2. Linking strategy, IT Governance, and Performance Pertemuan ke-19 & 22
Matakuliah : Pengantar IT Governance
Tahun : Feb
Linking strategy, IT Governance, and Performance Pertemuan ke-19 & 22

3. Six interlocking components of effective governance design
Enterprises with effective IT governance clearly articulate and then harmonize six component in the governance design framework.
Enterprises design IT governance arrangements for each of their six key assets including IT to both enable and influence strategy.
The effectiveness of an enterprise’s strategies and its combined governance arrangements are reflected in its ability to achieve stated business performance goals.
Bina Nusantara University

4. Governance Design Framework
Enterprise strategy
And organization
IT organization and
Desirable behavior
Harmonize what ?
Harmonize how ?
IT Governance
Arrangements
Decision rights via
Monarchies, federal,
etc
Mechanisms
(committees,
Budgets, etc)
IT decisions
Principles
Architectures
Infrastructure
Application
Investment
Business
Performance Goals
IT Metrics and
accountabilities
Bina Nusantara University

5. Enterprise strategy and organization define the desirable behaviors motivating governance.
Governance arrangements assign decision rights for the key decisions guiding each asset individually and collectively.
Enterprises harmonize IT organization and desirable behaviors with enterprise strategy and organization.
Enterprises harmonize IT organization structures with IT governance mechanisms.
IT metrics and accountabilities define how IT will contribute to enterprise performance goals and provide the means for separately assessing IT effectiveness.
Bina Nusantara University

6. Enterprise Strategy and Organization
For IT governance purposes, enterprise strategy is a set of clear, concise statements clarifying the enterprise’s strategic intent.
The strategy focuses the attention of all employees on simple and achievable messages.
Bina Nusantara University

7. Competitive thrust of the enterprise
Typically, statements of strategy express one or more of the following :
Competitive thrust of the enterprise
Relationships among business units (for example, autonomy of business units versus specific types of synergies)
Intentions for the role and management of information and IT
Bina Nusantara University

8. JPMorgan Chase’s IT Governance
Enterprise strategy
And organization :
Build excellence in individual lines of bus.
Provide integrated client solutions
Improve efficiency
Benefit from economies of scale
Develop ‘one firm-one team’ culture
Increase transparency and accountability
IT organization and
Desirable behavior :
Develop unique business unit appl.
Create shared infrastructure
Simplify architecture firmwid to
Facilitate sharing, integration, and
Reuse
Implement technical and project
Management standards including
Six sigma
Harmonize what ?
Harmonize how ?
IT Governance
Arrangements :
Technology executive committee and tech. council :
IT principles
IT investment
Technology council and business partners :
IT strategies and priorities
IT standards
Businesses : Application needs
Mechanisms :
CIO on executive committee
Vice chairs on tech. executive
committee
Business unit CIOs and infrastructure
leaders form tech. council
Architecture and engineering boards
set tech. standards.
Business
Performance Goals :
Distinct metrics for each business
unit
New language and culture
Customer retention, cross selling
recruiting
IT Metrics and
Accountabilities :
‘Shrink-to-grow’ budget process
ROI
Reduced number of IT products
Used and elimination of
nonapproved products
Certification in standard project
methodology
Bina Nusantara University

9. IT Governance Arrangements
Governance arrangements identify the archetype used for each of the IT decisions.
IT governance arrangements reflect the demands of the firm’s strategy and organization.
IT and business leaders jointly define IT principles and make IT investment decisions.
Bina Nusantara University

10. Business Performance Goals
Performance goals establish clear objectives for the governing bodies and a benchmark for assessing the success of governance efforts
In the for-profit-sector, enterprise performance goals such as share price, profitability, and good citizenship are clear
Bina Nusantara University

11. IT Organization and Desirable Behaviors
Specify how the top three components will be implemented.
Enterprise strategy and organization provides the direction for IT structure and desirable behavior.
Desirable behaviors must be in harmony with strategic direction or an enterprise cannot achieve its performance goals.
Bina Nusantara University

12. IT Metrics and Accountabilities
IT desirable behaviors are feflected in the IT metrics and accountabilites.
Measurement and accountabilities are critical to any good governance design.
Bina Nusantara University

13. IT Governance Mechanisms
Well-designed mechanisms convert IT desirable behaviors into the outcomes listed in the governance design framework.
Well-designed mechanisms reinforce and encourage desirable behaviors and lead to outcomes specified in the IT metrics and accountabilities.
Bina Nusantara University

14. Risks of IT Governance designs
Every governance arrangements carries risks.
Decisions by IT leaders risk resistance from business managers.
Joint business / IT decisions can lead to large and unwieldy decision making bodies.
Decentralized application decisions risk deterioration of firmwide standards and goals.
Bina Nusantara University

15. Designing IT Governance for different Strategic and structural drivers
Although effective IT governance requires harmonization of all six components of the governance design framwork, enterprise strategy and organization sets the direction.
Bina Nusantara University

16. IT Governance for different Strategies : Value disciplines
Operational excellence
Customer Intimacy
Product (or service) leadership
Bina Nusantara University

17. Three Value Disciplines
OPERATIONAL EXCELLENCE
CUSTOMER INTIMACY
PRODUCT LEADERSHIP
Business processes
End-to-end supply chain optimization
Emphasis on efficiency and reliability
Customer service, marketplace management
Emphasis on flexibility and responsiveness
Product development, time to market and market communications
Emphasis on constant innovation
Organization and skills
Central authority, low level of empowerment
Critical skills at core of organization
Empowerment close to point of customer contact
Critical skills at boundary of organization
Ad hoc, organic, and cellular
Critical technical skills abound in loose-knit structures
Management systems for coordination
Command and control, standard operating procedures
Quality management
Customer equity measures like lifetime value
Satisfaction, share management
Rewarding individuals’ innovative capacity
Risk and exposure management
Information and information systems
Integrated low-cost transaction systems
The system is the process
Single view of customer databases
Tools to identify segments and new offerings
Systems for collaboration
Modeling and simulation tools
Out study
Larger increases in ROA
Lower margins
Higher market cap growth and smaller increases in ROI and ROA
Bina Nusantara University

18. Operational excellence
Where businesses emphasize efficiency and reliability, lead the industry in price and convenience, minimize overhead costs, streamline the supply chain.
Enterprises focused on operational excellence had larger increases in asset utilization (ROA)
Examples of operationally excellent firms include :
UPS
Mead Westvaco
BIC Graphic Europe
ING Direct
Bina Nusantara University

19. Operational excellenceat ING Direct
Simple, transparent bank product through multiple channels
Standardized business model
Alignment between operations and IT
Local businesses for innovations.
Bina Nusantara University

20. Customer Intimacy
Customer-intimate firms emphasize flexibility and responsiveness in customer service and marketplace management.
Customer intimacy strategies are consistent with performance goals focused on high profitability.
Examples of customer-intimate firms include :
Federal Express
USAA
Capital One
Panalpina
Bina Nusantara University

21. Customer Intimacy at Panalpina
Cost sensitive
Varied and often complex shipping requirements
Provide customized
Integrated solution
Minimizing the premium customers must pay for those services.
Bina Nusantara University

22. Product Leadership
Firms leading on product or service offerings are focused on product development and time to market, emphasizing constant innovation or breakthrough products.
Management practices in product leadership firms focus on encouraging and rewarding innovation while managing the inherent risks of experimentation.
Examples of product leadership firms include :
DuPont
Pfizer
Motorola
Bina Nusantara University

23. Encouraging Business Unit Synergies or Autonomy with IT Governance
A key strategic decision for multibusiness unit enterprises is how to structure business unit relationships.
A critical role of IT governance is to ensure that organizational boundaries do not constrain strategic objectives.
Bina Nusantara University

24. Encouraging Business Unit Synergies or Autonomy with IT Governance
3 types of standardization reflect the synergies enterprises seek :
Shared technology and infrastructure services to generate economies of scale
Shared data, particularly customer, supplier, product, or employee data to facilitate process integration
Standardized processes to facilitate process excellence, reusability and organizational learning.
Bina Nusantara University

25. Business Unit Arrangements
Key Strategic Driver
BU synergy
BU autonomy
Business processes
Some processes standard across several Bus
Some processes integrated across several BUs
Each Bus processes are distinct and independent
Emphasis on BU decision making
Organization and skills
Top-down leadership specifying synergies
Remove duplication
Encourage BU innovative capacity
BU skills focused on local value discipline
Management systems for coordination
Synergies centrally defined and coordinated
BUs focused on both BU and firmwide strategy
Few mandated processes
Enterprise financial and risk management
Information and information systems
Substantial integrated firmwide infrastructure and shared services
Thin layer of firmwide infrastructure
Each BU infrastructure and systems tailored
Out study
Higher profit (ROI)
Larger increases in market cap and revenue growth
Bina Nusantara University

26. Encouraging Business Unit Autonomy with Some Synergies
When enterprises want diverse business units to pursue world class excellence in their specific market or function, they may choose to minimize potential synergies.
Bina Nusantara University

27. Encouraging Business Unit Synergies with Some Autonomy
Enterprises citing high pressure for achieving synergies had higher profits as measured by ROI.
But capitalizing on potential synergies is not easy.
Organizational boundaries usually cause resistance to any kind of sharing, integrating, or standardizing.
Bina Nusantara University

28. Summary of the Strategy-Governance Relationship
Firms introduce synergies focused on shared and standardized technology, they must govern architecture and infrastructure at the enterprise level.
Firms seeking data and process synergies add more governance mechanisms to ensure the integrity of data and to design and implement global processes.
Technology standards require the support of business leaders, but data and process standards force the active leadership of business executives.
Bina Nusantara University

29. Case Study on State Street Corporation : Changing Strategic Objectives
One of America’s best-performing financial services firms.
The case demonstrates how IT governance can be used to help implement significant strategic change.
A Top-Performing Financial Services Firm
One State Street
Designing IT Governance
Evolving IT Governance
Bina Nusantara University

30. A Top-Performing Financial Services Firm
State Street Corporation is a world leader in financial services , providing investment services, investment management, trading, and research to investment managers, corporations, mutual funds, pension funds, unions, not-for-profit organizations, and individuals.
Bina Nusantara University

31. One State Street
State Street Management believed that shared IT infrastructure was important to enable this single point of contact.
Historically, State Street’s IT organization had been highly decentralized.
Bina Nusantara University

32. State Street Corporation’s IT Governance
Enterprise strategy
And organization :
Grow new business
One state street
Faster time to market
Value management
Shared services
IT organization and
Desirable behavior :
Early adoption without penalty
Common customer view and ‘one
State street’ IT community
Commercial orientation of IT
Creation of business cases and
Measurement of IT Impact
Share and reuse technology
Enterprisewide
Federal IT organization
Harmonize what ?
Harmonize how ?
IT Governance
Arrangements :
Business monarchy decides :
IT principles
IT investment
IT monarchy decides :
Infrastructure strategies
Architecture
IT duopoly decides :
Business application needs
Federal/IT monarchy for input
Mechanisms :
IT executive committee
Office of architecture and exception
CIO staff
IT leadership group
SLA and chargeback
Web based portal
Activity-tracking system and
Service delivery managers
Enterprisewide IT budget
Business
Performance Goals :
Time to market
Single face to the customer
Cost efficiencies
IT Metrics and
Accountabilities :
Benchmarking of project
Implementation times
Testimonials
Reused technologies
Cost per business transaction
Bina Nusantara University

33. State Street Corporation’s It Governance Arrangement Matrix
Domains
Principles
Architecture
Infrastructure
Business Applications
Investment & Priorities
Styles
Input
Decision
Input
Decision
Input
Decision
Input
Decision
Input
Decision
Business Monarchy
ITEC
ITEC
CIO
IT Monarchy
Arch.
office
CIO
IT leaders
CIO
IT leaders
Feudal
CIO
IT leaders
IT org.
Business
leaders
CIO
IT leaders
IT org.
Business
leaders
Federal
Budgets
SLA
Act.track
IT leaders
Duopoly
Business
Leaders
IT org.
IT leaders
Anarchy
Bina Nusantara University

34. Management principles for designing governance to address strategic objectives
Make tough choices
Develop metrics to formalize the strategic choices
Determine where organizational structure limits desirable behaviors and design governance mechanisms to overcome the limitations.
Allow governance to evolve as management learns the role of IT and how to accept accountability for maximizing IT value
Bina Nusantara University