Effective IT Governance: Key Issues

Designing Effective IT Governance
How should you lead and govern IT to deliver enterprise performance? Enterprises that actively design their top level IT governance arrangements make and implement better IT-related decisions. It is about the arrangements for who makes critical decisions and who is accountable for them. But both business and IT governance are poorly understood. Most enterprises have to cope with multiple levels of business governance and this makes responsibilities for IT decision-making more complex. IT governance has to be actively designed as the decision rights and accountability framework to encourage desirable behavior in the use of IT (Weill, 2002; Broadbent & Weill, 1998). Thoughtful IT governance provides the foundation for delivering IT-enabled enterprise performance. Top performing enterprises have different patterns of IT governance than other organizations. Resources: M. Broadbent and P. Weill Leading Governance, Business and IT Processes: the Organizational fabric of business and IT partnership, Gartner ITEP Findings, December 1998. P. Weill and R. Woodham, Don’t Lead, Govern: Implementing effective IT governance, MIT Sloan CISR Working Paper no 326, April 2002. Forthcoming: Effective IT Governance – By Design, Gartner EXP Premier Research Report, by M. Broadbent and P. Weill, January 2003. Designing Effective IT Governance Marianne Broadbent, PhD Group Vice President EXP Worldwide Research Head Gartner ACIS Conference, Melbourne November 2002 Marianne Broadbent Group Vice President EXP Worldwide Research Head ACIS Conference Melbourne, Australia December 2002 Entire contents © 2001 by Gartner Group, Inc. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner Group disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner Group shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice. 56 Top Gallant Road P. O. Box 10212 Stamford, CT Copyright © 2002

Effective IT Governance: Key Issues
Much greater clarity is required in the components of IT governance and in understanding how they are effective. What are the components of top level IT governance How can these components be represented? When and where are different types of IT governance arrangements effective? How can you show the linkages between your enterprise goals and IT governance? How can you improve your IT governance? The research MIT Sloan CISR Study, led by Peter Weill, with Gartner EXP* 250+ Gartner EXP members, 23 countries Complex enterprises, demanding business environments Source: MIT Sloan CISR and Gartner EXP Research What is IT governance and why is it critical? Understanding effective IT governance requires understanding its components, how they can be represented and what makes for effective IT governance. Most views on governance are based on anecdotal evidence. To bridge that gap Gartner’s CIO Executive Programs (EXP) group worked with MIT Sloan Center for Information Systems Research (CISR) in a major research study. The research base for this presentation is from an MIT Sloan CISR project led by Dr. Peter Weill, director of CISR, with input from Gartner’s EXP group, led by Dr. Marianne Broadbent. Gartner organized and facilitated data collection and case study development with Gartner EXP members. The research was made possible by the support of CISR sponsors and, in particular, CISR patron Gartner. The enterprises studied were complex with demanding business environments and IT investments. On average, they had eight different business units, spent 8 percent of expenses annually on IT across their enterprises, and employed 800 full-time IT professionals. The results are scheduled to be published in the January 2003 Gartner EXP Premier Report, Effective IT Governance – by Design, by Marianne Broadbent and Peter Weill. * Core team: Peter Weill (MIT), Marianne Broadbent (Gartner), Chris Foglia (MIT), Susie Lee (MIT), Chuck Tucker (Gartner) © 2002 MIT Sloan Center for Information Systems Research (Weill) and Gartner, Inc

Much greater clarity is required in the components of IT governance and in understanding how they are effective. 1. What are the components of top level IT governance 2. How can these components be represented? 3. When and where are different types of IT governance arrangements effective? 4. How can you show the linkage between your enterprise goals and IT governance? 5. How can you improve your IT governance? Source: MIT Sloan CISR and Gartner EXP Research What is IT governance and why is it critical? Understanding effective IT governance requires understanding its components, how they can be represented and what makes for effective IT governance. Most views on governance are based on anecdotal evidence. To bridge that gap Gartner’s CIO Executive Programs (EXP) group worked with MIT Sloan Center for Information Systems Research (CISR) in a major research study. The research base for this presentation is from an MIT Sloan CISR project led by Dr. Peter Weill, director of CISR, with input from Gartner’s EXP group, led by Dr. Marianne Broadbent. Gartner organized and facilitated data collection and case study development with Gartner EXP members. The research was made possible by the support of CISR sponsors and, in particular, CISR patron Gartner. The enterprises studied were complex with demanding business environments and IT investments. On average, they had eight different business units, spent 8 percent of expenses annually on IT across their enterprises, and employed 800 full-time IT professionals. The results are scheduled to be published in the January 2003 Gartner EXP Premier Report, Effective IT Governance – by Design, by Marianne Broadbent and Peter Weill. * Core team: Peter Weill (MIT), Marianne Broadbent (Gartner), Chris Foglia (MIT), Susie Lee (MIT), Chuck Tucker (Gartner) © 2002 MIT Sloan Center for Information Systems Research (Weill) and Gartner, Inc

IT governance has 3 major components
Effective IT governance arrangements thoughtfully and purposefully combine decision making about major IT domains, by the right group of people, using appropriate mechanisms. THE THREE COMPONENTS A. What decisions need to be made? Decisions about major IT domains B. Who has decision and input rights? Rights are exercised in different governance styles C. How are the decisions formed and enacted? Multiple mechanisms make governance work Source: MIT Sloan CISR What are the components of top-level IT governance? Governance processes involve decisions about major IT domains, that is, those areas, such as IT investment, IT principles or maxims. They balance decision rights between multiple constituencies, such as “C-level” executives (including the CIO), business unit leaders and IT executives. Their purpose is to encourage desirable behavior so the enterprise achieves its goals. IT governance is formed and enacted by multiple mechanisms – formal mechanisms, such as the executive committee and the IT council, and informal mechanisms, such as talking with colleagues. IT governance is going through a time of considerable change. Research from the MIT Sloan/Gartner EXP study shows that governance is dynamic with enterprises making regular changes. © 2002 MIT Sloan Center for Information Systems Research (CISR). This material is adapted from Weill & Woodham's work originally published and copyrighted by the MIT Sloan CISR as Working Paper No. 326, "Don't Just Lead, Govern: Implementing Effective IT Governance," April 2002, and is used by Gartner with permission.

A: What decisions need to be made
A: What decisions need to be made? Clarify five major IT decision domains IT governance is about clarifying the decision and input rights for five major IT domains. IT principles High level statements about how IT is used in the business IT infrastructure strategies Strategies for the base foundation of budgeted-for IT capability (both technical and human), shared throughout the firm as reliable services, and centrally coordinated (e.g., network, help desk, shared data) IT architecture An integrated set of technical choices to guide the organization in satisfying business needs. The architecture is a set of policies and rules that govern the use of IT and plot a migration path to the way business will be done (includes data, technology, and applications) Business application needs Business applications to be acquired or built Source: MIT Sloan CISR What are the components of top-level IT governance? IT governance involves decisions about five major IT domains: 1) IT principles (or maxims) are high- level statements about how IT will be used to create business value. They should be informed by the enterprise business maxims. 2) IT infrastructure strategies describes the approach to building shared and standard IT services across the enterprise. 3) IT architecture is about the set of technical choices that guide the enterprise in satisfying business needs. In case of J&J, this means development of some agreed components of data architecture so that customer information can be meaningfully shared, together with selected standards to support the agreed architectural approach. 4) Business applications needs refer to applications that need to be acquired or built. 5) IT investment and prioritization covers the process of IT investment, including where they should be focused and the procedures for progressing initiatives, their justification, approval and accountability. (Adapted from Weill and Woodham 2002.) Action Item: Articulate and clarify the five major IT domains that provide the foundation and guidance for IT-enablement across the enterprise. IT investment and prioritization Decisions about how much and where to invest in IT including project approvals and justification techniques © 2002 MIT Sloan Center for Information Systems Research (CISR). This material is adapted from Weill & Woodham's work originally published and copyrighted by the MIT Sloan CISR as Working Paper No. 326, "Don't Just Lead, Govern: Implementing Effective IT Governance," April 2002, and is used by Gartner with permission.

B. Who has decision rights and inputs
B. Who has decision rights and inputs? . . Rights exercised in six governance styles Corporate governance and the language of information politics are useful lenses for depicting the major players and approaches in enterprise IT governance. Style Who makes the decisions? Business Monarchy C-level executives, as a group or individuals, including the CIO (but not acting independently) IT Monarchy Individuals or groups of IT executives Feudal Business unit leaders or their delegates Federal C-level executives and at least one other business group Duopoly Source: MIT Sloan CISR IT executives and at least one other business group What are the components of top level IT governance? IT governance defines who has input and who makes the decisions. There are six styles of corporate governance and information politics: 1) Business monarchy where the executive leadership has decision rights. These are often exercised through an executive committee or IT Council comprising a combination of business and IT executives. 2) IT monarchy where IT executives have the decision rights. These are often exercised through an IT Leadership Council or CIO office. 3) Feudal where business unit leaders or their delegates have the decision rights and authority is localized. This style is found in enterprises with relatively autonomous business units and can be useful in delivering local responsiveness. 4) Federal where governance rights are shared by C level executives and at least one other business group. This style is often used for inputs to decisions rather than the group which actually takes the decisions. 5) Duopoly where rights are shared by IT executives and at least one other business group 6) Anarchy where individual process owners or end users have decision rights and there are usually no formal mechanisms for exercising rights. Decisions are made ad-hoc and locally. Different styles can be used for each of the five IT domains. (Adapted from Weill and Woodham 2002) Action Item: Use the lens of corporate governance and information politics to depict key governance styles and the locus of decision rights. Anarchy Each individual business process owner or end user Note: Some Governance styles were inspired by Davenport, 1997. © 2002 MIT Sloan Center for Information Systems Research (CISR). This material is adapted from Weill & Woodham's work originally published and copyrighted by the MIT Sloan CISR as Working Paper No. 326, "Don't Just Lead, Govern: Implementing Effective IT Governance," April 2002, and is used by Gartner with permission.

C. How are the decisions formed, enacted
C. How are the decisions formed, enacted? . . Many mechanisms make governance work Enterprises use multiple mechanisms to help implement their IT governance arrangements. Governance mechanisms Objective Executive committee Take a holistic view IT council of business, IT executives Focus on driving value IT leadership committee Coordinate across the enterprise Architecture committee Identify strategic technologies Business/IT relationship managers Ensure feedback, good iteration Process teams with IT members Take a process view Service-level agreements Specify, measure IT services Source: MIT Sloan CISR (Weill and Woodham); Broadbent and Weill What are the components of top-level IT governance? Governance mechanisms are the vehicles used to implement different governance styles. They might be specific to one IT domain or cover multiple domains. The executive committee often constitutes a mechanism in that major decisions about IT-enabling the enterprise are taken at that or the board level. This encourages a holistic view, but unless there is top- level IT input, there is the risk that the decisions might not be well informed. IT councils often report in to the executive committee and contain overlapping memberships. Such councils can provide a focused environment to consider several levels of policies and investments. IT leadership councils are particularly important for large multibusiness enterprises where there is a mix of responsibilities for infrastructure services, some enterprisewide and others at business-unit level. Architecture committees can involve business and IT management in defining the architectural guidelines. Business/IT relationship managers are prevalent in many enterprises but with a variety of names. They play a critical role on a daily basis in understanding how the business operates and in interacting with their business peers. Action Item: Understand the different mechanisms that can be used to implement effective IT governance. Chargeback arrangements Shape behavior, recoup costs Source: Adapted from Weill and Woodham, 2002; M. Broadbent & P. Weill , Leading Governance, Business and IT Processes, ITEP Findings, 1998

IT Governance Arrangements Matrix
IT governance can be represented using an IT Governance Arrangements Matrix. How to represent IT governance arrangements? IT Governance Arrangements Matrix Domain IT principles IT infrastructure strategies IT architecture Business application needs IT investment Style ? Business Monarchy IT Monarchy Feudal Federal Duopoly Anarchy Source: MIT Sloan CISR How can enterprise IT governance patterns be represented? A matrix can be used to depict governance arrangements by listing the six governance styles on the vertical axis and mapping them to the five IT domains on the horizontal axis. The MIT Sloan CISR and Gartner EXP study identified how 250 enterprises made major decisions regarding who had decision rights and who had input about each of the five IT domains. Don’t Know © 2002 MIT Sloan Center for Information Systems Research (CISR). This framework is adapted from Weill & Woodham's work originally published and copyrighted by the MIT Sloan CISR as Working Paper No. 326, "Don't Just Lead, Govern: Implementing Effective IT Governance," April 2002, and is used by Gartner with permission.

Drive enterprise-wide growth & change – a Bank
The ‘IT Governance Arrangement Matrix’ can be used to illustrate how governance styles, IT domains and governance mechanisms inter-relate. IT Governance Arrangements Matrix Domain IT principles IT infrastructure strategies IT architecture Business application needs IT investment and prioritization Style Input Decision Input Decision Input Decision Input Decision Input Decision Business Monarchy Corp office CIO Corp office CIO Proj council Corp office IT Monarchy CIO IT leaders CIO IT leaders Arch office CIO Feudal Federal Biz leaders Biz proc own Duopoly Biz leaders IT leaders Biz leaders IT leaders Biz leaders IT leaders BT managers Input rights Decision rights Governance mechanisms Source: MIT Sloan CISR and Gartner EXP Research How can enterprise IT governance patterns be represented? The leading Singapore bank, DBS, is actively using IT governance to bring about enterprise change. DBS has won two awards for its enterprise governance in the past two years. In their IT governance DBS differ from typical patterns: they take a business monarchy approach to IT principles, have only IT monarchy input to IT infrastructure strategies and take a business monarchy approach to IT investment decisions. At DBS there is no such thing as an IT project – they are all business change projects. Business unit heads have authority over tactical investments (up to $1 million including hardware, software, professional services and any internal people costs.) One of three regional Project Councils control investments between $1 – $5 million. The CIO chairs one of these councils and sits on the other two. A five member Corporate Office (including the CEO and CIO) handles anything over $5 million. Every initiative is assessed on both financial and non-financial objectives such as revenue versus cost reduction and strategic, experimental or tactical considerations. Within the IT area, there’s a group of business technology relationship managers (called IT Lite) who report to the CIO. They manage the human and IT assets related to the prioritization process of each IT-related investment. Once an initiative is approved, the Program Office is responsible for meeting with the project sponsor and tracking all the business case metrics. From 2003, there will be a formal link between benefits realization and reward mechanisms for program sponsors. Corp office Corporate office (CEO, CIO, 3 biz heads) Proj council Regional project councils Arch office Office of architecture BT managers Business technology relationship managers CIO CIO office and staff Biz proc own Business process owners IT leaders IT leadership group Value realization process © 2002 Gartner, Inc. and MIT Sloan Center for Information Systems Research (Weill) drawing on the framework of Weill and Woodham, 2002.

IT Governance Arrangements Matrix
Duopoly input reflects business governance ... Government Enforcement Agency The ‘IT Governance Arrangement Matrix’ can be used to illustrate how governance styles, IT domains and governance mechanisms inter-relate. IT Governance Arrangements Matrix Domain IT principles IT infrastructure strategies IT architecture Business application needs IT investment and prioritization Style Input Decision Input Decision Input Decision Input Decision Input Decision Business Monarchy IMSG Dir of info IMSG Dir of info IT Monarchy Dir of info IM leaders IIM leaders Arch comm Dir of info IM leaders Feudal Federal IMSG Dir of info Mgt board Duopoly Mgt board Biz pro own IM leaders Dir of info IM leaders Biz liaison IM l leaders Biz liaison Biz pro own IMSG E-wide budget IT portfolio Input rights Decision rights Governance mechanisms Source: MIT Sloan CISR and Gartner EXP Research How can enterprise IT governance patterns be represented? The goal of the Metropolitan Police Service – Scotland Yard (MPS) is operational excellence with a strong focus on streamlining and improving processes. In their IT governance MPS has shifted to a business monarchy approach to IT investment decisions but with strong IT monarchy responsibilities for IT infrastructure strategies and IT architecture. Four levels of planning are based on the principle that, “people must have the information to do their job wherever they are.” These levels include: tactical (3-18 months), strategic (18-24 months) and speculative (to deal with new technologies such as face scanning.) Strategic statements are also embodied in a new structured and transparent process for IT investment decisions. Today such decisions are made on the recommendation of the Information Management Steering Group (IMSG), which is chaired by a business leader, such as the Deputy Commissioner. IMSG is one of 14 Strategic Committees and reports to either the Management Board, or the top level Performance Review or Resource Allocation committee, depending on the issue. The IMSG decides what funded projects will go on the list to be approved, as well as how to start or stop projects, how to fund new work and how to fund future projects. Each proposal must be linked to specific strategies and have a business sponsor, usually the business process owner. The accountability for completion and delivery of the benefits, is allocated to a senior officer. Each initiative has a program or project board depending on its scope. This board is chaired by the sponsor or senior officer and includes both technical and business users. A separate group authorizes smaller projects between meetings. IMSG Information management steering group Biz liaison Business liaison officers Dir of info Director of information Biz pro own Business program/project owners IM ldrship Information management leadership group Arch comm Architecture committee IT portfolio Formal IT portfolio approach E-wide budget Enterprise-wide IT budget management © 2002 Gartner, Inc. and MIT Sloan Center for Information Systems Research (Weill) drawing on the framework of Weill and Woodham, 2002.

Input and decision style patterns in IT governance of a range of organisations
Evidence to date shows that there are typical IT governance input and decision rights patterns. The federal style dominates, with IT making infrastructure and architecture decisions. Domain IT principles IT infrastructure strategies IT architecture Business application needs IT investment and prioritization Style Input Decision Input Decision Input Decision Input Decision Input Decision Business Monarchy 27 27 7 6 1 12 1 30 IT Monarchy 1 18 10 59 20 73 8 10 Feudal 3 1 2 1 18 3 Federal 83 14 59 6 46 4 81 30 93 27 Duopoly 15 36 30 23 34 15 17 27 6 30 Anarchy 1 1 3 1 Source: MIT Sloan CISR Don’t Know 1 2 2 1 2 When and where are different types of IT governance arrangements effective? Enterprises have different governance styles for different IT domains. The federal style dominates for input. The dark shaded cells show the common patterns in enterprises studied for decision rights and the and the lighter shaded cells show common patterns for input. 1) IT principles (or maxims) decision rights are most commonly held by duopolies with a significant minority held by business monarchies. 2) IT infrastructure strategies decision rights are strongly held by IT monarchies with strong input from other parts of the enterprise. 3) IT architecture decision rights are strongly held by IT monarchies with strong input from other parts of the enterprise. 4) Business application needs decision rights are split between federal duopoly styles, with the latter being common in highly divisionalized enterprises. 5) IT investment and prioritization decision rights are spread across business monarchy, federal and duopoly styles. The case study organizations going through considerable ‘top down’ change often shifted their decision rights for both IT principles and IT investment and prioritization to business monarchies. Action item: Assess how you compare to common enterprise patterns and identify reasons for differences. Common input styles Numbers are percentages of the 256 Gartner for-profit and not-for-profit enterprises studied in 23 countries in 2002 Common decision rights styles © 2002 MIT Sloan Center for Information Systems Research (CISR). This framework is adapted from Weill & Woodham's work originally published and copyrighted by the MIT Sloan CISR as Working Paper No. 326, "Don't Just Lead, Govern: Implementing Effective IT Governance," April 2002, and is used by Gartner with permission.

Business and IT executive collaboration mark high IT governance performers
Effective IT governance arrangements involve top level business and IT executives working closely together. Domain IT principles IT infrastructure strategies IT architecture Business application needs IT investment and prioritization Style Business Monarchy IT Monarchy Feudal Federal Duopoly Anarchy Source: MIT Sloan CISR and Gartner EXP Research When and where are different types of IT governance arrangements effective? IT governance performance was assessed by measuring its influence on four outcomes: cost effective use of IT; effective use of IT for asset utilization; effective use of IT for growth; effective use of IT for business flexibility. These outcomes were weighted according to their importance to each enterprise. On a scale of (minimum to maximum), the average score was 69%. Seventeen percent of enterprises scored above 80%. Some IT governance arrangements are clearly more effective than others. These arrangements involve: Collaborative and tightly -controlled decision making (duopoly or business monarchy) between business and IT executives for IT principles and IT investment and prioritization IT executive leadership for making IT infrastructure strategies and IT architecture decisions High-level business unit involvement for determining business application needs Federal input to all domains Arrangements which don’t work well include: Federal decision rights for all but business application needs Feudal decision rights for business application needs Governance performance is higher in “for-profit” enterprises when compared to “not-for-profit” enterprises, partly because the latter use the federal style much more for decision rights. 1 2 3 Top three performers as measured by governance performance © 2002 MIT Sloan Center for Information Systems Research (Weill) and Gartner, Inc, drawing on the framework of Weill and Woodham, 2002.

Top IT governance mechanisms focus on business and IT relationships
Enterprises need to carefully monitor the nature and effectiveness of their IT governance mechanisms. IT Governance mechanism effectiveness % respondents using 85 87 71 89 86 96 56 67 62 79 Business/IT relationship managers IT leadership committee IT council of business and IT executives Executive committee Process teams with IT members Tracking of IT projects and resources Service level agreements Capital approval committee Architecture committee Source: MIT Sloan CISR and Gartner EXP Research Formally tracking IT’s business value When and where are different types of IT governance arrangements effective? The governance mechanisms used by high governance performers are much more effective than those in the lower performing group. The top three mechanisms in terms of impact were heavily focused on the business-IT relationship. Executive committees (including business and technology executives) had the most positive impact followed by Formal tracking of the business value of IT and Business/IT relationship managers. Mechanisms around the IT organization itself were still effective, but less so generally than real interlocking of business and technology executives and managers, plus the discipline of tracking IT’s business value. Two mechanisms in particular were seen as ineffective by high governance performance respondents: Chargeback arrangements and Architecture committees. The message here is that it’s very difficult to implement these mechanisms effectively. Chargeback arrangements must be carefully linked back to desired behaviors. Architecture committees need business input but clear decision rights and transparent exception processes. Action Item: Ensure that IT governance mechanisms focus on the interlinking of business and IT and the discipline of tracking IT’s business value, projects and resources. Web-based portals, intranets for IT Chargeback arrangements 1 2 3 4 5 Not Effective Very © 2002 MIT Sloan Center for Information Systems Research (Weill) and Gartner, Inc.

Example of an effective IT governance arrangements matrix
The ‘Governance Arrangement Matrix’ can be used to illustrate how governance styles, IT domains and governance mechanisms inter-relate. Domain IT principles IT infrastructure strategies IT architecture Business application needs IT investment and prioritization Style Input Decision Input Decision Input Decision Input Decision Input Decision Business Monarchy Cap appr comm IT Monarchy CIO IT leadership CIO IT leadership Feudal Federal Exec comm Biz leaders Exec comm Biz leaders Biz leaders Biz pro own Exec comm Biz leaders Duopoly Exec comm IT leadership Biz leaders Biz pro own Biz/IT rel mgs Biz leaders Biz pro own Input rights Decision rights Governance mechanisms Source: MIT Sloan CISR and Gartner EXP Research When and where are different types of IT governance arrangements effective? The patterns of high governance performers together with effective mechanisms provide input into examples of effective IT governance arrangements and their representations. Effective IT governance arrangements provide for federal input, joint decision rights between business and IT leadership in IT principles and business application needs, top level business executive decision rights for IT investment and prioritization, and IT monarchy decision rights for IT infrastructure strategies and IT architecture. The gird above shows the matrix for the second of the patterns for high IT governance performers. Business and IT executives together hold the decisions rights for IT principles and business application needs Top level executives (including the CIO) hold decision rights for IT investment and prioritization The IT leadership holds the decision rights for IT infrastructure strategies and IT architecture Exec comm Executive committee ‘C’ levels) Cap appr comm Exec comm subgroup, includes CIO Biz leaders Business unit heads/presidents Biz pro own Business process owners IT leadership CIO, CIO’s office and biz unit CIOs Biz/IT rel mgs Business/IT relationship managers © 2002 MIT Sloan Center for Information Systems Research (Weill) and Gartner, Inc. drawing on the framework of Weill and Woodham, 2002.

High governance performers have sharper strategies, focus and commitment*
High governance performance enterprises have both business strategies and IT investments strategies which were more focussed and differentiated. Characteristics of high IT governance performers More focused strategies Greater differentiation between customer intimacy, product innovation, or operational excellence Clearer business objectives for IT investment Greater differentiation between supporting new ways of doing business, improving flexibility, or facilitating customer communication High level executive participation in IT governance Greater involvement, impact of CEO, COO, Business Heads, Business Unit CIOs and CFO Who could accurately describe IT governance arrangements Stable IT governance, fewer changes year to year Well functioning formal exception processes Formal communication methods Source: MIT Sloan CISR and Gartner EXP Research When and where are different types of IT governance arrangements effective? Enterprises with higher governance performance have more-focused strategies. They clearly differentiated between the three value disciplines – customer intimacy, product/service innovation or operational excellence – and were not trying to optimize on all three of these. On average, these enterprises had greater differentiation between different objectives for their IT investment. They were not expecting IT investments to excel in delivering on multiple objectives. Rather, they had specific focus on smaller number of objectives for their IT investment – whether it was lowering cost, supporting new ways of doing business, greater flexibility or facilitating customer communication. Senior business leaders were more heavily involved in IT governance and there was a higher level of impact from the CEO, COO, business unit leaders, business unit CIOs and the CFO. More managers in leadership positions could accurately describe governance arrangements and there were fewer changes in IT governance, year on year. Exception processes functioned more effectively in enterprises with higher governance performance. They were seen as more transparent and fair and there were fewer nonsanctioned exceptions. *Statistically significant relationship with governance performance © 2002 MIT Sloan Center for Information Systems Research (Weill) and Gartner, Inc

Map IT governance to enterprise goals
Map IT governance to enterprise goals Harmonize ‘what’ and harmonize ‘how’ Enterprises need to map their IT governance to identify how that governance is encouraging desirable behaviors and how it links to performance metrics. What What ENTERPRISE GOALS IT GOVERNANCE STYLE PERFORMANCE MEASURES Financial drivers Business maxims Decision rights for the five IT domains Business performance indicators How How How IT METRICS & ACCOUNT-ABILITIES DESIRABLE IT BEHAVIORS IT GOVERNANCE MECHANISMS Source: MIT Sloan CISR and Gartner EXP Research How can you show the linkages between your enterprise goals and IT governance? Effective governance requires the harmonization of two types: harmonizing the “what” of governance (left-to-right arrows) and harmonizing the “how” (up-and-down arrows). The “what” of governance includes enterprise goals, IT governance style and performance measures. Enterprise goals can be expressed as financial drivers and business maxims (Broadbent and Weill, 1997). IT governance style is about which of the six governance styles – business monarchy, IT monarchy, feudal, federal, duopoly and anarchy – are in place for the decision rights of each of the five IT domains – IT principles, IT infrastructure strategies, IT architecture, business application needs, and IT investment prioritization. Performance goals are the targets and time frames for delivery of the enterprise goals. The “how” of governance includes desirable IT behaviors flowing from enterprise goals, the IT governance mechanisms in place, and IT metrics and accountabilities. (Adapted from Weill and Woodham, 2002.) Action Item: Map enterprise IT governance so that the “trail of evidence” between enterprise goals, desirable behaviors, IT governance arrangements and performance measures is transparent. © 2002 MIT Sloan Center for Information Systems Research (CISR). This material is adapted from Weill & Woodham's work originally published and copyrighted by the MIT Sloan CISR as Working Paper No. 326, "Don't Just Lead, Govern: Implementing Effective IT Governance," April 2002, and is used by Gartner with permission.

Harmonized goals, styles and metrics . . . Regional Bank
The ‘What-How’ Congruence Framework depicts how enterprise goals, governance style and performance measures are synchronized, and how goals are linked to behaviors, styles matched with mechanisms, and performance measures with IT metrics. ENTERPRISE GOALS - Examples - IT GOVERNANCE STYLE - Examples - PERFORMANCE MEASURES - Examples - Business Monarchy - IT principles - Biz application needs - IT investment IT Monarchy decides - IT infrastructure IT architecture Financial Drivers - Growth Business Maxims - Greater customer focus - Balance local/enterprise - Speed, flexibility Quality of customer relationships Bigger share of customer Faster time to market SAMPLE DESIRABLE IT BEHAVIORS IT GOVERNANCE SAMPLE MECHANISMS SAMPLE IT METRICS & ACCOUNTABILITIES Enable high-level, consistent customer relationships Treat all IT investments as business change projects Build for future flexibility Formal Corporate Office involvement Regional Project Councils - 3 tier approach Investment in IT as a portfolio Business technology relationship managers Level of business ownership of projects Penetration of franchise-wide platform Level of common technology, common data definitions Use of franchise-wide metrics Source: MIT Sloan CISR and Gartner EXP Research How can you show the linkages between your enterprise goals and IT governance? DBS has worked at getting greater harmony amongst both governance ‘whats’ – enterprise goals, IT governance and enterprise performance measures, and the ‘hows’ – linking desirable behaviors to enterprise goals, IT governance mechanisms to IT governance style and IT metrics and accountabilities to enterprise performance measures. DBS has grown rapidly though acquisition and intends to continue to do so. It aims to become a leading Asian regional franchise and be one of the top five banks in five countries by To achieve this it has shifted from a strong product, to a strong customer orientation. It’s aim is to give 4 million retail clients, the same level of customer intimacy offered to private banking customers. IT is seen to play a critical role in that growth. The combination of strategically shifting to a customer focus while acquiring other banks presents real challenges. DBS wants to drive synergies from the acquisitions, yet ensure local accountability. This means giving autonomy for the product mix to local business leaders while working towards consistency in processes and technologies. The bank is building a franchise-wide platform with common technology, common data definitions and common metrics. This also enables it to gain the necessary synergies while simultaneously empowering the local business leaders to localize the customer experience. Rethinking and reworking their approach to IT architecture has been a major focus for DBS. © 2002 Gartner, Inc. and MIT Sloan Center for Information Systems Research (Weill) drawing on the framework of Weill and Woodham, 2002.

Harmonized goals, styles and metrics . . . Government Enforcement Agency
The ‘What-How’ Congruence Framework depicts how enterprise goals, governance style and performance measures are synchronized, and how goals are linked to behaviors, styles matched with mechanisms, and performance measures with IT metrics. ENTERPRISE GOALS - Examples - IT GOVERNANCE STYLE - Examples - PERFORMANCE MEASURES - Examples - Business Monarchy decides - Business app needs - IT investment Federal decides - IT infra strategies Reduced rate of increase in cost base Extent of integrated decision making across business units Financial Drivers - Cost efficiencies Business Maxims - Info to do job anywhere - Operational excellence - Greater BU synergies SAMPLE DESIRABLE IT BEHAVIORS IT GOVERNANCE SAMPLE MECHANISMS SAMPLE IT METRICS & ACCOUNTABILITIES Joint decision making across businesses Disciplined investment Business ownership of IT-related programs Re-use of systems, technologies IM Steering Group exec level reporting, investment Formal IT portfolio approach Business owners > benefits realization Biz/IT relationship managers Known accountabilities for investments, benefits Greater process, IT resource standardization Lower cost base Increased re-use of systems, technologies, resources Source: MIT Sloan CISR and Gartner EXP Research How can you show the linkages between your enterprise goals and IT governance? MPS has worked at getting harmony amongst both governance ‘whats’ – enterprise goals, IT governance and enterprise performance measures, and the ‘hows’ – linking desirable behaviors to enterprise goals, IT governance mechanisms to IT governance style and IT metrics and accountabilities to enterprise performance measures. In terms of mechanisms, there three levels of business-IT relationship managers. First, business development officers are focused on short to medium term projects. They are organized geographically and work alongside the operational force. Any issues they can’t resolve are passed on to the second level – business contract managers. Second, business contract managers head each of five major outsource providers and the five teams that deal with these. Third, business liaison officers focus on medium to long term planning. They work with the senior management team on strategic requirements and future needs for specific business processes. To date, the new governance at MPS has taken several million pounds out of the cost base. There will be more savings as people need fewer machines. However, over time costs and usage will increase as the MPS moves to spread the use of technologies to all the areas where it can deliver value. Previously the MPS had many different networks and an officers often needed access to three different workstations – for finance, , and internet access. Major infrastructure investments due to be complete by March 2003, will consolidate these systems into one workstation. © 2002 Gartner, Inc. and MIT Sloan Center for Information Systems Research (Weill) drawing on the framework of Weill and Woodham, 2002.

Recommendations which shape effective IT governance
‘Don’t Just Lead, Govern! Governance leverages the ingenuity of all the enterprise’s people, not just the leaders, while ensuring compliance with the overall vision and principles.’ P. Weill, 2002 Design IT governance thoughtfully . . . Don’t have ‘governance by default Carefully design IT governance for each IT domain Focus on a few goals, desirable behaviors, and metrics . . . Good governance requires choices to optimize Educate executives: IT governance is important . . . Without top level input, poor decisions are made Good IT governance helps business executives achieve success Build transparency into your governance arrangements . . . More transparency => more confidence ‘No transparency, no trust’, CIO, InterAuto Change IT governance to change behaviors . . . Shifts need to occur when strategy changes New arrangements takes time to communicate, implement Source: MIT Sloan CISR How can you improve your IT governance? Know the factors necessary for effective IT governance: 1) IT governance must be thoughtfully and actively designed. 2) A sharp focus on a limited number of goals, behaviors and metrics is necessary. Good governance requires choices. You can’t optimize on multiple options. 3) Educating executives and managers about why governance is important is a constant challenge and requirement. Good behaviors must be reinforced and inappropriate behaviors redirected. 4) Without transparency, there is not trust. Transparency must be built in to IT governance so that is confidence in the processes. This includes clear exception handling processes, with transparent and rapid escalation processes. Exceptions are how enterprises learn. 5) Acknowledge that changing governance can take months. Make changes only when desirable behaviors change markedly. Action Item: Communicate and act on the factors that shape effective IT governance. © 2002 Gartner, Inc. and MIT Sloan Center for Information Systems Research (Weill)

Use three tools to assess where you are as the basis for moving forward
Assess where you are today using the tools provided and use this as a basis moving forward. 1 Assess your current IT governance effectiveness Complete the IT Governance Effectiveness Self-Assessment . . . Use the 6 leading indicators for effective IT governance 2 Chart and analyze your current arrangements Complete the IT Governance Arrangements Matrix . . . Depict who makes what decisions now, and show mechanisms 3 Map and critically review IT governance congruence Complete the IT Governance Congruence Framework . . . Show the trail of evidence linking business, IT goals and metrics 4 Identify where you need to go . . . Focus on a few goals, desirable behaviors, metrics . . . Design your future IT governance thoughtfully . . . Show your IT governance is transparently linked to enterprise goals Source: MIT Sloan CISR How can you improve your IT governance? Assess where you are today using the tools provided. Then, from what you learn, design where you want to go. Use the same tools to educate your executive team and general high-level support for improving IT governance. To improve IT governance first establish your current baseline using three tools: IT Governance Effectiveness Self-Assessment (See over) IT Governance Arrangements Matrix (see previous slides) IT Governance Congruence Framework (see previous slides) From what you learn, design where you want to go. After you have completed your ‘as is’ analysis Focus on a few goals, desirable behaviors and metrics Design your future IT governance arrangements thoughtfully Ensure your IT governance is harmonized with enterprise goals Now you have the tools to illustrate what IT governance is and how it underpins the achievement of business goals. Action Item: Use the tools to assess where you are today, to inform about action needed and to educate executives about why governance is critical and why IT governance must be thoughtfully designed. 5 Gain support for the effort and implement Clarify why IT governance is critical to your enterprise Communicate needed changes using the tools © 2002 Gartner, Inc. and MIT Sloan Center for Information Systems Research (Weill)

Characteristics of high IT governance performers
1 Assess your current IT governance effectiveness Complete the IT Governance Effectiveness Self-Assessment . . . Use the 6 leading indicators for effective IT governance Assess where you are today using the tools provided and use this as a basis moving forward. Characteristics of high IT governance performers More focused strategies Greater differentiation between customer intimacy, product innovation, or operational excellence Clearer business objectives for IT investment Greater differentiation between supporting new ways of doing business, improving flexibility, or facilitating customer communication High level executive participation in IT governance Greater involvement, impact of CEO, COO, Business Heads, Business Unit CIOs and CFO Who could accurately describe IT governance arrangements Stable IT governance, fewer changes year to year Well functioning formal exception processes Formal communication methods Source: MIT Sloan CISR How can you improve your IT governance? Assess where you are today using the tools provided. Then, from what you learn, design where you want to go. Use the same tools to educate your executive team and general high-level support for improving IT governance. To improve IT governance first establish your current baseline using three tools: IT Governance Effectiveness Self-Assessment (See over) IT Governance Arrangements Matrix (see previous slides) IT Governance Congruence Framework (see previous slides) From what you learn, design where you want to go. After you have completed your ‘as is’ analysis Focus on a few goals, desirable behaviors and metrics Design your future IT governance arrangements thoughtfully Ensure your IT governance is harmonized with enterprise goals Now you have the tools to illustrate what IT governance is and how it underpins the achievement of business goals. Action Item: Use the tools to assess where you are today, to inform about action needed and to educate executives about why governance is critical and why IT governance must be thoughtfully designed. © 2002 Gartner, Inc. and MIT Sloan Center for Information Systems Research (Weill)

2 Chart and analyze your current arrangements
Complete the IT Governance Arrangements Matrix . . . Depict who makes what decisions now, and show mechanisms The ‘Governance Arrangement Matrix’ can be used to illustrate how governance styles, IT domains and governance mechanisms inter-relate. Domain IT principles IT infrastructure strategies IT architecture Business application needs IT investment and prioritization Style Input Decision Input Decision Input Decision Input Decision Input Decision Business Monarchy Cap appr comm IT Monarchy CIO IT leadership CIO IT leadership Feudal Federal Exec comm Biz leaders Exec comm Biz leaders Biz leaders Biz pro own Exec comm Biz leaders Duopoly Exec comm IT leadership Biz leaders Biz pro own Biz/IT rel mgs Biz leaders Biz pro own Input rights Decision rights Governance mechanisms Source: MIT Sloan CISR and Gartner EXP Research When and where are different types of IT governance arrangements effective? The patterns of high governance performers together with effective mechanisms provide input into examples of effective IT governance arrangements and their representations. Effective IT governance arrangements provide for federal input, joint decision rights between business and IT leadership in IT principles and business application needs, top level business executive decision rights for IT investment and prioritization, and IT monarchy decision rights for IT infrastructure strategies and IT architecture. The gird above shows the matrix for the second of the patterns for high IT governance performers. Business and IT executives together hold the decisions rights for IT principles and business application needs Top level executives (including the CIO) hold decision rights for IT investment and prioritization The IT leadership holds the decision rights for IT infrastructure strategies and IT architecture Exec comm Executive committee ‘C’ levels) Cap appr comm Exec comm subgroup, includes CIO Biz leaders Business unit heads/presidents Biz pro own Business process owners IT leadership CIO, CIO’s office and biz unit CIOs Biz/IT rel mgs Business/IT relationship managers © 2002 MIT Sloan Center for Information Systems Research (Weill) and Gartner, Inc. drawing on the framework of Weill and Woodham, 2002.

3 Map and critically review IT governance congruence
Complete the IT Governance Congruence Framework . . . Show the trail of evidence linking business, IT goals and metrics The ‘What-How’ Congruence Framework depicts how enterprise goals, governance style and performance measures are synchronized, and how goals are linked to behaviors, styles matched with mechanisms, and performance measures with IT metrics. ENTERPRISE GOALS - Examples - IT GOVERNANCE STYLE - Examples - PERFORMANCE MEASURES - Examples - Business Monarchy - IT principles - Biz application needs - IT investment IT Monarchy decides - IT infrastructure IT architecture Financial Drivers - Growth Business Maxims - Greater customer focus - Balance local/enterprise - Speed, flexibility Quality of customer relationships Bigger share of customer Faster time to market SAMPLE DESIRABLE IT BEHAVIORS IT GOVERNANCE SAMPLE MECHANISMS SAMPLE IT METRICS & ACCOUNTABILITIES Enable high-level, consistent customer relationships Treat all IT investments as business change projects Build for future flexibility Formal Corporate Office involvement Regional Project Councils - 3 tier approach Investment in IT as a portfolio Business technology relationship managers Level of business ownership of projects Penetration of franchise-wide platform Level of common technology, common data definitions Use of franchise-wide metrics Source: MIT Sloan CISR and Gartner EXP Research How can you show the linkages between your enterprise goals and IT governance? DBS has worked at getting greater harmony amongst both governance ‘whats’ – enterprise goals, IT governance and enterprise performance measures, and the ‘hows’ – linking desirable behaviors to enterprise goals, IT governance mechanisms to IT governance style and IT metrics and accountabilities to enterprise performance measures. DBS has grown rapidly though acquisition and intends to continue to do so. It aims to become a leading Asian regional franchise and be one of the top five banks in five countries by To achieve this it has shifted from a strong product, to a strong customer orientation. It’s aim is to give 4 million retail clients, the same level of customer intimacy offered to private banking customers. IT is seen to play a critical role in that growth. The combination of strategically shifting to a customer focus while acquiring other banks presents real challenges. DBS wants to drive synergies from the acquisitions, yet ensure local accountability. This means giving autonomy for the product mix to local business leaders while working towards consistency in processes and technologies. The bank is building a franchise-wide platform with common technology, common data definitions and common metrics. This also enables it to gain the necessary synergies while simultaneously empowering the local business leaders to localize the customer experience. Rethinking and reworking their approach to IT architecture has been a major focus for DBS. © 2002 Gartner, Inc. and MIT Sloan Center for Information Systems Research (Weill) drawing on the framework of Weill and Woodham, 2002.

Use three tools to assess where you are as the basis for moving forward
Assess where you are today using the tools provided and use this as a basis moving forward. 1 Assess your current IT governance effectiveness Complete the IT Governance Effectiveness Self-Assessment . . . Use the 6 leading indicators for effective IT governance 2 Chart and analyze your current arrangements Complete the IT Governance Arrangements Matrix . . . Depict who makes what decisions now, and show mechanisms 3 Map and critically review IT governance congruence Complete the IT Governance Congruence Framework . . . Show the trail of evidence linking business, IT goals and metrics 4 Identify where you need to go . . . Focus on a few goals, desirable behaviors, metrics . . . Design your future IT governance thoughtfully . . . Show your IT governance is transparently linked to enterprise goals Source: MIT Sloan CISR How can you improve your IT governance? Assess where you are today using the tools provided. Then, from what you learn, design where you want to go. Use the same tools to educate your executive team and general high-level support for improving IT governance. To improve IT governance first establish your current baseline using three tools: IT Governance Effectiveness Self-Assessment (See over) IT Governance Arrangements Matrix (see previous slides) IT Governance Congruence Framework (see previous slides) From what you learn, design where you want to go. After you have completed your ‘as is’ analysis Focus on a few goals, desirable behaviors and metrics Design your future IT governance arrangements thoughtfully Ensure your IT governance is harmonized with enterprise goals Now you have the tools to illustrate what IT governance is and how it underpins the achievement of business goals. Action Item: Use the tools to assess where you are today, to inform about action needed and to educate executives about why governance is critical and why IT governance must be thoughtfully designed. 5 Gain support for the effort and implement Clarify why IT governance is critical to your enterprise Communicate needed changes using the tools © 2002 Gartner, Inc. and MIT Sloan Center for Information Systems Research (Weill)

Effective IT Governance: Key Issues

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