Matakuliah
Tahun
: Pengantar IT Governance
: Feb - 2009
Linking strategy, IT Governance, and
Performance
Pertemuan ke-19 & 22
Six interlocking components of effective governance
design
• Enterprises with effective IT governance clearly
articulate and then harmonize six component in the
governance design framework.
•Enterprises design IT governance arrangements
for each of their six key assets including IT to both
enable and influence strategy.
•The effectiveness of an enterprise’s strategies and
its combined governance arrangements are
reflected in its ability to achieve stated business
performance goals.
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Governance Design Framework
Enterprise strategy
And organization
IT organization and
Desirable behavior
IT Governance
Arrangements
Decision rights via
Monarchies, federal,
etc
IT Governance
Mechanisms
(committees,
Budgets, etc)
Business
Performance Goals
IT Metrics and
accountabilities
IT decisions
•Principles
•Architectures
•Infrastructure
•Application
•Investment
Harmonize what ?
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Harmonize how ?
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• Enterprise strategy and organization define the desirable
behaviors motivating governance.
• Governance arrangements assign decision rights for the
key decisions guiding each asset individually and
collectively.
• Enterprises harmonize IT organization and desirable
behaviors with enterprise strategy and organization.
• Enterprises harmonize IT organization structures with IT
governance mechanisms.
• IT metrics and accountabilities define how IT will
contribute to enterprise performance goals and provide
the means for separately assessing IT effectiveness.
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Enterprise Strategy and Organization
• For IT governance purposes, enterprise strategy is a set
of clear, concise statements clarifying the enterprise’s
strategic intent.
• The strategy focuses the attention of all employees on
simple and achievable messages.
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• Typically, statements of strategy express one or more of
the following :
– Competitive thrust of the enterprise
– Relationships among business units (for example,
autonomy of business units versus specific types of
synergies)
– Intentions for the role and management of information
and IT
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JPMorgan Chase’s IT Governance
Enterprise strategy
And organization :
•Build excellence in individual lines of bus.
•Provide integrated client solutions
•Improve efficiency
•Benefit from economies of scale
•Develop ‘one firm-one team’ culture
•Increase transparency and accountability
IT organization and
Desirable behavior :
•Develop unique business unit appl.
•Create shared infrastructure
•Simplify architecture firmwid to
Facilitate sharing, integration, and
Reuse
•Implement technical and project
Management standards including
Six sigma
Harmonize what ?
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IT Governance
Arrangements :
Technology executive committee
and tech. council :
•IT principles
•IT investment
Technology council and business
partners :
•IT strategies and priorities
•IT standards
Businesses : Application needs
IT Governance
Mechanisms :
•CIO on executive committee
•Vice chairs on tech. executive
committee
•Business unit CIOs and infrastructure
leaders form tech. council
•Architecture and engineering boards
set tech. standards.
Business
Performance Goals :
•Distinct metrics for each business
unit
•New language and culture
•Customer retention, cross selling
recruiting
IT Metrics and
Accountabilities :
•‘Shrink-to-grow’ budget process
•Distinct metrics for each business
unit
•ROI
•Reduced number of IT products
Used and elimination of
nonapproved products
•Certification in standard project
methodology
Harmonize how ?
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IT Governance Arrangements
• Governance arrangements identify the archetype used
for each of the IT decisions.
• IT governance arrangements reflect the demands of the
firm’s strategy and organization.
• IT and business leaders jointly define IT principles and
make IT investment decisions.
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Business Performance Goals
• Performance goals establish clear objectives for the
governing bodies and a benchmark for assessing the
success of governance efforts
• In the for-profit-sector, enterprise performance goals
such as share price, profitability, and good citizenship
are clear
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IT Organization and Desirable Behaviors
• Specify how the top three components will be
implemented.
• Enterprise strategy and organization provides the
direction for IT structure and desirable behavior.
• Desirable behaviors must be in harmony with strategic
direction or an enterprise cannot achieve its performance
goals.
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IT Metrics and Accountabilities
• IT desirable behaviors are feflected in the IT metrics and
accountabilites.
• Measurement and accountabilities are critical to any
good governance design.
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IT Governance Mechanisms
• Well-designed mechanisms convert IT desirable
behaviors into the outcomes listed in the governance
design framework.
• Well-designed mechanisms reinforce and encourage
desirable behaviors and lead to outcomes specified in
the IT metrics and accountabilities.
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Risks of IT Governance designs
• Every governance arrangements carries risks.
• Decisions by IT leaders risk resistance from business
managers.
• Joint business / IT decisions can lead to large and
unwieldy decision making bodies.
• Decentralized application decisions risk deterioration of
firmwide standards and goals.
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Designing IT Governance for different
Strategic and structural drivers
Although effective IT governance requires harmonization of
all six components of the governance design framwork,
enterprise strategy and organization sets the direction.
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IT Governance for different Strategies :
Value disciplines
• Operational excellence
• Customer Intimacy
• Product (or service) leadership
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Three Value Disciplines
OPERATIONAL
EXCELLENCE
Business processes


Organization and skills


Management systems for
coordination


End-to-end supply chain
optimization
Emphasis on efficiency
and reliability

Central authority, low
level of empowerment
Critical skills at core of
organization

Command and control,
standard operating
procedures
Quality management

Integrated low-cost
transaction systems
The system is the process

Information and information
systems

Out study
Larger increases in ROA
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
CUSTOMER INTIMACY




PRODUCT LEADERSHIP
Customer service,
marketplace management
Emphasis on flexibility and
responsiveness

Empowerment close to point
of customer contact
Critical skills at boundary of
organization


Ad hoc, organic, and cellular
Critical technical skills abound
in loose-knit structures
Customer equity measures
like lifetime value
Satisfaction, share
management

Rewarding individuals’
innovative capacity
Risk and exposure
management
Single view of customer
databases
Tools to identify segments
and new offerings


Lower margins


Product development, time to
market and market
communications
Emphasis on constant
innovation
Systems for collaboration
Modeling and simulation tools
Higher market cap growth and
smaller increases in ROI and
ROA
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Operational excellence
• Where businesses emphasize efficiency and reliability,
lead the industry in price and convenience, minimize
overhead costs, streamline the supply chain.
• Enterprises focused on operational excellence had larger
increases in asset utilization (ROA)
• Examples of operationally excellent firms include :
–
–
–
–
UPS
Mead Westvaco
BIC Graphic Europe
ING Direct
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Operational excellenceat ING Direct
• Simple, transparent bank product through multiple
channels
• Standardized business model
• Alignment between operations and IT
• Local businesses for innovations.
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Customer Intimacy
Customer-intimate firms emphasize flexibility and
responsiveness in customer service and marketplace
management.
Customer intimacy strategies are consistent with
performance goals focused on high profitability.
Examples of customer-intimate firms include :
• Federal Express
• USAA
• Capital One
• Panalpina
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Customer Intimacy at Panalpina
•
•
•
•
•
Cost sensitive
Varied and often complex shipping requirements
Provide customized
Integrated solution
Minimizing the premium customers must pay for those
services.
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Product Leadership
• Firms leading on product or service offerings are focused
on product development and time to market,
emphasizing constant innovation or breakthrough
products.
• Management practices in product leadership firms focus
on encouraging and rewarding innovation while
managing the inherent risks of experimentation.
• Examples of product leadership firms include :
– DuPont
– Pfizer
– Motorola
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Encouraging Business Unit Synergies or
Autonomy with IT Governance
• A key strategic decision for multibusiness unit
enterprises is how to structure business unit
relationships.
• A critical role of IT governance is to ensure that
organizational boundaries do not constrain strategic
objectives.
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Encouraging Business Unit Synergies or
Autonomy with IT Governance
3 types of standardization reflect the synergies enterprises
seek :
1. Shared technology and infrastructure services to generate
economies of scale
2. Shared data, particularly customer, supplier, product, or
employee data to facilitate process integration
3. Standardized processes to facilitate process excellence,
reusability and organizational learning.
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Business Unit Arrangements
Key Strategic Driver
BU synergy
BU autonomy



Some processes standard across several
Bus
Some processes integrated across several
BUs

Each Bus processes are distinct and
independent
Emphasis on BU decision making
Organization and skills


Top-down leadership specifying synergies
Remove duplication


Encourage BU innovative capacity
BU skills focused on local value discipline
Management systems for coordination

Synergies centrally defined and
coordinated
BUs focused on both BU and firmwide
strategy


Few mandated processes
Enterprise financial and risk management
Substantial integrated firmwide
infrastructure and shared services


Thin layer of firmwide infrastructure
Each BU infrastructure and systems tailored
Business processes

Information and information systems

Out study
Higher profit (ROI)
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Larger increases in market cap and revenue
growth
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Encouraging Business Unit Autonomy with
Some Synergies
• When enterprises want diverse business units to pursue
world class excellence in their specific market or
function, they may choose to minimize potential
synergies.
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Encouraging Business Unit Synergies with
Some Autonomy
• Enterprises citing high pressure for achieving synergies
had higher profits as measured by ROI.
• But capitalizing on potential synergies is not easy.
• Organizational boundaries usually cause resistance to
any kind of sharing, integrating, or standardizing.
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Summary of the Strategy-Governance
Relationship
• Firms introduce synergies focused on shared and
standardized technology, they must govern architecture
and infrastructure at the enterprise level.
• Firms seeking data and process synergies add more
governance mechanisms to ensure the integrity of data
and to design and implement global processes.
• Technology standards require the support of business
leaders, but data and process standards force the active
leadership of business executives.
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Case Study on State Street Corporation :
Changing Strategic Objectives
• One of America’s best-performing financial services
firms.
• The case demonstrates how IT governance can be used
to help implement significant strategic change.
–
–
–
–
A Top-Performing Financial Services Firm
One State Street
Designing IT Governance
Evolving IT Governance
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A Top-Performing Financial Services Firm
• State Street Corporation is a world leader in financial
services , providing investment services, investment
management, trading, and research to investment
managers, corporations, mutual funds, pension funds,
unions, not-for-profit organizations, and individuals.
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One State Street
• State Street Management believed that shared IT
infrastructure was important to enable this single point of
contact.
• Historically, State Street’s IT organization had been
highly decentralized.
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State Street Corporation’s IT Governance
Enterprise strategy
And organization :
•Grow new business
•One state street
•Faster time to market
•Value management
•Shared services
IT Governance
Arrangements :
Business monarchy decides :
•IT principles
•IT investment
IT monarchy decides :
•Infrastructure strategies
•Architecture
IT duopoly decides :
•Business application needs
Federal/IT monarchy for input
IT organization and
Desirable behavior :
IT Governance
Mechanisms :
•Early adoption without penalty
•Common customer view and ‘one
State street’ IT community
•Commercial orientation of IT
•Creation of business cases and
Measurement of IT Impact
•Share and reuse technology
Enterprisewide
Federal IT organization
•IT executive committee
•Office of architecture and exception
•CIO staff
•IT leadership group
•SLA and chargeback
•Web based portal
•Activity-tracking system and
Service delivery managers
•Enterprisewide IT budget
Harmonize what ?
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Business
Performance Goals :
•Time to market
•Single face to the customer
•Cost efficiencies
IT Metrics and
Accountabilities :
•Benchmarking of project
Implementation times
•Testimonials
•Reused technologies
•Cost per business transaction
Harmonize how ?
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State Street Corporation’s It Governance Arrangement Matrix
Domains
Styles
Principles
Input
Business
Monarchy
Decision
Architecture
Input
Decision
Infrastructure
Input
Decision
Business
Applications
Input
Decision
Investment &
Priorities
Input
ITEC
CIO
ITEC
IT
Monarchy
Decision
Arch.
office
CIO
IT leaders
CIO
IT leaders
Feudal
Federal
CIO
IT leaders
IT org.
Business
leaders
Duopoly
CIO
IT leaders
IT org.
Business
leaders
Budgets
SLA
Act.track
IT leaders
Business
Leaders
IT org.
IT leaders
Anarchy
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Management principles for designing
governance to address strategic objectives
• Make tough choices
• Develop metrics to formalize the strategic choices
• Determine where organizational structure limits desirable
behaviors and design governance mechanisms to
overcome the limitations.
• Allow governance to evolve as management learns the
role of IT and how to accept accountability for
maximizing IT value
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