spending from customer Later profit expectedIncentives to meet contract change with changing environmentResolution of conflicts difficult and costlyEvolution of technology changes perspective
17 History of outsourcing A few early examples1960’s computer services for financial operationsADP started in 1949 as small punch card payroll companyGrew to $8.5b company in 2005Large-volume standard transactionsAccenture software contractorPurchasing equipment and software steps toward full outsourcing of IT
18 Major early drivers toward outsourcing Cost-effective access to specialized or occasionally needed computing power/systems developmentAvoidance of building in-house skillsAccess to special functional capabilities1990 Kodak decision to outsource IT legitimized ideaMainframesPC maintenance and serviceTelecom
19 Outsourcing Today More and more functions outsourced Acceptance of strategic alliancesOpportunity to complement strengths and weaknessesCollaborative innovationChanges in TechnologyMost code development is outsourcedMost IT departments integrate (select vendors, code etc.) rather than developSee table 9.1
20 Drivers toward outsourcing today Costs and QualityTighter overhead cost control of fringe benefitsAggressive use of low-cost laborTough standardsEffective builk purchasing and leasing arrangementsBetter management of excess hardware capacityBetter control of software licensesMore aggressive management of service and response timeTighter inventory controlProfessional service at multiple levelsLeaner management structureHigher level of IT staff skillsMore realistic lease structures
21 Drivers toward IT Outsourcing today (ctd) Breakdown in IT performanceComplexity led to problems led to new modelsIntense Vendor PressuresGood sales and marketing teams plus positive results have lead to confidence in outsourcingSimplified General Management AgendaIT is messy!Financial FactorsLower risk of cost fluctuationsFixed (capital) cost business becomes variable cost businessOpportunity to move group into acquiring companyCorporate CultureIT team given clout to make major decisionsEliminating Internal Irritation
22 When to outsource When do benefits outweigh risks? Position on strategic grid
23 When to Outsource Development Portfolio Organizational Learning More maintenance/highly structured projects means more outsourcing potentialHigh technology in specific field means more outsourcing potentialLarge, low structured projects pose difficult coordination problems for outsourcingOrganizational LearningDevelopment work difficult to outsourceNew areas mean company doesn’t understand what is required let alone how to manage outsourcingMarket PositionLarge, well established firms are difficult to transition to new systems without outsourcingCurrent IT organizationHigh structure easy to outsourceContracts easy to write when know what is expected
24 Structuring Alliance Contract Flexibility Standards and Control May change radically over time6 to 8 months to write contractsProcess of drafting more important than resulting documentStandards and ControlShould be explicitly written into contractVendors often able to provide better performance measuresAreas to OutsourceAll or nothing?Coordination costs
25 Structuring Alliance Cost Savings Supplier Stability and Quality 10 year contract is long time in high-tech!Keeping open to other outsourcing optionsManaging conflicts of interestManagement FitPeople working with peopleConversion problemsIT staff move leads to uncertainty
26 Managing Alliance Early results are key CIO Function Partnership/contract managementArchitecture planningEmerging TechnologiesContinuous learningPerformance MeasurementSome areas easier than othersCost savings vs. streamlining/simplificationMix and Coordination of TasksBenefits can be overrun by management of complex project mix with multiple vendorsCustomer-Vendor InterfaceFinal responsibility on both sidesWho communicates what and when?Reporting expectationsRelationship managers and coordinating groups
27 What about the contractor? Business model for consulting/contracting companiesRisks