ITAG RESEARCH INSTITUTE

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1 ITAG RESEARCH INSTITUTE An Eploratory Study into the Design of an IT Governance Minimum Baseline through Delphi Research Steven De Haes University of Antwerp Management School (UAMS) Wim Van Grembergen University of Antwerp (UA) University of Antwerp Management School (UAMS) Abstract In many organisations, information technology (IT) has become crucial in the support, sustainability and growth of the business. This pervasive use of technology has created a critical dependency on IT that calls for a specific focus on IT governance. IT governance consists of the leadership and organisational structures and processes that enable the required alignment between business and IT. This practice-oriented research concentrates on the IT governance practices that organisations can leverage to implement IT governance in reality. Based on literature research, pilot case research and delphi research, this paper provides insights regarding the effectiveness and ease of implementation of IT governance practices and provides a minimum baseline of practices that organisations at least should have. Via this research, we want to contribute to new theory building and assist practitioners by providing more guidance on how IT governance can be effectively implemented. Keywords: IT governance, business/it alignment, delphi research 1/29

2 through Delphi Research 2/29 I. Introduction In many organisations, information technology (IT) has become crucial in the support, sustainability and growth of the business. This pervasive use of technology has created a critical dependency on IT that calls for a specific focus on IT governance. IT governance consists of the leadership and organisational structures and processes that ensure that the organisation s IT sustains and etends the organisation s strategy and objectives [ITGI, 2003; Van Grembergen, 2007]. Today, IT governance is high on the agenda of many organisations. [Van Grembergen, 2007; Luftman and Kempaiah, 2007] This research focuses on which practices (structures, processes and relational mechanisms) an organisation can leverage to ensure that IT governance becomes a reality in the organisation. This practice-oriented research focus is relatively uneplored in academic literature. Many research projects focused on the impact of specific contingencies on e.g. centralised versus decentralised governance structures [e.g. Ahituv et al., 1989; Brown and Magill, 1994; Olson and Chervany, 1980] and on how strategic alignment impacts business performance [e.g. Croteau and Bergeron, 2001; Sabherwal and Chan, 2001; Teo and King, 1996]. Less research can be found on how organisations can effectively implement IT governance in day-to-day practice. Via this research, we want to contribute to new theory building in the IT governance domain of knowledge and assist practitioners by providing more guidance on how IT governance can be implemented. This research paper aims to be strongly practice-oriented while maintaining academically rigorously eecuted. This approach complies with the arguments made by of Benbasat and Zmud [1999] targeted at IS academics who are committed to both applying rigorously the methodology best suited to their research goals and better accommodating practical relevance with their research endeavours. Similar arguments are made in the work of O Keefe and Paul [2000] who promote consumable IS research that is both academically rigorous and relevant to practice. II. contet and Definitions Contet Information Technology (IT) has become pervasive in current dynamic and often turbulent business environments. While in the past, business eecutives could delegate, ignore or avoid IT decisions, this is now impossible in most sectors and industries [Peterson, 2003; Duffy, 2002; Van Der Zee & De Jong, 1999]. This major IT dependency implies a huge vulnerability that is inherently present in IT environments [ITGI, 2003; Duffy, 2002]. System and network downtime has become far too costly for any organisation these days as doing business globally around the clock has become the standard. The risk factor is accompanied by a wide spectrum of eternal threats, such as errors and omissions, abuse, cyber crime and fraud. IT of course not only has the potential to support eisting business strategies, but also to shape new strategies [Henderson, Venkatraman & Oldach, 1993]. In this 2/29

3 through Delphi Research 3/29 mindset, IT becomes not only a success factor for survival and prosperity, but also an opportunity to differentiate and to achieve competitive advantage. Finally, information technology often entails large capital investments in organisations while companies are faced with multiple shareholders that are demanding the creation of business value through these investments. The question of the productivity parado, why information technologies have not provided a measurable value to the business world, has puzzled many practitioners and researchers (Strassman, 1990; Brynjolfsson, 1993). All the issues aforementioned point out that the critical dependency on information technology calls for a specific focus on governance of IT. This is needed to ensure that the investments in IT will generate the required business value and that risks associated with IT are mitigated. Luftman and Kempaiah [2007] strengthen this argumentation by describing how IT governance is an important enabler for business/it alignment, which is turn is an important enabler for business performance. However, not everybody seems to agree with the increasing strategic importance of information technology. In his article IT doesn t matter, Carr [2003] makes the comparison between commodities such as water and gas, and information technology. He states, As information technology s power and ubiquity have grown, its strategic importance has diminished. [ ] By now, the core functions of IT data storage, data processing, and data transport have become available to all. Their very power and presence have begun to transform them from potentially strategic resources into commodity factors of production. They are becoming costs of doing business that must be paid by all but provide distinction to none. [Carr, 2003] After Carr s article, a debate started between opponents and proponents of his ideas. In the contet of this paper, it is acknowledged that some parts in the IT domain are standardised and became a commodity, but still many systems and technologies are very comple and IT investments and the way IT is used needs to be governed properly. Or, as the General Motors CIO Ralph Szygenda points out as a reaction on Carr s article: Nicholas Carr may ultimately be correct when he says IT doesn't matter... [But] business-process improvement, competitive advantage, optimization, and business success do matter and they aren't commodities. To facilitate these business changes, IT can be considered a differentiator or a necessary evil. But today, it's a must in a real-time corporation. [ ] I also agree on spending the minimum on IT to reach desired business results. Precision investment on core infrastructure and process-differentiation IT systems is called for in today's intensely cost-conscious business versus the shotgun approach sometimes used in the past. [Evans, 2003] The above discussion clearly illustrates why IT governance has been high on the agenda recent years. Definitions Information technology and its use in business environments, has eperienced a fundamental transformation in the past decades. Since the introduction of IT in organisations, academics and practitioners conducted research and developed theories and best practices in this emerging IT 3/29

4 through Delphi Research 4/29 governance knowledge domain [Peterson, 2003]. This resulted in a variety of IT governance definitions of which some are formulated in Table 1. Table 1: Definitions of IT governance IT governance is the responsibility of eecutives and the board of directors, and consists of the leadership, organisational structures and processes that ensure that the enterprise s IT sustains and etends the organisation s strategy and objectives (ITGI, 2005). IT governance is the organisational capacity eercised by the board, eecutive management and IT management to control the formulation and implementation of IT strategy and in this way ensure the fusion of business and IT (Van Grembergen, 2007). Although the above mentioned definitions differ in some aspects, they focus on the same issues such as achieving the link between business and IT and the primary responsibility of the board. The definition of the IT Governance Institute states that IT governance is an integral part of enterprise or corporate governance. Indeed, to make sure that corporate governance matters are covered, IT needs to be governed properly first. IT governance and corporate governance can therefore not be considered as pure distinct disciplines and IT governance needs to be integrated into the overall governance structure, as denoted by several authors [ ITGI, 2003; Peterson, 2003; Duffy, 2002; Weill and Ross, 2004]. Using similar argumentations as for IT governance, a rationale could be built up to promote governance requirements for other key assets in the organisation. Typical eamples could be human resources governance and financial governance. In this contet, Weill and Ross [2004] identify si key assets through which an organisation can accomplish its strategies and generate business value: human assets, financial assets, physical assets, IP assets, information and IT assets, relationship assets (see Figure 1). Using their words: Senior eecutive teams create mechanisms to govern the management and use of each of these assets both independently and together. [ ] Governance of the key assets occurs via a large number of organisational mechanisms, for eample structures, processes, procedures and audits. Board Eecutive committee Key assets Human assets Financial assets Physical assets IP assets Inform. & IT assets Relationsh ip assets Financial governance practices IT governance practices Weill, P., & Ross, J., 2004, IT Governance: How Top Performers Manage IT Decision Rights for Superior Results. Boston: Harvard Business School Press Figure 1: Key asset governance 4/29

5 through Delphi Research 5/29 As stated by the IT Governance Institute [2003], it is crucial and a prerequisite for an effective IT governance framework that the roles and responsibilities of the involved parties are clearly and unambiguously defined. As an eample, one of the roles that must have clear responsibilities defined in the IT governance process is that of eecutive management. Dependent on the strategic importance of IT within an organisation, eecutive management involvement may differ, but at least the charter must be clearly defined. [Nolan and McFarlan, 2005] The CIO is in this contet an important player but certainly not the only one. The CEO has singular responsibility for carrying out the strategic plans and policies that have been established by the board, and he should ensure that the CIO is part of it and that he is accepted in the senior-level decision-making process. The CIO and the CEO should report on a regular basis to the board, while the board in its turn has to play the role of independent overseer of IT and business performance and compliance. The board members should not only keep their knowledge of current business models, management techniques and information technology up-todate, but also the potential risks and benefits associated with each of them [ITGI, 2003;,Duffy, 2002]. More detailed discussions on these roles and responsibilities have been described by authors such as ITGI [2003], Ross and Weill [2000] and Weill and Ross [2004]. III. Research questions and scope As proposed by work from amongst others Peterson [2003], Weill and Ross [2004], Peterson et al. [2002] and Van Grembergen [2003], IT governance can be deployed using a miture of various structures, processes and relational mechanisms. IT governance structures include structural (formal) devices and mechanisms for connecting and enabling horizontal, or liaison, contacts between business and IT management (decision-making) functions [Peterson, 2003] (e.g. steering committees). IT governance processes refer to formalisation and institutionalisation of strategic IT decision making or IT monitoring procedures [Peterson, 2003] (e.g. IT balanced scorecard). The relational mechanisms finally are about the active participation of, and collaborative relationship among, corporate eecutives, IT management, and business management [Peterson, 2003] (e.g. training). Relational mechanisms are crucial in the IT governance framework and paramount for attaining and sustaining business-it alignment, even when the appropriate structures and processes are in place [Keill et al., 2002; Weill and Broadbent, 1998; Henderson et al, 1993]. Some eamples of these structures, processes and relational mechanisms are provided in Figure 2. 5/29

6 through Delphi Research 6/29 Structures Roles and responsibilities, IT organisation structure, CIO on Board, IT strategy committee, IT steering committee(s) Processes Strategic Information Systems Planning, (IT) BSC, Information Economics, SLA, COBIT and ITIL, IT alignment / governance maturity models IT governance framework Relational mechanisms Active participation and collaboration between principle stakeholders, Partnership rewards and incentives, Business/IT co-location, Crossfunctional business/it training and rotation Figure 2. Eample practices for IT governance Goal of this research is to provide more insight into which practices are - or can be - used by contemporary organisations and how practitioners can leverage these practices. To address this goal, this research is build around some key questions: 1. what IT governance best practices are or can be - applied in practice? 2. what is the perceived effectiveness of these IT governance practices? 3. what is the perceived ease of implementation of these IT governance practices? 4. what is a minimum set or minimum baseline of required IT governance practices? However, it is recognised that, in order to maintain a sufficient level of internal validity, the research scope needs to be narrowed down. Our focus on internal validity builds on the work of Cook and Campbell [1979] who state that there is always a balancing act between different types of validity. They argue that for many applied researchers the priority ordering is like: internal validity, eternal validity, construct validity of the effect, statistical conclusion validity, and construct validity of the cause. As this research can be categorised as applied research, the focus is indeed on internal validity in the first place. To ensure sufficient internal validity, the research was therefore scoped down on multiple aspects. In the first place, it is acknowledged that the use of IT governance best practices might be different in different types of industries. Organisations in the finance industry are highly dependent upon IT which probably requires the finance industry to have a more solid and broad IT governance framework. Therefore, the focus of this research is only on one sector, more specifically the financial services sector, to control the contingencies resulting from differences in industries. The choice for the financial 6/29

7 through Delphi Research 7/29 services sector is made because, amongst different industries, financial services, together with manufacturing and retailing, is the first industry to use information technologies and as such is already more matured in these domains, making empirical research interesting [Chiasson and Davidson, 2005]. Specifically for IT governance, the latter is confirmed by recent research of the IT Governance Institute [2006], indicating that the financial services sector is leading with 31 percent in having implemented IT governance (see bar charts at the right of Figure 2). ITGI, 2006, IT Governance Global Status Report, Report published by ITGI and PriceWaterhouseCoopers, from Figure 2: IT governance implementation status by industry The scope was also reduced in geographic terms and regarding size of organisations. To avoid cultural differences between regions worldwide and contingencies related to the size of the organisations, it was decided to only focus on typical Belgian financial services organisations with headcounts ranging from 100 to over 1000 employees. The final scope reduction focuses on the organisational level of IT governance practices. As indicated by Van Grembergen [2003], IT governance is situated at multiple layers in the organisation (see Figure 4): at strategic level where the board is involved, at management level within the C-suite and senior management layer and finally at the operational level with IT and business management. This implies that all these levels, business as well as IT, need to be involved in the IT governance process and they have to understand their individual roles and responsibilities within the framework. strategic level board of directors management level Eecutive and senior management operational level IT and Business operational management Figure 4. Three layers of IT governance responsibility 7/29

8 through Delphi Research 8/29 However, Peterson [2003] makes a clear distinction between IT governance and IT management. According to him, IT management is focused on the effective and efficient internal supply of IT services and products and the management of present IT operations. IT governance in turn is much broader, and concentrates on performing and transforming IT to meet present and future demands of the business (internal focus) and business customers (eternal focus). This higher-level focus of IT governance is confirmed in the IT governance definition of ITGI [2005], which states that IT governance is the responsibility of eecutives and the board of directors. With this statement, ITGI wants to stress that the key differentiating factors for successful IT governance lies in the involvement of board and eecutive / senior management. Based on the considerations of Peterson [2003] and ITGI [2005], we will discard the operational oriented level (see Figure 2), acknowledging that practices at his level are also very important but that key IT governance discriminators are likely to be found more at board and eecutive/senior management layer. IV. Research Methodology Because research in the domain of IT governance implementations is in its early stages and theoretical models are scarcely available, the nature of this research is eploratory rather than hypothesis testing. Indeed, the concept of IT governance, as it is understood now, only emerged late nineties [De Haes and Van Grembergen, 2006; Weill and Ross, 2004], and there has been little research material developed on which we can build. The latter is not only true because it is a new research domain, but as denoted by Benbasat and Zmud [1999], generally, IS researchers have been less successful than their colleagues in other business school disciplines in developing a cumulative research tradition. Without such cumulative results, it becomes difficult, if not impossible, to develop and assess strong theoretical models such that prescriptive actions can confidently be suggested for practice. By eploring this research domain in detail, we do however want to contribute to creating a basis for future research, by building theoretical models and generating potential hypotheses to be tested. Eploratory research often builds on secondary research, such as reviewing available literature and/or data, or qualitative approaches such as informal discussions with consumers, employees, management or competitors, and more formal approaches through in-depth interviews, focus groups, projective methods, case studies or pilot studies. [Ryerson, 2007] Our research strategy therefore also triangulates between multiple different research methods: literature research, pilot case research and delphi method research. This triangulation enables us to obtain a richer insight in reality, as also advocated by Mingers [2001]: different research methods focus on different aspects of reality and therefore a richer understanding of a research topic will be gained by combining several methods together in a single piece of research or research program. 8/29

9 through Delphi Research 9/29 Literature and pilot case research The research process started with eploring the research domain through a detailed literature research in the domain of business/it alignment and IT governance. Papers and research reports of both academic and professional journals were collected, read, organised, analysed and summarised into one masterfile, providing the researcher a complete and workable overview of eisting literature relevant to the research domain. The focus was on finding an initial list of structures, processes and relational mechanisms that organisations can leverage to implement IT governance. At this moment, the research was not yet scoped down to only the Belgian financial services sector, in order to be able to capture an as broad spectrum as possible of IT governance practices. To complement the initial list of IT governance practices, pilot cases were described. These cases consisted of one in-depth case and five mini-cases. These case studies were based on multiple interviews with two to si business and IT managers in each organisation. Two criteria are used to select the sample of pilot case studies: local proimity to enable the researcher to eecute multiple in-depth interviews at site and diversity to enable the gathering of as rich data as possible on used structures, processes and relational mechanisms in practice. Therefore, Belgian based organisations were selected, both operating nationally and internationally in different sectors (finance, insurance, chemicals, steel). Delphi research After the first eploration, the delphi research methodology was used. The delphi method can be characterized as a method for structuring a group communication process so that the process is effective in allowing a group of individuals, as a whole, to deal with a comple problem. [Linstone and Turoff, 1975]. The delphi method provides a structured process to solicit epert opinion on a particular subject and enables group interaction without needing a face-to-face meeting [Taylor-Powell, 2002]. This method is particularly suited as a research methodology for this type of research as the delphi method technique lends itself especially well to eploratory theory building on comple, interdisciplinary issues, often involving a number of new or future trends [Akkermans et al., 2003; Okoli and Pawlowski, 2004]. Both Linstone and Turoff [1975] and Taylor-Powell [2002] stress the importance of selecting the epert panel. Careful selection of participants is important since the quality and accuracy of responses to a delphi are only as good as the epert quality of the participants who are involved in the process. The number of participants depends upon the purpose of the delphi and the diversity of the targeted population. Ten to 15 people may be adequate for a focused Delphi where participants do not vary a great deal. [Taylor-Powell, 2002]. Based on these considerations, an epert panel was composed of 29 consultants, senior IT and senior business professionals who are all knowledgeable about organisations operating in the Belgian financial services sector. From this group, 22 eperts continued to be involved in the full research effort (25% drop off rate), having different 9/29

10 through Delphi Research 10/29 profiles (6 senior business/audit management, 8 senior IT management, 8 senior business/it consultant). Using the delphi method, these financial services sector eperts needed to complete questionnaires in three rounds (see sample questionnaires in appendi). Similar to the delphi research work of Keill et al.[2002], the delphi research started with a preceded initial list of structures, processes and relational mechanisms. This list was operationalised based on literature research and the pilot case research as discussed previous section. In the first delphi round, the respondents were only asked to provide their feedback on the initial list of practices, giving them the opportunity to make recommendations to add, change, delete some of the practices. The focus of this first round was on validating the initial list of practices specifically for the financial services sector, so no other input or feedback was requested at this stage. In the second round, the respondents were asked to rate on a scale of 5, for each of the reviewed IT governance practices, the "perceived effectiveness (0 = not effective, 5 = very effective) and the "perceived ease of implementation" (0 = not easy, 5 = very easy). The respondents were also asked to, taken the previous attributes (effectiveness - ease of implementation) and their personal eperience into account, to provide the top 10 most important IT governance practices, which are in their opinion crucial elements or a minimum baseline of an optimal IT governance mi (the most important practice score 1, the second most important score 2,... the 10th most important score 10). In the third and final round, the respondents were asked to re-evaluate their own scores out of round 2, taken the group averages into account. Goal of this round was primarily to come to a greater consensus in the group. At the end of this round, the degree of consensus between the eperts was measured leveraging Kendall s W coefficient [Schmidt, 1997; Siegel, 1988], specifically for the question on the minimum baseline. Schmidt [1997] offers an interpretation of Kendall s W, indicating that the reached level of consensus in this research of 0,53 can be considered moderate providing a fair degree of confidence in the results. This result, together with the fact that the top 10 list only slightly differed between round two and three, founded the decision not to start a fourth round. An important challenge in this research approach is that different people often have different understandings of the same concept, also referred to as the inadequate preoperational eplication of constructs threat [Cook and Campbell, 1979]. Good eamples are the use of IT steering committees and IT strategy committees. Although the latter is defined in literature as a committee at the level of the board of directors [ITGI, 2003], many organisations are using the same terminology for a committee operating at eecutive or management level, which in fact should be catalogued as a steering committee. To address this, short and unambiguous definitions of all the processes, structures and relational mechanisms were provided (based on literature) and the questionnaire was pilot-tested for ambiguities and vagueness by eight people (practitioners and academics) before sent out to the delphi eperts. 10/29

11 through Delphi Research 11/29 V. Results and interpretations Literature and pilot case research From the pilot case studies and the literature research, different drivers for adopting IT governance were identified. An important one was certainly the need to comply with Sarbanes-Oley requirements, which impacts heavily on the control environment in IT. Other important drivers for IT governance were the push to achieve economies of scales after mergers and acquisitions and budget pressure, resulting in a smaller budget for new projects. Challenge of course is then to optimally assign the remaining budget to projects and activities that are delivering value to the business. Finally, some pilot case companies mentioned that the IT governance project was more an effort of formalizing and structuring eisting mechanisms already applied. Based on the findings of the literature research and the pilot case research, an initial list of IT governance practices was composed, as shown below (Table 2). For each of these practices, as short definition was developed based on the literature and pilot cases. Below Table 2, some highlights (not ehaustive) are provided on how the pilot case organisations were leveraging the identified practices. Table 2. Initial list of IT governance practices Cross-references from case research Structures Processes Relational Mechanisms Name Cross-references from literature KBC AGF VanBreda Huntsman Sidmar CM Integration of governance/alignment tasks Duffy, 2002; ITGI, 2003; Weill&Ross, 2004; De Haes&Van Grembergen, 2006 in roles&responsibilities IT steering committee(s) ITGI, 2003; Luftman&Brier, 1999; Weill&Ross, 2004; De Haes&Van Grembergen, 2006 IT strategy committee ITGI, 2003; Nolan&McFarlan, 2005; De Haes&Van Grembergen, 2006 CIO on Eecutive Committee ITGI, 2003, Weill&Ross, 2004; De Haes&Van Grembergen, 2006; Luftman, 2007 CIO reporting to CEO ITGI, 2003; Weill&Ross, 2004; Luftman, 2007 Architecture Committee ITGI, 2003; De Haes&Van Grembergen, 2006 Strategic information systems planning Earl, 1993; Gottschalck, 1999; De Haes&Van Grembergen, 2006 Balanced scorecard De Haes&Van Grembergen, 2006; Van Grembergen&De Haes, 2003 Portfolio management (incl. Information economics) De Haes&Van Grembergen, 2006 Charge back arrangements (ABC) Weill&Ross, 2004; ; De Haes&Van Grembergen, 2006 Service Level Agreements Weill&Ross, 2004; Van Grembergen et al., 2003; De Haes&Van Grembergen, 2006 COBIT ITGI, 2006; De Haes&Van Grembergen, 2006 Job-rotation Luftman, 2000; Reich&Benbasat, 2000; De Haes&Van Grembergen, 2006 Co-location Luftman, 2000; De Haes&Van Grembergen, 2006 Cross-training Luftman, 2000; De Haes&Van Grembergen, 2006 Knowledge management (on IT governance) Weill&Ross, 2004; Luftman, 2000; De Haes&Van Grembergen, 2006 Business/IT account managers Luftman, 2000; De Haes&Van Grembergen, 2006 Senior management giving the good eample De Haes&Van Grembergen, 2006 Informal meetings between business and IT De Haes&Van Grembergen, 2006 senior management IT leadership Monnoyer&Willmott, 2005; Smith, /29

12 through Delphi Research 12/29 KBC KBC is a major Belgian financial services organisation that was founded in 1998 after the merger of Kredietbank, Cera Bank and ABB Insurance. The IT function is centralised and the CIO reports directly to the Eecutive Committee. KBC tries to involve business and IT in the project initiation, development and maintenance process by setting up committees composed of business and IT people. Investment projects are decided by the Eecutive Committee using the information economics methodology, measuring financial and non-financial (such as alignment) factors. To enable the business to make well-considered decisions, fied-time/fied-price development projects are agreed upon in service level agreements and production costs are charged back using activity based costing. An IT balanced scorecard is established as a measurement tool, with a perspective specifically dedicated to IT staff. Finally, a whole set of relational mechanisms is eploited to manage the soft side of IT governance, such as co-location and job-rotation. AGF AGF Belgium is an insurance company that is part the French AGF Group, which in turn is part of the German Allianz Group. The IT function at AGF Belgium is centralised and there is a direct reporting line between the CIO and the CEO, which the CIO preferred over a direct reporting line to the CFO because that would cause a growing distance between IT and eecutive management and a far too financial approach of the IT function. Net to the eecutive committee, a number of steering committees have been established to ensure sufficient business and IT involvement in the decision cycles on IT. On the processes side, there is the IT strategy planning process, which takes place in two consecutive rounds, the strategic dialogue and the planning dialogue. Projects are prioritised using return on investment (ROI) considerations in combination with a cost-benefit analysis epressed in quantitative and qualitative business terms. An important relational mechanism found at AGF is a tandem account manager (IT) chief representative for information systems (business unit). Both of them are a member of a business unit s IT steering committee and meet on a regular basis. The main objective for this tandem is the attainment of a good communication between IT and the individual business units. Vanbreda Vanbreda is a Belgian based insurance company, with international activities in the domain of insurance brokerage, reinsurance brokerage, consultancy and risk management and the design of health plans for international groups. IT services, IT operations and IT infrastructure are being provided in a centralised shared services model, while development activities are decentralised in the 12/29

13 through Delphi Research 13/29 business units to ensure better alignment with business needs. A number of steering committees, with business and IT involved, are established to provide high-level directions, prioritise between projects and align operations to business requirements, supported by service level agreements. Prioritisation of projects is based on financial measurements such as ROI together with some qualitative methodologies to analyse the strategic fit. Good eamples of relational mechanisms are the road shows done by the CIO during which major IT-enabled projects are being presented to the business. The advisor IT projects also plays an important relational role, as he/she is responsible for the delivery of functional specifications and serves as a linking pin between business and IT for all IT projects. Huntsman Huntsman has grown to a worldwide supplier of chemicals, polymers and packaging. The organisational structure of IT can be seen as a virtual matri structure in which a manager has full command over particular applications and platforms, and at the same time has business responsibility for an entire division. One of the main drivers for this complicated model, justified the eecutive vice president is that IT should not be accountable and responsible for business projects. It is the role of the business to assume full ownership. It would be a strategic mistake to give a director global IT full responsibility and accountability. This model is supported by a number of committees to address IT decisions. IT governance related processes at Huntsman include the use of the balanced scorecard technique, with both IT and business monitoring the metrics. Relational mechanisms present at Huntsman include the corporate intranet and on-site presentations and a corporate knowledge management system. Job rotation from IT to the business and the other way around is a possible part of career path planning. Arcelor-Sidmar Sidmar is part of the Arcelor Group, the largest steel producer world wide. The IT function at Sidmar is centralised and several committees have been established in order to capture local needs of business units and to prioritise between projects. IT governance processes include a clearly defined prioritization process, partly based on information economics covering criteria as profitability, competitive advantage, operational urgency and decision support. Several types of relational mechanisms are applied such as job-rotation between the business and IT and the role of ten architects in maintaining the link between the business and IT. CM CM is one of the five players in the Belgian health insurance and social security activities. The IT function at CM is largely centralised, but still the regional entities have their own IT department. Four different committees, at both national and regional level, make sure that business and IT are involved 13/29

14 through Delphi Research 14/29 in strategy development and prioritisation. On the IT governance processes side, the application of SLAs need to be mentioned and the use of the balanced scorecard, which served as an inspiration for the implementation of about twenty dashboards. Relational mechanisms that are applied at CM include co-location and IT communication to the business on a national level to eplain or repeat basic principles that are defined by the CIO, covering the organisational structure of IT, its character, the IT architecture, the IT budget, prioritization, the cooperation with the regional entities and the relationship with the market and partners. Delphi research The delphi research was eecuted in three survey rounds. The first survey round focused on validating the predefined list of IT governance practices specifically for the financial services sector. Survey round 2 and 3 captured the perceptions of the respondents regarding effectiveness and ease of implementation of the IT governance practices and regarding a set of practices that could compose a minimum IT governance baseline. The results of these surveys rounds are discussed below. Delphi round 1 validating the initial list of IT governance practices As mentioned in previous section, the delphi research started from a predefined initial list of practices which was derived from literature and pilot case research in many sectors. In the first survey round, the respondents were asked to validate this general list of practices to make it more oriented towards to financial services sector. A lot of qualitative feedback was captured from the respondents, including suggestions for new practices, improvements for definitions etc. All incoming data was structured and analysed by the researchers, resulting in a new and etended list of practices, as visualised in Table 3. Specific structures that were added are (IT) audit committee at the level of the board of directors, IT epertise at the level of board of directors, IT governance function/officer, security/risk/compliance officer, IT project steering committee and IT security steering committee. IT governance processes that were added are IT governance assurance self assessment, project governance / management methodologies, IT budget control and reporting, benefits management and reporting and COSO/ERM. Finally, some relational mechanisms were added, more specifically corporate internal communication addressing IT on a regular basis and IT governance awareness campaigns. Based on the feedback received from the respondents, short definitions were developed for each of these new practices. As background, also a high-level indication is provided of the primary organisational level that the practice is targeting (see latter column, B = Board; E/S = Eecutive/Senior Management), taking into account that the operational level was discarded in the research. The updated list of practices was used as basis to start up survey round 2 & 3. 14/29

15 through Delphi Research 15/29 Table 3. Validated list of IT governance practices IT governance relational mechanisms IT governance processes IT governance structures Inde IT Governance Practice Definition Level B E/S S1 IT strategy committee at level of board of directors Committee at level of board of directors to ensure IT is regular agenda item and reporting issue for the board of directors S2 IT epertise at level of board of directors Members of the board of directors have epertise and eperience regarding the value and risk of IT S3 (IT) audit committee at level of board of directors Indepent committee at level of board of directors overviewing (IT) assurance activities S4 CIO on eecutive committee CIO is a full member of the eecutive committee S5 CIO (Chief Information Officer) reporting to CEO (Chief Eecutive Officer) CIO has a direct reporting line to the CEO and/or COO and/or COO (Chief Operational Officer) S6 IT steering committee (IT investment evaluation / prioritisation at eecutive / Steering committee at eecutive or senior senior management level) management level responsible for determining business priorities in IT investments. S7 IT governance function / officer Function in the organsation responsible for promoting, driving and managing IT governance processes S8 Security / compliance / risk officer Function responsible for security, compliance and/or risk, which possibly impacts IT S9 IT project steering committee Steering committee composed of business and IT people focusing on prioritising and managing IT projects S10 IT security steering committee Steering committee composed of business and IT people focusing on IT related risks and security issues S11 Architecture steering committee Committee composed of business and IT people providing architecture guidelines and advise on their applications. S12 Integration of governance/alignment tasks in roles&responsibilities Documented roles&responsibilities include governance/alignment tasks for business and IT people (cf. Weill) P1 Strategic information systems planning Formal process to define and update the IT strategy P2 IT performance measurement (e.g. IT balanced scorecard) IT performance measurement in domains of corporate contribution, user orientation, operational ecellence and future orientation P3 Portfolio management (incl. business cases, information economics, ROI, Prioritisation process for IT investements and projects in which business and IT is payback) involved (incl. business cases) P4 Charge back arrangements - total cost of ownership (e.g. activity based costing) Methodology to charge back IT costs to business units, to enable an understanding of the total cost of ownership P5 Service level agreements Formal agreements between business and IT about IT development projects or IT operations P6 IT governance framework COBIT Process based IT governance and control framework P7 IT governance assurance and self-assessment Regular self-assessments or indepent assurance activities on the governance and control over IT P8 Project governance / management methodologies Processes and methodologies to govern and manage IT projects P9 IT budget control and reporting Processes to control and report upon budgets of IT investments and projects P10 Benefits management and reporting Processes to monitor the planned business benefits during and after implementation of the IT investments / projects. P11 COSO / ERM Framework for internal control R1 Job-rotation IT staff working in the business units and business people working in IT R2 Co-location Physically locating business and IT people close to each other R3 Cross-training Training business people about IT and/or training IT people about business R4 Knowledge management (on IT governance) Systems (intranet, ) to share and distribute knowledge about IT governance framework, responsibilities, tasks, etc. R5 Business/IT account management Bridging the gap between business and IT by means of account managers who act as in-between R6 Eecutive / senior management giving the good eample Senior business and IT management acting as "partners" R7 Informal meetings between business and IT eecutive/senior management Informal meetings, with no agenda, where business and IT senior management talk about general activities, directions, etc. (eg. during informal lunches) R8 IT leadership Ability of CIO or similar role to articulate a vision for IT's role in the company and ensure that this vision is clearly understood by managers throughout the organisation R9 Corporate internal communication addressing IT on a regular basis Internal corporate communication regularly addresses general IT issues. R10 IT governance awareness campaigns Campaigns to eplain to business and IT people the need for IT governance Delphi round 2 & 3 evaluating IT governance practices As mentioned in previous sections, goal of the delphi survey rounds 2 & 3 was to capture input from the respondents regarding perceived effectiveness, perceived ease of implementation and a minimum baseline of IT governance practices. As visualised in Figure 5 and Figure 6, the research demonstrated that, according to the epert group, some of the addressed practices are more effective or easy to implement compared to others. The five practices being perceived as to most effective for 15/29

16 through Delphi Research 16/29 the Belgian financial services sector are IT steering committees, CIO reporting to the CEO/COO, CIO on eecutive committee, IT budget control and reporting and portfolio management. All these practices were also identified as being relatively easy to implement. Other practices were perceived as fairly effective but not easy to implement. Good eamples in this high-effectiveness/low ease of implementation domain are benefits management and reporting and charge back arrangements. IT steering committee (IT investment evaluation / prioritisation) CIO reporting to CEO and/or COO CIO on eecutive committee IT budget control and reporting Portfolio management (incl. business cases, information economics, ROI, payback) Project governance / management methodologies IT project steering committee IT performance measurement (e.g. IT balanced scorecard) IT leadership Eecutive / senior management giving the good eample Strategic information systems planning Informal meetings betw een business and IT eecutive/senior management Business/IT account management IT strategy committee at level of board of directors Service level agreements Corporate internal communication addressing IT on a regular basis IT governance framework COBIT Charge back arrangements - total cost of ownership (e.g. activity based costing) Security / compliance / risk officer Know ledge management (on IT governance) Integration of governance/alignment tasks in roles&responsibilities (IT) audit committee at level of board of directors IT epertise at level of board of directors Architecture steering committee IT governance function / officer Benefits management and reporting IT governance awareness campaigns IT security steering committee Cross-training Co-location IT governance assurance and self-assessment Job-rotation COSO / ERM 0 = not effective, 5 = very effective 0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5 5,0 Figure 5. Perceived effectiveness of IT governance practices 16/29

17 through Delphi Research 17/29 CIO reporting to CEO and/or COO Security / compliance / risk officer IT project steering committee IT budget control and reporting Informal meetings between business and IT eecutive/senior management Corporate internal communication addressing IT on a regular basis IT security steering committee CIO on eecutive committee (IT) audit committee at level of board of directors IT strategy committee at level of board of directors IT steering committee (IT investment evaluation / prioritisation) Business/IT account management IT governance awareness campaigns Service level agreements Architecture steering committee IT governance function / officer Co-location Project governance / management methodologies IT leadership Cross-training Strategic information systems planning Eecutive / senior management giving the good eample IT performance measurement (e.g. IT balanced scorecard) Know ledge management (on IT governance) Portfolio management (incl. business cases, information economics, ROI, payback) Integration of governance/alignment tasks in roles&responsibilities IT governance assurance and self-assessment IT governance framew ork COBIT Job-rotation Charge back arrangements - total cost of ow nership (e.g. activity based costing) 0 = not easy to implement 5 = very easy to implement Benefits management and reporting IT epertise at level of board of directors COSO / ERM 0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5 Figure 6. Perceived ease of implementation of IT governance practices An interesting case is the IT governance framework COBIT. This framework is receiving a lot of attention in literature and in the field, but did not come out very high in this research. However, there are indications that COBIT is a very solid framework to work with. COBIT, as a framework, is situated at a higher level of granularity compared to other more detailed structures and processes in this research. Good eamples are the IT steering committee, the portfolio management process and project management/governance methodologies, which are all practices that are integral part of COBIT s Planning and Organisation processes [ITGI, 2005]. The good news for COBIT is that many of these detailed practices, individually, received very positive scores in this research in terms of effectiveness. Another interesting finding to pinpoint is that many IT governance definitions stress the prime responsibility of the board of directors in IT governance [e.g. ITGI, 2003], while these results reveal that the mechanisms to achieve this ( IT epertise at level of board of directors and IT strategy committee ) are rated relatively low in terms of perceived effectiveness. This can possibly be eplained by the fact that making the board of directors more IT literate is not easy to achieve, which is confirmed by the second to last score in term of ease of implementation of IT epertise at the level of the board of directors. The results of this research in any way raise questions on how financial services organisations realise this board involvement in practice. 17/29

18 through Delphi Research 18/29 If averages are calculated for effectiveness and ease of implementation for all the structures, the processes and the relational mechanisms (see Figure 7), it appears that structures and processes are in general perceived as being equally effective. However, it appears that IT governance structures are perceived as being easier to implement compared to IT governance processes, although in many cases they are closely related. A good eample here is the IT steering committee, which is a crucial element to build up a portfolio management process, but the IT steering committee is perceived as much easier to implement compared to the whole portfolio management process.. This finding is also supported by the personal eperiences of the researchers in running an IT Governance Business Game amongst groups of business and IT professionals. The participants in this game are confronted with a fictitious organisation with low business/it alignment and the assignment is to define IT governance practices for the organisation to improve that situation. Mostly, the participants are very fast in defining structures such as steering committees, but it appears to be a much bigger challenge to define supporting IT governance processes such as portfolio management. Figure 7 also shows that relational mechanisms are perceived as being easier to implement compared to IT governance processes, probably because some relational mechanisms can have a very informal character (e.g. Informal meetings between business and IT eecutive/senior management ). 4 3,5 3 2,5 2 1,5 1 0,5 0 Perceived effectiviness Perceived ease of implementation Structures Processes Relational mechanisms Figure 7. Average perceived effectiveness and ease of implementation for IT governance structures, processes and relational mechanisms The delphi research also brought up a list of IT governance practices, specifically for the Belgian financial services sector, that can be regarded as a minimum baseline, or a necessary set of practices for implementing IT governance. The respondents were asked to build up this minimum baseline in terms of a top-10 of practices, taking the attributes of perceived effectiveness and ease of implementation into account, together with their professional eperience of their day-to-day practice. Table 4 shows the final top-10 resulting from this ranking eercises, including the number of times a specific practice is mentioned (total times mentioned) and the total ranking score (if a practice was ranked 1, it received 10 points). 18/29

19 through Delphi Research 19/29 Table 4. Minimum baseline of IT governance practices total times mentioned total ranking score IT steering committee (IT investment evaluation / prioritisation at S6 eecutive / senior management level) S4 CIO on eecutive committee P3 Portfolio management (incl. business cases, information economics, ROI, payback) P9 IT budget control and reporting S1 IT strategy committee at level of board of directors R8 IT leadership P1 Strategic information systems planning S9 IT project steering committee S5 CIO (Chief Information Officer) reporting to CEO (Chief Eecutive Officer) and/or COO (Chief Operational Officer) P8 Project governance / management methodologies Total rank The IT Steering Committee is perceived as being the most important IT governance practice, followed by the structure of having the CIO on the Eecutive Committee and Portfolio Management. Regarding the second, Luftman [2007] came to a similar finding, conclusing that such a practice could provide the best structure for maturing business/it alignment. It was surprising that only one relational mechanism was reported in this minimum baseline ( IT leadership ), while many authors in literature stress that the relational mechanisms are crucial enablers for IT governance [Keill et al., 2002; Weill and Broadbent, 1998; Henderson and Venkatraman, 1993]. A possible eplanation is that, just as in literature, less detailed knowledge and epertise is available on relational mechanisms which often have a more intangible and informal character. On the other hand, it should be noted that many other relational mechanism, such as business/it account management, senior management giving the good eample and informal meeting between business and IT eecutive/senior management, did attain relatively positive scores in terms of effectiveness and ease of implementation. Figure 8 brings it all together, plotting the previous results on two aes. The vertical ae addresses the perceived effectiveness while the horizontal ae measures the perceived ease of implementation. Starting from these quadrants, we are of course interested in the practices that are situated at the top right level, or at least above the horizontal ae. The practices in the grey circle are the ones identified as being a minimum baseline for IT governance. They all have high effectiveness and are easy to implement which demonstrates the consistency in answers of the eperts. These minimum baseline practices are to be regarded as a minimal (necessary) set of IT governance practices for each Belgian financial services organisation. 19/29

20 through Delphi Research 20/29 High Effectiveness Low IT governance practices that are highly effective but difficult to implement Key minimum baseline IT governance practices 4,9 4,8 4,7 S6 4,6 4,5 S1 IT strategy committee at level of board of directors S5 4,4 S2 IT epertise at level of board of directors S4 4,3 S3 (IT) audit committee at level of board of directors 4,2 S4 CIO on eecutive committee 4,1 CIO (Chief Information Officer) reporting to CEO (Chief Eecutive P3 P8 P9 4 S5 Officer) and/or COO (Chief Operational Officer) P2 S9 R8/R6 3,9 IT steering committee (IT investment evaluation / prioritisation at 3,8 P1 R5 S1 R7 S6 eecutive / senior management level) 3,7 S7 IT governance function / officer 3,6 S8 Security / compliance / risk officer 3,5 P5 S9 IT project steering committee 3,4 R9 3,3 S10 IT security steering committee P6/P4 S8 3,2 S11 Architecture steering committee S12 R4 S3 3,1 S12 Integration of governance/alignment tasks in roles&responsibilities S2 S11 3 2,9 P1 P2 Strategic information systems planning IT performance measurement (e.g. IT balanced scorecard) P10 S7 2,8 Portfolio management (incl. business cases, information economics, P7 R3 R2 R10 S10 2,7 2,6 P3 ROI, payback) Charge back arrangements - total cost of ownership (e.g. activity based 2,5 P4 costing) 2,4 P5 Service level agreements P11 R1 2,3 2,2 P6 IT governance framework COBIT P7 IT governance assurance and self-assessment IT governance practices 2,1 P8 2 P9 IT budget control and reporting that are highly effective 1,9 1,8 P10 Benefits management and reporting and easy to implement 1,7 P11 COSO / ERM Project governance / management methodologies 1,6 R1 1,5 R2 Job-rotation Co-location 1,4 R3 Cross-training IT governance practices 1,3 R4 Knowledge management (on IT governance) 1,2 R5 Business/IT account management whose value is 1,1 R6 Eecutive / senior management giving the good eample 1 Informal meetings between business and IT eecutive/senior challenged 0,9 R7 management 0,8 R8 IT leadership 0,7 R9 Corporate internal communication addressing IT on a regular basis 0,6 R10 IT governance awareness campaigns 0,5 0,4 0,3 0,2 0,1 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1,0 1,1 1,2 1,3 1,4 1,5 1,6 1,7 1,8 1,9 2,0 2,1 2,2 2,3 2,4 2,5 2,6 2,7 2,8 2,9 3,0 3,1 3,2 3,3 3,4 3,5 3,6 3,7 3,8 3,9 4,0 4,1 4,2 4,3 4,4 4,5 4,6 4,7 4,8 4,9 5,0 Difficult to implement Ease of implementation Easy to implement Figure 8. Effectiveness, ease of implementation and minimum baseline of IT governance practices It is clear that these minimum baseline practices can not be a necessary and sufficient set of practices. They should be supplemented with other practices as required by the specific environment to build up a more broad IT governance framework as required by the specific organisational environment. Although we do not have research data to guide organisation in selecting those etra practices, it is clear that in order to create such a broader IT governance framework, the practices in the upper right quadrant (outside the circle) are first in scope to be regarded, as they are highly effective and easy to implement. Some eamples are an IT governance function/officer, service level agreements and co-location. The practices at the top left are highly effective but do require more implementation time. Interesting to see is that the IT governance framework COBIT sits in this space, but as already mentioned earlier, COBIT is a framework situated at a higher level of granularity compared to the other practices, which evidently eplains that is it harder to implement. IT governance practices that are situated at the bottom left of this graphical layout are of course the least interesting IT governance practices. In this quadrant, COSO/ERM and job rotation is located. The value of these practices, in the contet of IT governance, can of course be challenged. 20/29