What IT Governance Works Best Pertemuan ke-15 & 18 Matakuliah: Pengantar IT Governance Tahun: Feb

Bina Nusantara University 3 The Governance procedures we developed brought transparency and accountability into the process CIO, National Police Force of a European Country

Bina Nusantara University 4 3 Questions best capture these insights : How can we assess governance ? What governance arrangements work best ? How do leading Enterprises govern /

Bina Nusantara University 5 How to assess IT Governance 1.Enterprise setting 2.Governance arrangements 3.Governance awareness 4.Governance performance 5.Financial performance

Bina Nusantara University 6 Assessing Performance Profit Percent margin ROE ROI Asset utilization: ROA Growth: percent of change in revenue Data measured using: 3-year average, industry adjusted percent change Average of four performance measures weighted by importance – score out of 100 Effective use of IT for: Cost Control Growth Asset Utilization Business flexibility Percent of managers in leadership positions who can describe firm governance Communication approaches Meetings Documents Portal Exceptions: Percent of projects Key IT decisions and archetypes Mechanisms Councils SLAs IT organization Chargeback Arch Committee Strategy Operational Excellence Customer intimacy Product leadership Size: Number of BUs Synergy and/or autonomy of Bus IT intensity Money People Financial performance Governance performance Governance awareness Governance arrangements Setting

Bina Nusantara University 7 Governance Performance assesses the effectiveness of IT Governance in delivering 4 objectives weighted : 1.Cost-effective use of IT 2.Effective use of IT for asset utilization 3.Effective use of IT for growth 4.Effective use of IT for business flexibility

Bina Nusantara University 8 3 Dimensions of financial performance : Profit ROE, ROI, % profit margin Asset Utilization ROA Growth % change in revenue per annum

Bina Nusantara University 9 How Governance varies Across Enterprises

Bina Nusantara University 10 The average governance performance score was 69 out of 100 The minimum score was 20 and the top third performing firms had scores over 74 Only 17% of enterprises scored 80 or above and only 7% scored 90 or over.

Bina Nusantara University 11 Achieving high governance performance meant that the enterprise’s IT governance succeeded in influencing the desired measures of success. How does your enterprise compare ? Firms with above-average IT governance following a specific strategy had a 20% higher ROA than firms with poorer governance following the same strategy

Bina Nusantara University 12 Seven characteristics of Top governance performers More managers in leadership positions could describe IT Governance. Engage, Engage, Engage More Direct Involvement of the senior leaders in IT Governance. Clearer business objectives for IT investment More differentiated business strategies Fewer renegade and more formally approved exceptions. Fewer changes in governance from year to year

Bina Nusantara University 13 More managers in leadership positions could describe IT governance The most important predictor of top governance performance was the percentage of managers in leadership positions who could accurately describe their enterprise’s IT governance.

Bina Nusantara University 14 Engage, Engage, Engage Top governance performers achieved a higher percentage of senior management knowledge about governance simply by engaging more often and more efectively.

Bina Nusantara University 15 More Direct Involvement of the senior leaders in IT Governance. Top management involvement is such an old chestnut that we often forget its importance. Senior managers in top governance performers were more directly involved in IT governance.

Bina Nusantara University 16 Clearer business objectives for IT investment Top governance performers had cleared objectives for IT investment – a few important objectives, not a long, undifferentiated list. The most common objectives were a subset of three or four of the following : –Reduce cost –Improve customer service –Provide information to management –Enhance customer communition –Support new ways of doing business –Enable a complete view of the customer –Improve product quality

Bina Nusantara University 17 More differentiated business strategies Top governance performers had more differentiated business strategies based on value disciplines such as customer intimacy or product innovation.

Bina Nusantara University 18 Fewer renegade and more formally approved exceptions Top governance performing enterprises have fewer renegade exceptions and more exceptions that occure through a formal approval process.

Bina Nusantara University 19 Fewer changes in governance from year to year The process of changing governance arrangements, communicating the changes, and institutionalizing the new governance is lengthy.

Bina Nusantara University 20 What governance arrangements work best Providing Input 1. Enterprises with higher governance performance used federal input models for IT principles and business application needs. 2.Enterprises with lower governance performance had duopoly input for IT principles and business application needs. 3.The best approach depended on the specific needs of the enterprises.

Bina Nusantara University 21 Making Decisions –Why federal models struggle Enterprises using federal decision-making arrangements often scored poorly on governance performance. Factor : Less speed, a tendency to overly compromiseand trade away effectiveness. –Why duopolies work for decision making Duopoly approach enables joint decision making between the business leaders and IT professionals, allows for creative busines solutions within agreed-upon constraints.

Bina Nusantara University 22 Best and worst Governance Performers Use Different Arrangements DomainsPrinciplesArchitectureInfrastructure Business Applications Investment & Priorities Styles Inpu t DecisionInputDecisionInputDecisionInputDecisionInputDecision Business Monarchy IT Monarchy Feudal Federal Duopoly Anarchy

Bina Nusantara University 23 Three Successful Patterns of Governance Perfomance Anarchy Duopoly Federal Feudal IT Monarchy Business Monarchy IT Investment and Priority Business Applications IT Infrastructure IT Architecture IT Principles

Bina Nusantara University 24 Governance Best Practices

Bina Nusantara University 25 Who Makes Better IT Decisions ? Hsl scan

Bina Nusantara University 26 Business and IT professionals should collaborate on business-oriented IT decisions. Business people should not make business-oriented IT decisions alone. The best arrangement of decision rights for technical decisions depends on other factors such as the synergies between business units, the current IT portfolio, strategic goals, industry differences, and so on.

Bina Nusantara University 27 How leading financial performers govern PrinciplesArchitectureInfrastructure Business Needs Investment & Priorities Business Monarchy Profit Growth Profit Growth Profit Growth IT Monarchy Profit Feudal Growth Federal Profit Duopoly ROA

Bina Nusantara University 28 Leaders on Asset Utilization Set IT principles with a strong flavor of asset utilization via duopoly of the CxOs and the IT group. Create an IT architecture committee of business and IT people to design an enterprise architecture and manage commitment to shared infrastructure. Assign business / IT relationship managers focused on achieving business value from IT for their business units and leveraging enterprisewide infrastructure.

Bina Nusantara University 29 Establish a technical core of infrastructure and architecture providers who plan and implement the enterprise’s technology platform and interact with the business / IT relationship managers. Institute a regular review process that brings together business unit and IT leaders to look for synergies, reuse, and trends across operational units.. Involve IT architects in business unit projects to facilitate education and effective use of shared infrastrucute and architecture standards. Develop a chargeback system to help business unit leaders see the value of shared services and make effective decisions on IT use.

Bina Nusantara University 30 Leaders on Profit Staff an IT steering committee with capabble business executives who take responsibility for enterprisewide IT governance decisions and set IT principles with a strong flavor of cost control. Carefully manage the firm’s IT and business architecture to drive out business costs. Design rigorous architecture exception processes to minimize costly exceptions and enable learning.

Bina Nusantara University 31 Create a centralized IT organization designed to manage infrastructure, architecture and shared services. Use linked IT investment and business needs processes that both make transparent and balance the needs of the center and the operational units. Institute an IT investment process that requires centralized coordination and approval of IT investments. Design a simple chargeback and service-level agreement mechanism to clearly allocate IT expenses.

Bina Nusantara University 32 Leaders on Growth Empower the business units to drive IT investment – often achieved by setting IT principles with a strong flavor of innovation and market responsiveness. Create a more decentralized IT organization with structure and capabilities designed to focus on immediate needs of critical business processes. Place IT professionals into operational units focused on meeting their internal and external customers’ needs.

Bina Nusantara University 33 Create substantial operational unit-based IT infrastructure capability tailored to local needs and linked into an often less substantial enterprisewide infrastructure. Enable a technical core of infrastructure and architecture providers who plan and implement the enterprise’s technology platform, identifying any critical integration requirements. Implement a regular review process for formal tracking of the business value of IT. Work with the operational units to provide education about how to use IT to enable growth.

Bina Nusantara University 34 Designing Governance : Lessons from Leading Enterprises How do you compare to the leading governance performers on the seven characteristics they have in common ? –Can more than 50% of managers in leadership positions accurately describe IT governance ? –Is IT governance effectively communicated across the enterprise using a variety of approaches ? –Are senior managers thoughtfully involved in IT governance ?

Bina Nusantara University 35 –Are there clear business objectives for IT investment? –Are differentiated business strategies clearly articulated ? –Are there fewer renegade and more formally approved exceptions ? –Is there only one (or fewer) major change in governance from year to year ?

Bina Nusantara University 36 The following principles should be considered as the default or starting point for governance arrangements. –Use federal arrangements for input into all IT decisions. –Use duopoly arrangements for IT principles and investments decisions. –Avoid federal decision making for all decisions if possible. –Use joint decision making involving business and IT decision makers for the business-oriented IT decisions of investment, principles, and business application needs.

Bina Nusantara University 37 Moderate these general principles according to the enterprise’s dominant performance goals. –Top performers on asset utilization typically use duopoly arrangements. –Top performers on profit apply more centralized governance, often using monarchies for decision making. –Top performers on growth strive to balance the entrepreneurial needs of the operational units with firmwide strategies and principles. –Further customize these principles with the enterprise’s unique strategy and desirable behaviors.