1. Chapter 9 Governance of the IT Function
Lecture 17
Chapter 9
Governance of the IT Function

2. Final Module: IT Leadership
IT increasingly fundamental to business
Leadership of the IT function must change
Core leadership issues:
How to organize IT to support and enhance business activities?
How to govern IT to minimize risk and maximize value of information assets?
What IT leadership approach best fits the role of IT in the company?
In many companies, IT has become fundamental to support, sustain, transform, and grow the business. This pattern has elevated the importance of IT leadership and governance within the company, and dramatically changed the core management and leadership issues in many cases. What kind of leadership is appropriate, given the role that IT plays in the firm? How should IT be organized to best support and enhance business activities? How should IT be governed overall, in order to manage the risk and ensure the value of what is now a strategic and indispensable business asset?
The chapters, article, and cases in this module provide a basis for discussing the high-level management, leadership, and governance activities that set the organizational context for leveraging IT-enabled strategic insight and ensuring IT-driven operational excellence.

3. Overview of Chapters Chapter 9 Chapters 10
Discusses themes and issues in IT governance
Chapters 10
Explores a way of defining and evaluating IT leadership
The chapters, article, and cases in this module provide a basis for discussing the high-level management, leadership, and governance activities that set the organizational context for leveraging IT-enabled strategic insight and ensuring IT-driven operational excellence. Chapter 9 explores the concept and practice of IT governance, discussing the connection between IT governance and corporate governance responsibilities, and offering recommendations for initiating and improving IT governance efforts. Chapter 10 presents a contingency framework for considering IT leadership needs and responsibilities, based on the role that IT plays in a company. Acknowledging that the role of IT is shaped by both internal and external factors in organizations and industries, it offers recommendations for practice that account for differences and transitions in the role of IT.
The article and two cases integrate concepts discussed throughout this book. They are intended to help readers explore the dynamics of business strategy, information technology use, and leadership.

4. IT and the Board of Directors
Increasing cost, complexity, and consequences of technology
Organizations vary
Operational dependence on information systems
Strategic influence of information technology
Board supervision of IT should “fit” company’s use of IT
What can we learn from this article
Why company boards should be involved in IT governance
How boards can start to shape IT decisions
Corporations are increasingly dependent on information technology, while information assets account for a large and growing percentage of their capital spending. Failure of boards to understand IT spending and strategy can put a firm at risk, while effective board-level IT governance can enable firms to reap competitive advantage from their IT. Companies that have established board-level IT governance committees are better able to control IT project costs and carve out competitive advantage. But there is no one-size-fits-all model for board supervision of a company's IT operations. The correct approach depends on what strategic "mode" a company is in--whether its operations are extremely dependent on IT and whether it relies heavily on keeping up with the latest technologies. This article describes how boards can determine an appropriate level of involvement in IT decisions, explaining how board members can recognize their firm’s IT risks. It offers recommendations for developing and modifying organizational structures and IT policies that take into account an organization’s changing operational and strategic needs. Appropriate board governance can go a long way toward helping a company avoid unnecessary risk and improve its competitive position.

5. Volkswagen of America Scarce IT resources
Implementation of IT project prioritization process
Aim to align IT activities with business strategy
Pressure from businesses to bypass prioritization process
Explore justifications for process
Explore justifications for exceptions
Examine CIO’s response
What can we learn from this case
Understand factors that affect project delivery and how IT leaders can better manage them
In this case, Volkswagen’s U.S. subsidiary has launched a new process for allocating scarce IT budgets across a portfolio of project requests, in an effort to align IT activities better with corporate strategy. Now that they have used the process for the first time, though, and arrived at a list of approved projects, no one seems happy with the outcome. This case provides an opportunity to discuss the difficult governance issues that arise in making IT investment decisions. As you read the case, consider these questions: What is your assessment of the new process for managing priorities at Volkswagen? Are the criticisms justified? Is it an improvement over the old process? Who controls the budgets from which IT projects are funded at Volkswagen of America? Who should control these budgets? How should Matulovic respond to his fellow executives who are calling to ask him for special treatment outside the new priority management system?

6. The AtekPC Project Management Office
Increasing price competition and consolidation in PC industry
Focus on cost-reduction and renewed growth
Formation of Strategic Planning Office
IT at AtekPC
Operational and maintenance focus
Little cross-functional integration of applications or information services
Project Management Office
Goal of better and more coherent project delivery capability
Possibility to leverage PM skill from IT projects to broader enterprise
What can we learn from this case
How key factors influence the success of PMO implementations
Understand leaders’ role in shaping those factors
With the ever increasing challenge of successfully managing information technology (IT), organizations are recognizing the need for greater discipline in managing IT projects. For many organizations, this means establishing or enhancing project management skills, processes, and governance structures within the organization. The case presents AtekPC’s efforts to implement a project management organization, or PMO, and the challenges they faced in doing so. John Strider, AtekPC's chief information officer (CIO), had strong convictions that the PMO-light model was the way to go. He had held back on hiring full-time employees for the PMO and was moving very slowly and cautiously so as not to violate AtekPC's culture. He was also concerned about the many issues that the PMO implementation had already raised. Were small steps building on small successes going to get the job done fast enough? Issues brought out in the case include defining the PMO's purpose and mission, the structure and governance of the PMO, and how to successfully implement it in what appears to be a resistant culture. As you read the AtekPC story, consider the following questions: What is the purpose and mission of a PMO? What are the main challenges and obstacles in implementing a PMO? Can you identify structures and governance mechanisms that are critical to effective PMO implementation?

7. Governance of the IT Function
Key Learning Objectives for Chapter 9
Understand the concepts of enterprise governance and IT governance, and the connection between the two
Understand the need for IT governance and the potential benefits of good IT governance
Recognize the primary domains of IT governance and learn about effective approaches for developing an IT governance framework

8. What is governance?
Governance is the process of structuring, operating and controlling the organization with a view to
achieving its long-term strategic goals
Serving the interests of stakeholders
Complying with legal and regulatory requirements
Governance involves establishing chains of responsibility, authority, policies, standards, measurements and control mechanisms
Establishes expectations, allocate resources, manage risk, verify performance

9. IT Governance Responsibilities
Increase effectiveness of organization through IT
Align with corporate goals
Protect investments
Address IT-centric business issues
Overall effort to devise integrated approach, operating performance, strategic control, risk management, value alignment
Differs from project management in the strategic level of focus

10. Essentials of Enterprise Governance
Enron example
Ensures employs act in a way that benefits the company
Set controls – what variables need to be monitored, how, and how to respond
Good governance gains credibility in marketplace

11. Impetus for Better IT Governance
Ensure that IT creates value by better alignment of IT with business
Can you track where the IT money goes?
Can you identify the benefits and risks?
IT is an enabler of better governance
No formal government requirements

12. Benefits of Effective IT Governance
Correlated to good business performance in terms of cost reductions, customer satisfaction, security
Emphasis on quality of IT, reduction of risk
Reduction in major IT delivery problems
Accurate understanding of support needs
Good electronic archiving and storage processes have benefits

13. Scope and Practice of IT Governance
IT-business alignment
Investment Value
Project Delivery
Service delivery
Resource Management
Measurement of IT performance
Risk of IT performance

14. Designing IT Governance
Intentional but minimalist design
Board-level leadership
Broad-based executive involvement
Clear ownership but broad participation
Enforce Execution but Accommodate Exception
Define benefits and target expectations
Aim for evolution not revolution in implementation

15. Managing IT Outsourcing
Focus on major projects rather than incremental
Larger investments
Higher risk
Greater overall management complexity
8 to 10 years
Environment of change makes long term difficult to project
Benefits to each party very different
Path uncertainty can lead to conflict
Different from offshoring

16. Key challenges First year large capital spending from customer
Later profit expected
Incentives to meet contract change with changing environment
Resolution of conflicts difficult and costly
Evolution of technology changes perspective

17. History of outsourcing
A few early examples
1960’s computer services for financial operations
ADP started in 1949 as small punch card payroll company
Grew to $8.5b company in 2005
Large-volume standard transactions
Accenture software contractor
Purchasing equipment and software steps toward full outsourcing of IT

18. Major early drivers toward outsourcing
Cost-effective access to specialized or occasionally needed computing power/systems development
Avoidance of building in-house skills
Access to special functional capabilities
1990 Kodak decision to outsource IT legitimized idea
Mainframes
PC maintenance and service
Telecom

19. Outsourcing Today More and more functions outsourced
Acceptance of strategic alliances
Opportunity to complement strengths and weaknesses
Collaborative innovation
Changes in Technology
Most code development is outsourced
Most IT departments integrate (select vendors, code etc.) rather than develop
See table 9.1

20. Drivers toward outsourcing today
Costs and Quality
Tighter overhead cost control of fringe benefits
Aggressive use of low-cost labor
Tough standards
Effective builk purchasing and leasing arrangements
Better management of excess hardware capacity
Better control of software licenses
More aggressive management of service and response time
Tighter inventory control
Professional service at multiple levels
Leaner management structure
Higher level of IT staff skills
More realistic lease structures

21. Drivers toward IT Outsourcing today (ctd)
Breakdown in IT performance
Complexity led to problems led to new models
Intense Vendor Pressures
Good sales and marketing teams plus positive results have lead to confidence in outsourcing
Simplified General Management Agenda
IT is messy!
Financial Factors
Lower risk of cost fluctuations
Fixed (capital) cost business becomes variable cost business
Opportunity to move group into acquiring company
Corporate Culture
IT team given clout to make major decisions
Eliminating Internal Irritation

22. When to outsource When do benefits outweigh risks? Position on
strategic grid

23. When to Outsource Development Portfolio Organizational Learning
More maintenance/highly structured projects means more outsourcing potential
High technology in specific field means more outsourcing potential
Large, low structured projects pose difficult coordination problems for outsourcing
Organizational Learning
Development work difficult to outsource
New areas mean company doesn’t understand what is required let alone how to manage outsourcing
Market Position
Large, well established firms are difficult to transition to new systems without outsourcing
Current IT organization
High structure easy to outsource
Contracts easy to write when know what is expected

24. Structuring Alliance Contract Flexibility Standards and Control
May change radically over time
6 to 8 months to write contracts
Process of drafting more important than resulting document
Standards and Control
Should be explicitly written into contract
Vendors often able to provide better performance measures
Areas to Outsource
All or nothing?
Coordination costs

25. Structuring Alliance Cost Savings Supplier Stability and Quality
10 year contract is long time in high-tech!
Keeping open to other outsourcing options
Managing conflicts of interest
Management Fit
People working with people
Conversion problems
IT staff move leads to uncertainty

26. Managing Alliance Early results are key CIO Function
Partnership/contract management
Architecture planning
Emerging Technologies
Continuous learning
Performance Measurement
Some areas easier than others
Cost savings vs. streamlining/simplification
Mix and Coordination of Tasks
Benefits can be overrun by management of complex project mix with multiple vendors
Customer-Vendor Interface
Final responsibility on both sides
Who communicates what and when?
Reporting expectations
Relationship managers and coordinating groups

27. What about the contractor?
Business model for consulting/contracting companies
Risks