Developing Effective IT Governance to Unleash Business Value
Is IT Governance just a buzz word and fashion theme? Most frequently asked questions about IT Governance Why does IT Governance remain an on-going issue? Why is it so difficult to implement effective IT Governance? How do I get started implementing effective IT Governance? How much should senior leadership of the business be involved in IT Governance? What do IT Governance committees need to be effective? Should the CIO lead IT Governance? How do I determine the effectiveness of IT Governance?
IT Governance is all about direction, leadership and decision making to deliver business value The ability to make sponsor and enforce the right IT decisions How are decisions made? Who plays what role in the decision making? What processes are used? How are investments authorized? How does leadership work for IT? Who is the evangelist for IT? How is joint ownership secured? What is measured and by whom? What incentive system is used? What accountabilities and authorities exist? How are investments managed? What knowledge is required? How is a fresh view injected? How do we learn continuously? Tool enabled end-to-end processes providing transparency and control = Foundation for Business Value from IT investments
Most top executives have realised that IT-Governance is essential to realise the business value from IT Business Value Levers Increase Revenue - Example of IT-Governance elements typically in place - IT strategy is in place Business-side active part in IT prioritization Value Creation Reduce Cost Improve Capital Efficiency Business case is established for all projects IT balanced scorecard / metrics implemented Roles and responsibilities established for the entire organization Common processes and standards published Annual plans & processes in place Reward system in place
But typically in place very rarely means that IT Governance practices are effectively used Questions that should (..will inevitably) be asked by CFOs and CXOs Do I get value from my IT? Is IT a help or a hindrance? How can I get more control over my IT spend? Why are we spending our IT money in this area? How can I get this key initiative prioritised? What should be the development spend this year? How much should we be spending on IT maintenance? When are we going to stop investing in this old system? Who owns this IT asset? How do I get funding for this new project? Who needs to approve this project? Who is accountable for this service outage? What happens when my IT budget runs out? Why buy globally when I can buy it cheaper here? What do l want IT to focus on? What service levels should I expect from IT? What areas of IT governance should I approve?
Many fail in implementing IT Governance, leading to a substantial shortfall of business value from IT investments - What do we typically find - Poor alignment of the IT strategy with business objectives IT investment and delivery not driven by corporate priorities Business not part of or accountable for IT prioritization KPI's and balanced scorecard are defined, but performance is not measured and there is a lack of follow-up Architecture is defined, but redundant projects are allowed Standards are in place, but are not followed Shortfall of business value from IT investments
The shortfall is even wider if compared to IT s true business value generation (ITBVA) Overview of Accenture s IT Business Value Added (ITBVA) : Business value of IT 1 2 3 Strategic Change Agility IT Services IT Internal Efficiency Value of Strategic Change Agility: Value created when IT is responsive in enabling and actively driving strategic corporate change. Value of IT Services: Value of key IT outputs. 1. The IT based end-products and services 2. Business processes that are supported and automated by IT. 3. Personal efficiency of each corporate employee with the use of IT and communications technology. Value of IT Internal Efficiency: Value created by effective and cost efficient IT operations. Business value produced by IT can be structured and measured consistently and managed with effective IT Governance
Often the challenge is to recognize IT Governance issues and how to solve them effectively. Questions to be asked Do I get value from my IT? Is IT a help or a hindrance? relate directly to IT Governance How is IT aligned to the business? How can I get more control over my IT spend? Why are we spending our IT money in this area? How can I get this key initiative prioritised? What should be the development spend this year? How much should we be spending on IT maintenance? When are we going to stop investing in this old system? Who owns this IT asset? How do I get funding for this new project? Who needs to approve this project? Who is accountable for this service outage? What happens when my IT budget runs out? Why buy globally when I can buy it cheaper here? What do l want IT to focus on? What service levels should I expect from IT? What areas of IT governance should I approve? How should IT decisions be made? How do we manage IT investments? What controls do we need in place? How do we measure and reward?
IT Governance need effective mechanisms that need to implemented to address the issues Questions. relate directly to IT Governance Do I get value from my IT? Is IT a help or a hindrance? How can I get more control over my IT spend? Why are we spending our IT money in this area? How can I get this key initiative prioritised? What should be the development spend this year? How much should we be spending on IT maintenance? When are we going to stop investing in this old system? Who owns this IT asset? How is IT aligned to the business? How should IT decisions be made? How do we manage IT investments? and mechanisms IT Governance Principles and Enablers IT Governance Process Model IT Governance Maturity Model How do I get funding for this new project? Who needs to approve this project? Who is accountable for this service outage? What happens when my IT budget runs out? Why buy globally when I can buy it cheaper here? What do l want IT to focus on? What service levels should I expect from IT? What areas of IT governance should I approve? What controls do we need in place? How do we measure and reward? IT Responsibility Matrix IT Performance Metrics IT Balanced Score Card
The Truth about IT Governance Practices as many companies are struggling to adopt the right IT Governance practices. IT Governance Practices for IT Value Creation Adoption Rate by Companies 0% 100% Tie IT investments to business strategy and goals 28% 38% Accurately measure business impact of IT investments Prioritize and manage technology investments 12% 21% 21% 43% Proper governance structures to deliver IT value 20% Actively and regularly collect and use IT metrics 28% 60% 78% Source: Mainstay Partners, Standish Group 2005 and Accenture survey 9/2011 2005 2011
So what should CIOs actually do to guard their IT investments and optimize the return? Getting the right governance model in place? OR Focus on governance processes & execution? Contradiction?
The answer is simple focus on both! High-performing businesses are successful in both - adoption of the right governance structure and rigorous execution of good IT value practices Simple Success Factors for IT Governance 1 Establish an overarching IT Governance framework 2 Focus on tight business & IT alignment Focus on Structure 3 Make IT a business driven activity 4 Plan IT demand professionally 5 Bridge the skill gap between business & IT Focus on Process & Execution 6 Run IT as a business Source: Accenture Analysis
1 - Establish an overarching IT Governance framework Simple IT Governance & Demand Management Framework IT Governance Business/ IT Alignment IT Demand Planning IT Supply Control IT Value Review Business Business/IT Capabilities Assessment Objectives Alignment Investment Alignment Project Definition Business Case Development Investment Prioritization Portfolio Decision Feedback Loop Source: Accenture IT Governance & Demand Management Framework IT Monitoring of projects Benchmark against external Benchmark against internal Feedback-Loop to Alignment
Download a Comp 2 - Focus on tight business & IT alignment Lack of IT alignment with business objectives impedes value return of IT investments Top 3 Business Unit objectives received only 24% of that business line s IT investment spending Objective Category Priority % I/T Exp. % Top Three Improve Customer Service 1 17% 17% Innovation in Products 2 0% 0% Improve sales force 2 7% 7% Improved work capital use 3 0% 0% Increase employee output 4 31% Improve Product Delivery 5 7% Client Case Business Unit A Business Unit B Develop human resources 5 0% Dev. External Knowledge 6% L M H Focus on Business Objectives Increase use of asset 17% Increase asset capacity 7% Improve admin effective 8% TOTAL ALIGNED IT Spend 100% 24%
BUSINESS DEMAND IT DEMAND IT SUPPLY 3 - Make IT a business driven activity Overall responsibilities for driving IT investments have to be clearly anchored on the business side Key Tasks Objective Description Approach Benefit calculation Functional Bus. Requirements to IT Functional IT specification IT Business Case Request for Proposal Project Prioritization Capital Request Responsibilities Business Process Owner/ Sponsor Business Unit Information Manager (IM) IT Project Mgr. IT support either through (a) Shared Service Provider or ILLUSTRATIVE (b) External SP, subcontracted under BU management
4 - Plan IT demand professionally Only end-to-end process model, tightly managed and supported by adequate methods and tools ensures consistent outcomes Project Definition By Internal Customer Project Cost/Benefit Assessment via Business Case Investment Prioritization Portfolio Decision Approval Benefits & Costs Strategy & Operation Applic.& Systems Investment Benefits Risks Maintenance Economic Contribution Urgency Project Description Functional Requirements Definition Business Case Development Risk Assessment Budget Planning Capital Investment Request Master Plan
5 - Bridge the skill gap between business & IT and break the traditional cultural boundaries The typical skill and organizational gap between a company s business units and the IT provider hamper real success of IT value delivery ILLUSTRATIVE Business Units IT Provider Business skills Skill Ranges Missing Link Skill and organizational gap between business and IT IT skills
IT spending in proportion to company revenue Current Status 6 - Run IT as a Business! Tight monitoring of IT initiatives and measuring outcomes against preset targets is an important success factor in IT value creation CLIENT EXAMPLE Total IT Spending 100% 80% 7% IT Spending in Percentage of a Company s Revenue IT costs (w/o /o savings) % of as revenue) % of revenue IT costs (w/ / savings) % of as revenue) % of revenue Industry average IT IT cost / revenue / ratio ratio ABC KLM revenue 12,4bn 13,0bn 13 60% 40% 20% 0% Operations Support New Capability Development 11,8bn 11,5bn Avg. in the 6% Industry 11 10,8bn 10,4bn 5,1% 5,4% 5,0% 4 9,5bn 4,8% 4,8% 4,6% 5% 9 4,4% Trend 4,5% 4,1% 3,9% 4% end of FY 95 FY08 98 FY09 99 FY10 00 FY11 01 FY FY12 02 FY FY13 03 end of end of retrospective end of end of projected end of FY 96 FY 97 FY 98 FY 99 FY 00 7 end of FY 01
Excellent tools exist for automating and integrating key IT processes to gain visibility, control and efficiency Business Needs OPTIMIZE BUSINESS OUTCOMES - (ITBVA) Applications, Services, Products DEMAND MGMT Strategic Initiatives & Projects PORTFOLIO MANAGEMENT Ideas Proposals Projects Assets OPERATIONS SLAs Business Availability ITBVA Deploy and Monitor Change Operational Demand PROGRAM MANAGEMENT OFFICE Projects Resources Budgets Risk OPERATIONAL CHANGE Provisioning Security APPLICATION CHANGE Enhancements Upgrades Defects Industrialized IT Change and Configuration Management Quality Performance
In tool-enabled IT Governance, CIOs get real-time visibility of IT operations with drill down metrics capabilities Overall IT Visibility Portfolio Risk/Value IT Driven Business Innovation Service Management
IT Governance creates value through improved business performance. IT Governance Value Promise Firms with superior IT governance have more than 25% higher profits than firms with poor governance given the same strategic objectives.* Firms with above average governance had average ROAs more than twice the size of the firms with poorer IT Governance.* Accenture research shows that high-performance organizations, with mature IT governance, attain better business returns for IT dollars spent..** Selective, value creating IT spending makes a greater contribution to the bottom line and has a positive impact on shareholder value. Sources: * MIT Sloan School of Management, Center for Information Systems Research, Research Briefing How Top Performers Govern IT ** Accenture High Performance IT Survey; 2009, 2011
Accenture experience has also demonstrated the business value of IT Governance. IT Governance Value Client Example An Accenture CIO client stated publicly that improved IT Governance had reduced IT costs by 8%, resulting from pooling investments across business units At an Accenture client, improved IT demand management, including investment prioritization and portfolio optimization resulted in cost savings of 18% within IT and an additional 11% EBITA increase as business value generation IT Governance focus on Application Portfolio Management has been demonstrated to identify IT non-discretionary costs reduction by 30-40%, freeing up IT budget for value-creating investments
Thank you for your participation! For more information feel free to contact... Jouni Hakanen Executive Partner Greater China Lead Technology Consulting jouni.hakanen@accenture.com Mobile:(852) 9662 0380