Lecture 17
Chapter 9
Governance of the IT Function
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?
Overview of Chapters
• Chapter 9
– Discusses themes and issues in IT governance
• Chapters 10
– Explores a way of defining and evaluating IT
leadership
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
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
can better manage them
and how IT leaders
The AtekPC Project Management
Office
• AtekPC
– 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
Governance of the IT Function
Key Learning Objectives for Chapter 9
1. Understand the concepts of enterprise governance and IT
governance, and the connection between the two
2. Understand the need for IT governance and the potential
benefits of good IT governance
3. Recognize the primary domains of IT governance and learn
about effective approaches for developing an IT
governance framework
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
8
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
9
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
10
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
11
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
12
Scope and Practice of IT Governance
•
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•
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IT-business alignment
Investment Value
Project Delivery
Service delivery
Resource Management
Measurement of IT performance
Risk of IT performance
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Designing IT Governance
•
•
•
•
•
•
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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
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Managing IT Outsourcing
• Focus on major projects rather than incremental
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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
15
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
16
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
17
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
18
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
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Drivers toward outsourcing today
• Costs and Quality
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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
20
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
21
When to outsource
When do benefits outweigh risks?
1. Position on
strategic grid
22
When to Outsource
2.
Development Portfolio
•
•
•
3.
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
•
•
4.
Development work difficult to outsource
New areas mean company doesn’t understand what is required let
alone how to manage outsourcing
Market Position
•
5.
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
23
Structuring Alliance
• Contract Flexibility
– 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
24
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
25
Managing Alliance
• Early results are key
• CIO Function
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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
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Final responsibility on both sides
Who communicates what and when?
Reporting expectations
Relationship managers and coordinating groups
26
What about the contractor?
• Business model for consulting/contracting
companies
• Risks
27