The IT governance architecture in business groups

Transcription

1 The IT governance architecture in business groups Renata Paola Dameri Dipartimento di Business Administration, Università di Genova, Genova, Italy, Abstract Corporate Governance is more and more an important topic for business, owing to the increasing complexity and crucialty of IT in corporations. As IT governance define the power and responsibility distribution about IT along with the organzations, it is of higher importance in business groups, because it is necessary to balance the power distribution between corporate level and business units level. This work analyses the strategic and organizational contingencies driving IT governance architecture design in business groups and defines some indicators to evaluate the IT governance effectivenes. 1 IT vision and IT governance architecture IT governance in business groups is a veritable challenge, owing to several drivers of complexity deriving mainly from two elements: the nature of the group, its financial structure and the degree of etherogeneity of its activities portfolio; the more or less pervasiveness of technology in processes and products of each business unit in the group [1]. The IT governance general framewok should consider these two elements, the technological and the managerial one, to find the right mix of procedures, governance structures and accountability measures to implement the more suitable IT governance model for each group and its specificty. It is therefore necessary to find the best trade-off between two opposite IT strategic vision in the corporation, here named Integrity and Specificity. Integrity represents a corporate IT vision aiming to standardise architectures, applications, technologies across the whole organization, pursuing a welldefined set of goals [2]. Integration: IT is mainly considered the instrument to realize operational, informational and managerial integration along to the business units and to support the management of different activities, kept together grace to a well-definined and agreed corporate strategy, to obtain superior performance at corporate level. Best Practices: to use standard and shared information systems, managed at central level, allows to extend the best practices developed inside an activity to all the same activities across the corporation and to optimise operations aiming to an increasing productivity. 83

2 Efficiency: the centered and standardised management of IT at corporate level aims to maximise efficiency grace to reduction of expenses for IT commodities, information systems cost control and keep down of new IT investments; centered IT infrastructure produces positive sinergies, economy of scale and profitable use of corporate outsourcing. Reuse: standardisation of IS architecture, technologies and applications allows the reuse of IT solutions from feasibility analysis to software modules with higher returns on new IT investments; this allows also to keep down the innovation run without specific business alignment. This IT vision is centered on efficiency and control of both technologies and IT cost; it could be named cost-focused IT vision at corporate level. Specificity represents a corporate IT vision that takes into due consideration business integration and corporate process standardisation, but gives more importance to specific interactions between IT and each business activity. This IT vision considers crucial for corporate success the use of IT to support every business in original and innovative ways, aligning IT with products or processes, to better answer to the customer expectations [3]. The set of goals of this IT vision comprehends the following objectives. Specificity: the choises regarding corporate and business IT should be taken pursuing the best alignment between business specificty and technologies, to suport all processes, mainly the ones adding value for the customer by excellence of products and services. Business opportunities: decisions regarding new IT solutions and applications should carefully aim to take new business opportunities offered by the interactions between IT and business activities, especially for the future. Effectiveness: cost control and new investment decisions should be harmonised with the effectiveness of the answer to customers expectations, to better exploit the IT support to competitive advantages, especially where IT could build strategic weapons to compete in the future. Innovation: IT is considered as a core resource for the firm to renewe the products and services portfolio and to answer to market evolution. IT investments should be justified by expected returns, both in terms of short term performance and of long term success on competitors. This corporate IT vision could be named business-focused because it is centered on business priorities; larger IT expenses are justified by higher waited performance, especially in each business unit. 84

3 These two opposite corporate IT visions cost-focused and business-focused are theoretical models that is rare to meet in real business cases. Indeed, each group should take into due consideration both IT cost control and IT new investments; both operational and informational integration and business units autonomy [4]. The question is therefore: how to define the IT corporate governance architeture to find the right balance between standardisation and specificity of IT solutions? 2 Defining the IT governance architecture To define the IT governance architecture at corporate level is a process that, taking into due consideration the group specificity, becomes to a general IT governance framework including decisional structures, governance processes, accountability measures to evaluate the effectiveness of the implemented IT governance architecture. This with the aim to align the IT governance model to the group organizational architecture and its production processes [5]. The result is therefore an IT governance architecture that, applying implemented structures and processes, obtains the right balance between costfocused vision overlooking to IT standardisation and business-focused vision overlooking to IT specificity in business requirements. Relating to IT governance models, these two IT visions define two opposite organizational frameworks: centered one and local one [6]. The centered model implements the IT governance structure mainly at the corporate level; it defines processes to transmit IT decisions from the corporate management to the business units. It allows to create a unique IT strategic vision, homogeneous across the group, and to realise several positive sinergies and scale economies. This model realises centered infrastructure that delivers informational services to the business units, depending on their needs; IT services are valued at internal prices and it encourages constantly searching for the best relation between service quality and price. When internal services are not able to offer the desired IT service level at market price, corporation outsourcing is employed, to reduce IT cost across the group. The business units have a limited autonomy about IT choices, under budget constraint regarding IT expenses and under respect of technological standard to ensure informational and operational integration between software applications. It allows both to save IT operational cost and to reduce IT new investments. The local model implements IT governance structure both at corporate level and at business units level: the decisional power on IT is distributed and decisions are taken in committee composed by both corporate and local managers, both IT and business managers. Also the local model uses group standards to realise the operational and informational integration of IS, but this goals are submitted to the objective to harmonise IT and business strategies starting from the basic choices. IT cost and investments are justified by the waited operational and 85

4 strategic performance, valued both at central and at local level. To better align IT and business, different degrees of IT pervasiveness in products and processes are admitted, depending on the nature of each business. The design of the IT governance framework should therefore found the right balance between these two different and opposite models: centered and local governance architecture. Several aspects should be adequately considered [7]. Organizational aspect: IT is nowadays more and more pervasive in business and organizational structures; it seems a nervous system crossing all the corporation. It should trace the organizational framework, both operational to automate daily business transactions, and informational, to allow to collect, process and communicate data along the business process and to the top management. Also the corporate governance structure should be reflected, because IT governance could not prescind from responsibilities regarding the corporation management, as IT choices and business choices are striclty linked and IT decisions have strong impact on business results. Technological aspect: technology should not lead, but serve business; so it is not technology to guide IT governance implementation but business requirements; nonetheless, technological constraints are to be evaluated too, in designing IT architecure and related governance structures. To choice central IT infrastructure, autonomy in applications portfolio management or IT service outsourcing need to weighing in advance the technological problems. Strategic aspect: distribution of decisional power on IT and related accountability should consider both business strategies and corporate strategies and their specific goals, together with the impact IT plays on performance. It requires the clear explicitation of corporate and business units value proposition, the interactions between them and the relations with the implemented IT solutions. To explicit the IT role in value creation is not a common behaviour between large corporations, because it is very difficult to describe this role by the traditional performance indicators. This behaviour influences in a negative manner the IT governance architecture design: without a clear explicitation of IT role in business and corporate strategies, it is frequent to use standard models of IT governance, completely misaligned with the firm needs and goals. The alignment between IT governance structure and IT role in the value proposition of the corporation is the best way to define the better IT governance framework for a specific business group [8]. 86

5 3 IT governance architecture implementation IT governance architecture implementation starts from the analysis of both information system organization, harmonised with the group structure, and strategic choices and the role that different strategies have on the group goals. The organisational analysis should identify the IT objects on wich decisions should to be taken; these are described as follows. Information system architecture: it is the global structure of IT in business and its informational and processing flows. It defines IT topology, spatial allocation of IT infrastrucures and activities, and related decision powers. Applications portfolio: it regards the set of software applications and their use along with the business processes; it involves the attribution to managers or boards of decision powers about acquisition or development of new IT solutions. IT strategies: it defines the decisions and choices to align IT and business requirements; it identifies people who choice about IT vision and strategies. IT investments: it is a crucial object in IT governance in groups; it defines who decides about the IT investments at corporate and/or at business unit level. Each of the described IT objects requires the creation of governance structures and the assignment of decisional powers on IT, related to accountability on reached results. The IT governance framework also depends on the distribution of these power and responsibility at the different central or local level of the group. To choice the right balance between central and local IT governance structures, it is useful to summarise the main corporate strategic profile of the group as follows [9]. Corporate profile: the group defines its strategies mainly at corporate level, with homogeneous goals for all the business units. For example, banking groups, with similar business along with the organisation, a high focus on cost control and homogeneous services in all their branches. Business profile: the group is composed of very heterogeneous business activities, with different products and services, operating in different markets. Corporate strategies are mainly focused on financial strategies, whereas each business unit is allowed to define its own business strategies and waited performance. Excellence profile: a group could pursue excellence in all its business or only in some of them. If IT is an important strategic weapon, it is 87

6 necessary to align it mainly to the business strategies, instead of to the corporate strategies. Cost leadership profile: a group aiming at cost leadership in all its business should define homogeneous and shared corporate strategies, pursuing efficiency, productivity and positive sinergies grace to the group structure. IT also should contribute to these goals. These strategic profiles semplified strategic scenarios to identify group categories need different IT governance frameworks. Corporate profile and Cost leadership profile drive a more centered IT governance architecture; therefore the information system is designed at corporate level and also at corporate level responsibilities are assigned, like decisional power. The IT strategic vision is corporate-wide and applications are shared, standardised and reused across all the business units. Process optimisation and standardisation allow to reach higher efficiency and cost control. Business profile and Excellence profile drive to local IT governance architecture and autonomy of business units in implementing their own information systems. The corporate information systems architecture is designed by a bottom-up process, instead of a top-down one. Power and responsibilities are shared between corporate and business managers. Applications portfolio is the sum of business units applications portfolios, harmonised to obtain informational integration. Investment decisions are taken balancing centralised needs and local aims. 4 Performance indicators and effectiveness of IT governance architecture How it is possible to evaluate the effectiveness of the IT governance architecture for a business group? Measuring the pursuing of the expected results, relating to the role IT plays in the corporate and business strategies. As strategies and IT governance structures are different in each group type, also indicators should be different and choiced for the specific case [10]. The two different IT visions - cost-focused and business-focused define the guideline to choice a structured set of indicators to measure the effectiveness of the IT governance model implemented in the group; indeed It governance effectivess can be evaluated just in function of the IT choices and the strategic results reached grace to the right IT decisions. The Cost-focused vision outlines efficiency: efficiency in IT management and in business processes grace to IT. It drives behaviours aiming to integration, standardisation, best-practices pervasiveness, applications reuse. To evaluate the fulfilment of these goals grace to the impat of IT decisions, the following indicators are useful. 88

7 Integration is measurable by the reduction in number of different applications and technologies in the corporate IT portfolio, it underlines the fulfulment of a higher homogeneity in the information systems. Efficiency in IT is measurable by the reduction of IT expenses, processes efficiency reached by IT is measurable by processes indicators linked with specific IT applications. They reveal also the pervasiveness of corporate best practices. Reuse is measurable by reduction in IT investments, wich are less or cost less grace to the reuse of software modules or other system components. The business-focused vision mainly aims to create a narrow link between IT and business processes, to obtain the best customer satisfaction for each product or service in the corporate products portfolio and in this way to pursue the maximum corporate value creeation. It drives behaviours aiming to specific IT applications, business opportunities exploitation, processes effectiveness, business innovation. The fulfilment of these goals is measured by the following indicators. The break-trhough of IT expenses between cost and investments: it is necessary to shift money from the first to the latter. The banchmarking with competitors and more generally with the IT environment shows the technological innovation degree. The impact of IT choices on value-added activities shows the effectiveness of the IT role in creating revenues. Last, it could be useful to measure the value of the IT solutions portfolio, especially of applications granting a strategic differentiation of products and services and therefore a sustainable competitive advantage. References [1] Peterson R. (2003), Information strategies and tactics for Information Technology Governance in W. Van Grambergen (Ed.), Strategies for Information Technology Governance, Hershley, PA, Idea Group Publishing [2] Henderson J. & Ventrakaman N. (1993), Strategic alignment: Leveraging Information Technology for transforming organizations, IBM Systems Journal, 32(1) [3] Duffy J. (2002), IT/Business alignment: Is it an option or is it mandatory?, IDC document #26831 [4] Weill P. & Woodam R. (2002), Don t just lead, govern: Implementing effective IT Governance, CISR Working Paper N 326, Sloan School of Management, Cambridge MA [5] Van Grembergen W. (2002), Introduction to Minitrack: IT governance and its mechanisms. Proceedings of the 35th Hawaii International Conference on System Sciences, IEEE 89

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