Breaking a Cycle of Mis-alignment:
Plotting a Framework with a Viable Systems Model
Steven De Haes (corresponding author)
University of Antwerp – Antwerp Management School
Prinsstraat 13
2000 Antwerp
Belgium
Steven.dehaes@uantwerpen.be
Joe Peppard
European School of Management and Technology, Berlin
Wim Van Grembergen
University of Antwerp – Antwerp Management School
1
Breaking a Cycle of Mis-alignment:
Plotting a Framework with a Viable Systems Model
Abstract
In this paper, we introduce the Viable Systems Model (VSM) as a sensitizing lens with which
to explore the governance of IT to achieve alignment. We argue that scholars must move
beyond considering alignment only at a strategic level and focus on the optimising of value
from investments made in IT, of which alignment at a strategic level is but one element.
Building on the VSM model, our proposition is that organizations should adopt IT governance
practices that work on each of the VSM defined domains. We illustrate the utility of this lens
by presenting a case study of the Dutch airline company KLM. The VSM based view can be
used in practice as a reference framework to verify whether existing and future IT governance
approaches are complete and consistent. It can also be used to provide a more grounded
background underpinning IT governance and alignment research projects to build new theorybased hypothesis around it.
Key words
Alignment, Mis-alignment, Viable Systems Model, IT Governance, Business Value from IT
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1.
INTRODUCTION
Achieving alignment between IT strategy and business strategy has been a domain of study
for many decades (Chan and Reich, 2007) with research reporting that alignment is
significantly correlated with perceived business performance (Sabherwal and Chan, 2001;
Broadbent and Weill, 1993). Research has identified antecedents (Preston and Karahanna,
2009), enablers and constraints (Luftman et al., 1999), cognitive (Tan and Gallupe, 2006) and
social dimensions (Reich and Benbasat, 2000), patterns (Bergeron et al., 2004), critical
success factors (Teo and Ang, 1999), process (Tallon, 2007) and the strategic orientation
(Sabherwal and Chan, 2001) of alignment. Models of alignment, and its core constructs, have
been proposed (Hendersen and Venkatraman, 1993; Luftman, 2003; Schlosser et al., 2012).
Methods and approaches have been developed to help in achieving closer alignment
between investments in IT and business drivers (Luftman and Brier, 1999), often addressed
under the umbrella of strategic information systems planning (Lederer and Mendelow, 1989;
Teo and King, 1997). Yet despite this growing body of research, practitioners continue to
report that achieving alignment is still a struggle (Luftman et al., 2013).1
More recently, establishing an IT governance model has been suggested as an important
enabler facilitating alignment (e.g. Weill and Ross, 2004; De Haes et al., 2009; Chan and
Reich, 2007). However, most studies of IT governance present descriptive accounts of the
approaches that organisations are adopting (Weill and Ross, 2004) often with the implicit
assumption that either planning went into the design of what was observed in these
organizations or that the governance structures that have emerged, and can now be
observed, are appropriate and comprehensive. In order words, with the exception of
Sambamurthy and Zmud (1999), there has been little attempt to theorize IT governance as an
enabler for alignment, providing more prescriptive guidance and what governance practices
are required, how they relate to each other, and how they lead to alignment related
antecedents.
1
IT governance appeared as a key issue and concern for IT executives for the first time in a survey of the Society
of Information Management (SIM) and Conference Board members (Luftman and McLean 2004). This survey has
been undertaken at regular intervals since 1982 and achieving alignment has been in the top three issues every
year.
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In this paper we seek to address this deficiency. In particular, we aim to plot a framework that
guides organizations in understanding, evaluating and building a complete and sustainable IT
governance model. We propose a more holistic view of IT governance ensuring a broader
impact on improving alignment related antecedents instead of only focusing on aligning the
business strategy with the IT strategy.
Building on Richter and Basten (2014), we suggest Beer’s (1979, 1981, 1985) viable systems
model (VSM), as a sensitising lens to guide the construction of this framework. This theory
underpins our proposition that a more holistic view is required towards building an IT
governance model, if the organization wants to break out of, and stay out of, a cycle of
misalignment. Ground in the discipline of cybernetics, which focusses on how systems
function, maintain their cohesion and relate to each other and their environment, the VSM is a
generalized model that can be used to describe any organization and how it maintains its
existence, as such also the way IT governance should be organized. For this, the VSM takes
a holistic perspective and propose that five different systems or functions as a basis for viable
and sustainable organizations.
To illustrate the potential utility of this theory for IT governance as enabler for alignment,
empirical data was collected from the Dutch airline KLM. This case is interesting as it started
from a very mis-aligned situation in 2001 and evolved over a decade, leveraging IT
governance practices, towards a well-aligned organisation. Drawing on our case data, we
illustrate how the IT governance practices they implemented can be related to the VSM
functions and how they contribute to getting, and staying, out of the mis-aligned situation. As
such, we want to explore the creation of the theory-based, prescriptive (as opposed to
descriptive) IT governance framework as enabler towards alignment.
The paper begins with a review of the extant research on alignment, IT governance and
value, synthesising this diverse literature to argue that governance around IT is established to
achieve alignment and with this to optimize value. We then introduce the viable systems
model (VSM), describing its key elements and principles. We then take the basic structure of
the VSM and interpret it with the objectives of IT governance and its relationship towards
alignment related outcomes. The research design is then described and the case study
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presented. From our empirical data we discuss a theory of IT governance. The paper
concludes with some observations and future research directions.
2.
GOVERNANCE, ALIGNMENT AND VALUE
There has been much research on alignment over the decades and this has been eloquently
reviewed and analysed elsewhere (Chan and Reich, 2007; Schlosser et al., 2012). However,
the more recent research on alignment has strong resonance with the objectives of IT
governance, itself a current area of interest to scholars. Organisations implement governance
structures, processes and relational mechanisms to improve the alignment of their IT
investment portfolio with the strategy of the organisation, with the objective of optimizing the
value derived from IT spend (Van Grembergen and De Haes, 2009). This latter point, the
appropriation of value, is assumed in the discourse on alignment, i.e. if business and IS
strategies are aligned then expected value will be achieved. Research highlights that the path
from IS strategy to value is littered with failed projects and that strategic alignment is a
necessary but not sufficient condition and that a more holistic perspective is required.
This more recent alignment research emphasises the conditions necessary for the
achievement of strategic alignment, emphasising the social dimensions. For example, from
their research, Reich and Benbasat (2000) conclude that shared domain knowledge and highlevel communication between business and IT are very important constructs predicting longterm alignment. Perhaps as a consequence of shared domain knowledge, the importance of
a shared vision among members of the leadership team has also been highlighted as crucial
for achieving alignment: (Preston and Karahanna, 2009). By establishing IT governance
structures, processes and relational mechanisms, organisations seek, often implicitly, to bring
together appropriate business and IT people with relevant knowledge, facilitate
communication and generate shared understanding.
Moreover, the objective for organizations in setting up appropriate governance for IT is to
ensure coherence across all decisions that relate to or impact IT, maximising the
opportunities provided by IT while also optimizing return on IT investment.2 This requires
ensuring consistent and desirable decision-making behaviour among employees at all levels
2
This research is underpinned by this assumption. It does not seem unreasonable.
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(Jensen and Meckling 1976). IT governance seeks to establish a framework within the
organization to foster and promote such desirable behaviours (Brown 1997; Peterson 2004;
Sambamurthy and Zmud 1999; Weill and Ross 2004). More specifically, it requires formal
allocation of accountabilities and responsibilities and the creation and implementation of
appropriate mechanisms (e.g. cross functional forums, charge back, policies, and liaison
roles, metrics, etc.) and decision-making processes (e.g. how investment is prioritized).
Early IT governance debates merely framed this task as a choice between centralization and
decentralisation of computing resources (c.f. Buchanan and Linowes 1980; George and King
1991; King 1983). The experience, however, has proven that optimizing IT value is more
complex and research into IT governance has been gathering momentum over the last
decade (c.f. Agarwal and Sambamurthy 2002; Brown, 1997, 1999; Peterson 2004; Peterson
et al. 2000; Sambamurthy and Zmud 1999; Schwartz and Hirschheim 2003; Van Grembergen
and De Haes, 2009; Weill and Woodham 2002; Weill and Ross 2004).
While empirical studies collect data in contemporary organizations on IT governance, they
typically report descriptive accounts of the structures, processes and relational mechanisms
observed. This descriptive and heuristic approach is also apparent in many of the industry
best practice frameworks such as COBIT and ITIL which are typically developed by “expert”
professionals in the field based on their experience and practices that “seem to have worked”
or “are expected to work”. But these are not theories of IT governance that explain the “what”
and “why” specific approaches are required.
Moreover, there is also an implicit assumption with studies – usually case based – that either
planning went into the design of what was observed in these organizations or that the
governance structures that have emerged, and can now be observed, are appropriate and
comprehensive. The reality is that most IT governance structures, processes and relational
mechanisms usually evolve, often as a consequence of problems, rather than as the result of
proactive analysis, planning and implementation. While insightful, the research literature
therefore reports on governance structures a priori, with no empirical studies having the aim
of proactively building a theory to aid in the construction of an effective IT governance
structure.
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So the extant research shows us descriptively what IT governance structures have been
implemented by organizations, which IT related decisions are governed and how they are
governed. However, there is little focus on understanding in a more theoretical way what
functions (i.e. control, co-ordination, communication, etc.) are required in an IT governance
model and why. We suggest that the VSM can provide an unexplored perspective and help in
focusing on functions that are required for achieving homeostasis in a complex adaptive
system and in building a theory of governance of IT. Moreover, the VSM forces us to take a
more comprehensive perspective on how IT governance approaches enable the achievement
of alignment related antecedents such as trust, share understanding etc.
3.
THE VIABLE SYSTEMS MODEL
The viable system model (VSM) was developed in the 1950s by Stafford Beer, who was
looking a meta-model grounded in organizational cybernetics to approach complex
organizations in a systemic manner. Beer (1979) viewed cybernetics as the “the science of
effective organization” and used the principles of cybernetics to address the design of
organizations. He noted that organization charts don’t show how an organization really works;
rather, they reflect the human need to think of social relations in terms of dominance
hierarchies.
Beer wrote that a viable system is one that is able to maintain a separate existence and any
system “that is capable to maintain its identity independently of other such organisms within a
shared environment” (1979, pp. 21-22). In addition to variety, the notion of recursion is a
fundamental concept of the VSM. For Beer, “any viable system contains, and is contained in,
a viable system” (1979, p. 118). This means that every system contains subsystems that are
able to maintain a separate existence, and that each of those viable subsystems has the
same fundamental structure as the meta-system.
Like any model, the VSM is a generalized model that can be used to describe any
organization. Proponents of the VSM claim that all self-organizing systems conform to this
model, even if participants are unaware of this. The VSM treats an organization as an
information processing system as it strives to maintain balance. It provides a framework for
diagnosing the structure of an organization, its ability to communicate internally and
externally, and its effectiveness in controlling the deployment of its resources. A VSM always
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relates to a purpose; a multipurpose system requires the construction of several VSMs.
According to the VSM logic, self-organizing systems have
•
elements which do things (operations)
•
elements which control the doer (management or meta-system)
•
surroundings in which they function (the environment)
While the basic structure shown in Figure 1 illustrates how the VSM is typically drawn, in
reality the environment should go all the way around both the operation and its meta-system,
and the meta-system should be embedded in the operations; for clarity, they are shown
separately. The VSM has five subsystems, or functions, each having a specific task for
maintaining the stability of the system. The VSM identifies these five functions as systems
one through five. They are, respectively, the productive function, the coordination function, the
executive function, the planning and future focus function, and the coherence function (see
Figure 2). Much of what happens in an organization can be described in terms of one or more
of these functions.
Figure 1: Basic structure of the Viable Systems Model
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System 1: The Productive Function
The System 1 (S1) activities are the operations or wealth-producing parts of the enterprise.
They carry out the tasks that the system is intended to accomplish (i.e., implementation of the
system’s purpose). All other VSM subsystems are management—or decision-making—rather
than action oriented. The relationship between these operations and the environment is the
central one that all the other functions support. It is essential to create the right conditions for
all the operating units to function with as much autonomy as possible. The objective of the
meta-system is to provide a service to the operational units to ensure that they work together
in an integrated and harmonious fashion. It seeks to optimize overall performance. There
must also be safeguards to ensure that the operating units cannot threaten the overall viability
of the organization of which they are a part. Therefore,

They must be accountable and able to demonstrate they are working to an agreed
plan.

There must be pre-agreed intervention rules, which means that autonomy is forfeit
under certain conditions.
System 2: The Coordination Function
System 2 (S2) is the coordination function, sometimes referred to as the “anti-oscillation
function” because it keeps the different activities of the operations running smoothly and
keeps them from stepping on each other’s heels. Beer (1979) provides the example of a
school timetable; it is a service that ensures that a teacher has only one lecture at any one
time period and that only one class uses a room at a given lesson slot. For IT governance,
System-2 is concerned with coordinating multiple projects as well as the delivery of multiple
services.
System 3: The Executive Function
System 3 (S3) is the executive function, where day-to-day management responsibility lies
(i.e., day-to-day monitoring of S1). It oversees the productive operations and manages their
common resources, staff, capital, and budgets. Importantly, it does not make policy but
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interprets it for the S1s. S3 relies on information directly from the local management through
the command axis (indicated by vertical lines downward from S3 in Figure 2) and internal data
from the audit channel System 3* (S3*). In the light of the agreed purpose, and based on the
internal information regarding the state of the operation, S3 influences S1 by direct
intervention or by modification of S2.
System 3 only communicates internally and it does this through four channels (see Figure 2):
-
The central command channel, used for top-down communications including
communications designed to assure compliance with internal and external laws,
policies, and control procedures.
-
The resource allocation channel. With this channel, management does not issue
orders but discusses alternatives and negotiates the resources to fulfill them, taking
into consideration the greater degree of on-the-ground information available to
operating management at System 1. Communication is in both directions.
The System 2 channel provides routine coordination for System 1 activities. The System 3*
channel is used when management wishes to delve deeper into the operations, for example,
conduct an audit. This channel also facilitates synergy, the added efficiency which comes
from working together in a cooperative fashion. Systems 2, 3, and 3* deal only with the dayto-day operations, having no capability to consider the total and future environment or reflect
upon the system’s purpose or identity. These are tasks of Systems 4 and 5.
System 4: The Planning and Future Focus Function
System 4 (S4), the planning and future focus function, like System 1, is connected directly to
the environment. It includes research and development, market research, new products, and
strategic planning. It investigates new technologies and customer needs. It emphasizes
learning not only about the environment but also what is and isn’t working in the organization.
In many ways, it is akin to Simon’s (1960) notion of intelligence as scanning the environment,
both internal and external, seeking to identify problems and opportunities.
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System 5: The Coherence Function
System 5 (S5) is the coherence function, maintaining the organizational identity and balancing
the organization’s present and future requirements. It considers the organization’s purpose or
identity and is thus responsible for the direction of the whole system. Considering the
information generated by S4, it creates policies that are conveyed to S3 for implementation by
S1. S5’s second task is to monitor the balance between the long-term actions suggested by
S4 and the short-term requirements articulated by S3. “System 5 must ensure that the
organization adapts to the external environment while maintaining an appropriate degree of
internal stability” (Jackson, 1991, p. 111).
The functions described in the VSM do not have to correspond to job descriptions. However,
Beer argued that they all must be carried out if an organization is to be viable. It is possible
that the same person or collective in the organization may carry out several of the functions.
This is particularly likely in smaller organizations but it is ultimately dependent on the
distribution of decision-making authority—and thus the requirement for governance in the first
instance. At the highest level of abstraction, viability entails a system being able to maintain
its own identity. This is achieved by the interaction of a number of principles:

autonomy (degree of freedom in decision-making) and adaptation (homeostatic,
morphostatic, and morphogenetic);

recursion (each subsystem layer contains the layers beneath it and each system is
contained by the levels above it) and hierarchy (levels);

invariants (key structures) and

self-reference (each part of the model makes sense in terms of the other parts).
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Figure 2: Structure and relationships in the Viable Systems Model
4.
INTERPRETING THE VSM IN THE CONTEXT OF IT GOVERNANCE
The objectives of the VSM have strong resonance with those of IT governance: to provide
stability and coherence and optimize performance. From an IS perspective, this is to optimize
the value derived from IT investments, and includes ensuring that the IS strategy is
appropriate, that the IT portfolio is managed effectively and that projects and services deliver
expected outcomes. Furthermore, the language of the VSM also reflects the language found
in the discourse on IT governance; words such as adaptation, control, monitoring,
coordination, synergy, balance, and policy, are prominent within this literature. Given its
heritage, focus, and application, we suggest that the VSM can help in progressing both
understanding and practice in relation to IT governance as well as theory development.
In the context of the objectives of the research reported in this paper, the VSM model will be
used to assess the objectives of an existing IT governance structure and associated relational
mechanisms and processes, as enabler for achieving alignment. To facilitate our analyses, it
was felt that Beer’s terminology should change towards more evocative and relevant
language in the context of the contemporary discourse in the IS and management literatures.
Furthermore, the labels assigned to some of the systems are somewhat dated and have been
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superseded by a newer and more relevant nomenclature. For example, “policy” had specific
meaning in the 1960s—as in business policy—and is today more appropriately referred to as
strategy. In the IT and computing literature, policy also has a precise meaning, referring to a
guideline, standard, rule or prescription. Espejo (1989), for example, has also suggested
revised terminology for his research, proposing: implementation (S1), coordination (S2),
monitoring-control (S3 and 3*), intelligence (S4) and policy (S5).
With a VSM, S1 is the system of focus containing the tasks to implement the system’s
purpose. A VSM always has a purpose; in this case of IT governance, achieving alignment
and the optimization of value from IT. It achieves this through enabling and sustaining change
in an organization to optimize the value delivered (S1). This is achieved through
projects/programs (often referred to as investments in IT-enabled change) and then
sustaining this change through the delivery of IT services from IT operations (what is often
referred to as ‘business-as-usual’). This is what is being governed – change and sustaining
this change. Even if large elements of delivery are outsourced to third parties, they still require
active oversight. Of course, all this is predicated on achieving alignment at both strategic and
operational levels.
The functions covered by the VSM, agreed by the research team, were as follows: day-to-day
execution of IT projects, IT operations, and service delivery (System 1); day-to-day
coordination of IT projects, IT operations, and service delivery (System 2); resource allocation
and control (System 3) and monitoring, including identifying synergies (System 3*) of IT
projects, IT operations, and service delivery; innovation and portfolio management (System
4); and role of IT, governance principles, and architecture (System 5).
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Figure 3: Interpreting the VSM for IT governance
The VSM defines the functions (i.e. coordination, resource allocation, etc.) necessary for an
entity to self-organize. But it also recognizes that in self-organizing, the entity is not immune
to what is happening in the external environment (i.e. new technologies, competitor moves,
etc.). Working from the VSM model for IT governance as described above, it is possible to
move on to assess how the organization handles the objectives and requirements of each of
the functions. Table 1 translates the general VSM domains to the IT governance area (based
on the previous discussion). The central premise is that to achieve alignment, the perspective
must extend beyond alignment at a strategic level to incorporate implementation.
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VSM functions
VSM functions defined IT
Governance requirements
The Coherence Function
(Systems 5)
 Vision for role of IT
 Principles framing governance
 Enterprise architecture
 Policies
 IT strategy
 Innovation shaper by IT
 Business cases
 Investment prioritisation
 Portfolio management
 De-commission services
 Allocating resources (money,
people) to projects/programmes
 Monitoring for compliance with
policies/principles
 Seeking synergies
 Seeking efficiencies
 Benefits delivery from projects
 Coordinating multiple
projects/programmes
 Refresh of infrastructure
 Executing projects to enable
business change
 Efficient running and
maintaining the platform and
infrastructure
 Delivery of services to sustain
business as usual
The Planning and Future Focus
Function (System 4)
The Executive Function
(Systems 3 and 3*)
The Coordination Function
(Systems 2)
The Productive Function
(Systems 1)
Table 1: A VSM perspective on IT governance
5.
RESEARCH DESIGN
Because of the dearth of theoretical models in the area of IT governance, the nature of this
research is exploratory and focused on theory building rather than theory testing. Exploratory
research is useful in the beginning of new innovative research journeys to bring new insights
and understandings on a specific subject matter (Kaae et al., 2010). Calder (1977) also points
at the advantage exploratory research brings to generate scientific constructs and to validate
or compare them against everyday experience. By exploring this research domain in detail,
we do want to contribute to creating a basis for future research, by building theoretical models
and generating potential hypotheses to be tested.
Exploratory research often builds on secondary research, including literature reviews,
interviews, case studies, pilot studies and focus groups (De Haes & Van Grembergen, 2009).
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In our work, data was collected using a single case study design (Eisenhardt, 1989; Yin,
2002). Our single case study research design is based on two arguments: the intent to
explore this knowledge area and the need to capture the complexity within it (Gable, 1994).
Like Benbasat et al. (1987, p. 379) we believe “that the case research strategy is well-suited
to capturing the knowledge of practitioners and developing theories from it.” A single case
design is moreover appropriate when “the investigator has access to a situation previously
inaccessible to scientific observation” (Yin, 2002, p.49). The research reported in this paper
uses the VSM as a sensitizing lens with which to explore IT governance as an enabler for
alignment.
Three researchers collaborated on this case, taken into account that two or more
“researchers can capture greater richness of data and rely more confidently on the accuracy
of data” (Benbasat et al., 1987). The role of the researchers was purely the role of observers
who were interested in investigating how the IT governance practices to improve alignment
were applied by practitioners in the case organization and how the experience and knowledge
of practitioners could help to build theories around it.
Data was gathered by conducting face-to-face in-depth interviews with IT and business
representatives in two consecutive rounds (see Table 2). These interview rounds were fully
planned in advance together with the Director Value Management and Alliances. In the first
interview round, the focus was on understanding the case study context and IT governance
and alignment arrangements. The interview protocol was open-ended questions where we
sought to enable informants tell the story of IT governance at KLM and how this enabled the
achievement of alignment related antecedents. Every interview was conducted by two
members of the research team which enabled us to probe deeper into what informants were
revealing. In the second interview round, the interviews were more focused on the domains of
VSM and questions were keyed to them. The key players interviewed held senior roles in
business and IT, including the Director Value Management and Alliances, the Vice President
of the CIO-Office, the Vice-President Finance and Control Ground Services, the VicePresident Business Development Office for Passenger Operations, the Controller IT
Operations and the Vice-President IT Operations and End-End Service Management. All
interviews were tape-recorded and complemented with note-taking by the researchers. After
16
each interview day, the researchers shared and discussed notes to ensure full capture and
mutual understanding of the case data.
Data from other sources such as internal reports and presentations of the CIO for the Board
and his Executive Management were used to develop and further deepen the understanding
of the case company, its processes, its technology, its IT organisation and its use of IT
governance and alignment practices. The director Value Management and Alliances was
contacted regularly during the data analysis process after the interview days, via email,
telephone or meetings, to verify the researchers’ interpretations, add specific information and
ultimately accept the case report.
Interviewee
Length
Place
60 minutes
No. of
Interviewers
2
Vice President CIO
Office
Vice President
Finance and
Control Ground
Services
Vice-President
Business
Development,
Office for
Passenger
Operations
Controller IT
Operations
Vice-President IT
Operations and
End-End Service
Management
Vice President
Information
Technology
Manager Value &
Alliances
60 minutes
2
Schiphol
60 minutes
2
Schiphol
60 minutes
2
Schiphol
60 minutes
2
Schiphol
60 minutes
2
Schiphol
60 minutes
2
Schiphol
Schiphol
Table 2: Interviewees
The data was analysed by using the VSM as a sensitizing lens. The model presented in
Figure 3 and descriptions in Table 1 were used to first frame our empirical data. We then
sought to identify the instruments used at KLM and how these aligned with the functions of
VSM. We then searched our interview transcripts for evidence as to why and how these
instruments were implemented and what the outcome was. This enabled us to construct a
17
description of IT governance at KLM and to map this onto the VSM. We then looked at the
expected and actual alignment related antecedents achieved from establishing governance
around IT. This shaped our theory building process.
6.
GOVERNANCE AND ALIGNMENT AT KLM
KLM Royal Dutch Airlines is a worldwide airline company based in the Netherlands and the
world oldest airline (founded in 1919) still operating under its original name. KLM has its home
base and hub in Amsterdam Schiphol Airport (Netherlands). In 2013, KLM employed 32 850
people worldwide, and managed a fleet of 199 aircraft. In 2004, KLM merged with Air France,
after which both companies continued to operate as separate airlines, each with their own
identity and brand, and each benefiting from each other strengths. KLM had operating
revenues of 25.6 billion euro in 2013, operated flights to 131 destinations in 65 countries
servicing a total of 25.8 million customers.
This case focuses on the KLM activities within the Air France-KLM group. The KLM Executive
Committee (Figure 4) is composed of the CEO, CFO, Managing Director and all Executive
Vice Presidents (EVP) of the major business units and services (Commercial, In-flight
Services, Operations, Ground Services, Cargo, Engineering & Maintenance, IT and HR). In
2013, KLM IT employed close to 1,000 (internal and external) FTEs, with an IT budget of
around 738 million euro. As shown in Figure 4, KLM IT is organized around IT development
activities, IT operations activities and the CIO-Office addressing aspects of the enterprise/IT
architecture, IT strategy, value and portfolio management, sourcing strategy, and risk &
security. The mission of the IT department is to ’create business value by delivering reliable IT
services to the business processes, and innovative IT solutions to enable and support
business changes‘. The following strategic goals for IT support this mission:
-
IT is a world class Information Services provider and will be able to deliver the best
value to the company;
-
The IT cost-levels will be at a competitive industry level;
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-
The IT architecture and infrastructure will enable the growth ambitions of Air FranceKLM.
KLM Executive
Committee
Corporate
Control
HR
IT
CIO
Office
Business Units
IT Development
IT
Operations
Figure 4: KLM structure
IT is a business-critical enabler for KLM yet, at the same time, can be a source of both
success and discontent. In 2001, the balance had tilted towards dissatisfaction due to a lack
of trust in what was perceived as a very costly and unresponsive IT department. This, in a
business climate that was increasingly challenging, and which became dramatically more so
after the 9/11 terrorist attacks. After that event, KLM’s CEO seized the opportunity to make a
structural break with the past, and re-examine and transform KLM’s business and IT
governance.
The Executive Vice-President (EVP) of the Operations Control Centre was appointed as new
CIO. It was felt that having the CIO coming out of the ’real business‘ would help in getting the
’IT governance‘ discussion out of the IT area, and have it put on the business executive’s
agenda. The newly appointed CIO received three clear priorities:
1. provide the reasons why, or why not, to outsource IT;
2. create a business/IT board to organize joint success; and
3. design simple governance principles to restore control enabling steering by the
Executive Vice-Presidents (EVPs) and the CIO.
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In order to respond to these requirements, the CIO-Office was established as a support
function to the CIO, consolidating a number of already existing, loosely coupled and different
functions such as an IT Strategy Office, Programme Management, and business/IT liaison
roles. In the words of the Vice President (VP) of the CIO-Office: “In the scenario that we
would outsource IT, both IT operations and development would mainly be sourced outside
KLM, but the activities of the of CIO-Office would be kept internally, as it governs IT strategy,
architecture, security, business/IT alignment, etc. The goal of the CIO-Office is to enable
effective IT, in support of business needs”.
7.
A VIABLE SYSTEMS MODEL VIEW ON THE KLM IT GOVERNANCE PROGRAM AND RELATED
ALIGNMENT ANTECEDENTS
In this section, we describe how KLM addressed each of the VSM functions in its IT
governance implementation. We use the labels of the VSM functions to present our data. We
will then follow this exposition with an analysis of the alignment-related antecedents, as
reported by the interviewees.
7.1 ROLE OF IT, ARCHITECTURE AND PRINCIPLES (VSM SYSTEM -5)
Important information on the strategy, policy and identity is to be found in the trigger points
that initiated the IT governance implementation at KLM (see previous section). Starting from
these trigger points, it was decided that, ahead of the first priority stated above, the primary
focus should be to introduce better governance principles and practices (priority 3). A project
under the title “IT: A Collaborative Effort” was launched, focused at helping all stakeholders to
better understand the cost and value of IT, which in turn would enable them to make more
informed decisions on what and how to potentially outsource (priority 1). In support of priority
2, a business/IT board was established, composed of the CEO, CIO and all business unit
EVP’s, meeting every quarter to discuss and decide on strategic issues involving IT (this is an
example of a governance mechanism).
20
With regard to priority 3, the CIO-Office, in collaboration with the business, designed a set of
principles that would significantly simplify IT-related governance. The starting premise was
that these principles should put the business in full control of all IT demand and IT spend. In
support of these principles, a number of governance practices were introduced in the
business and IT organizations, including the establishment of the business/IT board and
demand management functions for each business domain. These governance principles and
practices were introduced as ‘the only way of working’ between business and IT for all
business units and activities.
The definition of the first draft set of governance principles and practices was mainly driven by
the CIO-Office. These principles were later refined with the involved business parties and are
now accepted and followed across the organization. However, they are not set in stone and
are open to re-evaluation at any time, According to the Director Value Management &
Alliances (member of the CIO-Office): “These principles and practices are still challenged
from time to time. Our position is that we are always open for discussion for each of these
principles and practices, but up till now, we have each time, in the end, reconfirmed them”.
The stated principles apply to all business units and are presented in internal KLM
presentations as shown in Figure 5. The involved parties acknowledge that this list does not
really distinguish between principles and practices and presents them in a mixed way, but it
was felt to be a pragmatic and practical list that was workable for KLM. The CIO-Office has
developed more detailed background information and internal documentation to explain the
impact and consequences of each of these principles.
21
1.
For the business there should be no difference between working with an
internal or external IT-provider.
2.
Differentiate between WHAT and HOW (and WHY).
3.
Improve the Demand-function by creating a Business Demand Office per
business domain.
4.
Improve the Supply function by creating an Innovation Organizer and a
Service Manager per business domain.
5.
Create monthly decision meetings of What and How (management and IT).
6.
Focus on the cost that can be influenced in full and those that can be
influenced in part: Split between Innovation and Continuity.
7.
Each Innovation (investment) has one business owner to which all cost are
charged.
8.
Each Service (Continuity) has one business owner to which all cost are
charged.
9.
Top-down budget framework and simplified budget process.
10. Activity-Based Costing applied to process primary cost to product cost.
Figure 5: Governance principles.
7.2 INNOVATION AND PORTFOLIO M ANAGEMENT (VSM SYSTEM 4)
A key question related to this VSM function is the identification of IT enabled investments and
the business case describing these investments. This relates to the innovation and portfolio
management processes that were developed in KLM, driven by the business units.
The KLM governance model also defined a clear split between IT-related activities in terms of
the WHAT-activities and HOW-activities, or in other terms between Demand and Supply.
Before 2001, IT demand (or requirements) came in via 14 Information Management
committees and numerous informal channels. According to the VP CIO-Office: “In the old
situation, demand came in through too many different channels, and there was no
coordination between those channels. For example, it could be that five similar investment
requests were put forward, initiated from different business lines”. “Moreover”, as reinforced
by the Director Value Management & Alliances, “some of the Information Management groups
also managed a separate IT development team, leading to a very scattered approach”. To
improve the demand function, all business demand for investments and innovation is now
22
channelled via Business Demand Offices (BDOs) for the five business domains of KLM
(Engineering and Maintenance, Cargo, Passenger Commercial, Passenger Operations,
Corporate).
These BDOs are formally positioned in the business department in close contact with their
EVPs and with a reporting line to the CIO. Commenting on this, the VP Finance and Control
Ground Services says: “Putting the BDOs directly in the business was a very important
governance design decision, as it enabled them to really act as business representatives”.
Each BDO has a dedicated counterpart or mirror-role on the IT supply-side, called the
‘Innovation organizer’, responsible for all HOW-activity (see Figure 6). Realizing this split was
a challenge, as the VP CIO-Office explains: “This clear distinction between demand and
supply seems obvious, but it implied a huge effort in terms of company meetings,
consultations and moving people”.
To distinguish between projects and services/IT operations, a clear differentiation is
established between the innovation cost that can be fully influenced by the business, and the
continuity cost (running cost to ‘keep the lights on’) that can only be partly influenced. The
innovation budget includes all manpower, purchases, work-by-3rd-parties and other out-ofpocket project cost required to build new IT services and functional changes to existing IT
services (‘enhancements’). The BDOs register agreed ‘innovation’ work on the basis of which
the Innovation Organiser coordinates IT-development, time-accounting and charge-out. The
continuity budget includes cost for IT services, desktops, data communication and
telecommunication and is managed, in terms of volume and quality, by the ‘exploitation
manager’ on business side, together with the ‘business service manager’ on IT supply side
(see Figure 10). The objective of these business service managers is to deliver continuity of
the KLM operations in an efficient way and at lowest IT cost.
23
IT
Business
Innovation
budget
BDO
Manager
Continuity
budget
Exploitation
Manager
Innovation
Organiser
Business
Service
Manager
What
How
Figure 6: Mirror roles between business and IT
The design of these portfolio management processes was done by the Portfolio Management
Office (part of the CIO-Office) and is shown in Figure 7. Three approval stages are defined,
going from ‘idea selection’ to ‘programme go’ and ‘investment approval’. For each of these
phases, clear decision thresholds were defined. For investments between 150,000 and
500,000 euro, the EVP, Director Finance and Control and BDO of a business unit could
approve the go/no-go decision in each phase, investments above 500,000 euro are approved
by the Business Unit Investment Committee (BIC), comprising the business unit COO, EVP,
Director Finance and Control, and BDO and investments above 5,000,000 euro are approved
by the Executive Committee (EC).
Demand
Process
Portfolio Process
HLBC
1
BC
2
Idea
forming
Phase 1 :
Pre-study
Idea
Initiative
3
Phase 3 :
Phase 4 :
Architecture & Design &
Specifications Construction
Phase 2 :
Feasibility
study
Programme
Phase 5 :
Phase
UAT Implementation
Three approval steps :
•1 Approval 1: Business ideas selection
Three decision thresholds:
•2
> 5M€
•3
Approval 2: Programme Go
Approval 3: Investment approval
> 500 k€
> 150 k€
Business
BIC
EC
1 2 3
2 3
3
1 2 3
2 3
1 2 3
Figure 7: Portfolio management process
24
The initial phase (1) addresses the initiation of the investment proposals or idea generation. In
this phase, all business ideas are gathered and captured by the BDOs (demand process) and
turned into potential initiatives for which a high-level business case (HLBC) will be developed.
These high-level business cases include descriptive information, classifications and high-level
cost and benefits estimates and risk. The VP BDO Passenger Operations clarifies: “It is often
hard to quantify some benefits at this stage. For example, the cost avoided of an aircraft not
needing to land on another location because of better support systems. But still, we try to
make as good as possible educated estimations”. If an initiative is approved (2), it is turned
into a programme for which a full business case (BC) is developed based on a detailed
feasibility study. To enable common and comparable business cases, a business case
template was developed as a mandatory instrument for all investments above 150,000 euro.
In order to be able to prioritize all these business cases, it is crucial to know what the
organization’s business drivers are. The Director Value Management and Alliances makes
clear: “Our experience was that it was often difficult to obtain a clear list of business priorities
from a business unit. However, we needed these priorities to enable the selection of ‘the right
things’ and for that reason we used a methodology to help us and the business in making
these business priorities transparent”. The business drivers of a business unit are captured by
the CIO-Office through interviews with the business unit executives. In the example of the
Passenger Operations business unit, seven different business priorities were identified (see
Figure 8). Next, each of these business drivers are ranked through a pair-wise comparison
technique. Instead of just ranking the drivers from 1 to n, this technique relates each driver to
the other drivers in terms of relative importance, ranging from ‘extremely less’ toward
‘extremely more’ in five sequential steps (e.g. ‘competitive unit cost’ is relatively more
important than ‘quality in physical comfort’). After completion of this pair-wise comparison by
each of the executive directors, a prioritized list of the defined business drivers is created and
normalised into percentages that sum up to 100% as shown in the Passenger Operations
example below.
25
30%
28%
25%
20%
18%
15%
15%
11%
11%
10%
10%
6%
5%
0%
Get and keep the
bascis right
Execute agreed
network volume and
network flexibility
Competitive unitcost
Effective cooperation with
monopolistic
business partners
A good place to work
Differentiate in
emotional comfort
Qualify in physical
comfort
Figure 8: Definition of the business drivers for passenger operations
In the following step, the same pair-wise comparison technique is used to determine the
contribution of the investment proposals to each business driver. For each investment
proposal the contribution to each of the business drivers is determined, ranging from ‘low’
toward ‘extreme’. The result of these steps is an initial portfolio containing a ranked, but still
unconstrained, list of all investment proposals at business unit level. The VP BDO Passenger
Operations explains the importance of this process: “These priorities are the basis to build a
‘business plan’ for the BDO of a specific business unit, describing all the things that the BDOoffice of a business unit can be held accountable for. I have even turned this business plan
into a video clip on you-tube, to demonstrate to all our business and IT stakeholders our
commitment for the next year.”
After this prioritization, total demand of all business units typically exceeds the budget made
available by the executive committee. The Director Value Management and Alliances
describes how this is handled: “Instead of using a ‘cheese slicer’ and, for example, forcing all
business units to cut 30% out of the project portfolio, a process of informal discussions is
initiated between the BDOs to determine how the portfolio can best be optimized. As long as
this process works, this approach is preferred instead of escalating to the next management
level”. This process generally works well, and as a result, the business/IT board receives an
overview of the major programmes and just has to endorse the outcome of the portfolio
26
management process. The Director Value Management and Alliances concludes: “Through a
good portfolio management process, we strive for seamless decision making”.
Once the portfolio of programmes is optimized, the business investment committee (for
project above 500,000 euro) or executive committee (for project above 5,000,000 euro) still
has to release the funding before design, construction, user acceptance testing (UAT) and
implementation can start. This might appear as a duplicated decision structure, but it acts as
a final check and it also gives the final authority and decision power back to the business
executives. The VP BDO Passenger Operations explains: “In the end, the business
executives decide. This approach helped in getting them engaged in the portfolio
management process because they get their control back, although until now they have never
‘used’ it. Another important aspect in this context is that we try is to make the time between
the business idea and approval on the investment committee as short as possible, as this
period is perceived as ‘IT being slow’”.
7.3 DAY-TO-DAY RUNNING OF IT PROJECTS / SERVICES AND OPERATIONS (VSM SYSTEMS 1 – 2 –
3)
In the day-to-day running of IT projects and the delivery of services, an important principle
was agreed upon that for the business, there should be no difference in dealing with an
internal or external IT-provider. Related to this, criteria were developed regarding choosing
between allocating work in-house for customized development, or through external IT
providers for standardised solutions. These ‘selective sourcing’ agreements are internally
referenced as the ‘Stay on the Surfboard Principle’ (Figure 9). Generic business processes
that bring no competitive advantage (such as office support, collaboration and payroll) will be
supported by ‘vanilla’ (low development cost, off-the-shelf) applications packages. Business
processes, which have the potential to create competitive advantage (such as CRM, revenue
management), can and will be supported by in-house (higher development cost) custom-built
applications. The VP CIO Office explains: “In the past, we evolved to a situation where many
commodity services were built and maintained in-house, when businesses were only
interested in a good service at low cost for these mainstream applications. The surfboard
27
helped in the discussions on what and what not to outsource, and to bring the debate on ‘we
want more IT for less money’ to another level, oriented towards ‘we need different IT for
different businesses’”.
CRM
(Business) Specialization
Competitively
sensitive
Revenue Mngmnt
Operations & Load Control
Loyalty Earning
Every alliance
Access on Flight (‘Boarding’)
Every
(scheduled)
airline
Access to Lounge
•
Reserve
& Pay O&D, Class, Seat
Account revenues
Schedule resources
Every
business
Everybody
Pay salary
Office support
(email, word
processing)
Low IT cost
Outsource/Buy
Medium IT cost
High IT cost
Outsource/Buy/Customize Make
Information Technology
Figure 9: Stay on the Surfboard Principle
This split between the innovation (IT projects and programmes) portfolio and the continuity
(service) portfolio is internally explained with the image of ‘the bicycle’ (Figure 10). This
‘bicycle’ is mainly used as a visual aid to internally communicate the distinction and
relationship between the continuity (or ‘business as usual’) and innovation budget. As
visualised, the business/IT strategy (S5) drives the definition and application of the
governance principles (S5) and priority rules (S5) and the definition of business cases (S4).
The approved business cases are managed in projects and programmes (the innovation
cycle), which, after delivery and go-live, become operational services being deployed and
administered in the service (continuity) portfolio. As a result of on-going evaluation, services
may continue with no change, re-enter the innovation cycle through a new business case, or
be eliminated (retired).
28
Business
Business/ /ICT
IT
Strategy
Governance principles and Priority-rules
Business
Cases
Evaluate
Evaluate
Administer
Administer
Service
Portfolio
Decide
Eliminate
Eliminate
Evaluate
Evaluate
Programme
Portfolio.
Execute
Deliver
Deploy
Deploy
Continuity
Innovation
Figure 10: The Innovation-Continuity Bicycle
To manage the demand of the IT function for infrastructure investments, business cases for
which have traditionally been difficult to justify, a separate BDO for the IT department was
created. The Director Finance and Control IT Operations argues: “If, for example, you have a
storage technology which cannot be virtualised, you may be able to build a business case to
migrate to a new storage technology where virtualisation is possible, resulting in lower
business service costs. But for other infrastructure type investments, such as the migration of
operating systems, the business case will be built on a risk avoidance and cost of future
operational support.” The IT-BDO, part of the CIO-Office, analyses future needs and capacity
based on the incoming business cases of the businesses. Potential investments are then
translated into an IT business case, and are discussed with the other BDOs in the
‘Information Security and Architecture Meeting’ (ISAM). Once approved, the CIO-Office takes
ownership to implement these infrastructure services. If possible, such investments are linked
to other business investments that are being planned.
In support of the operations and service delivery processes, also the budgeting and cost
accounting processes where improved. The previous process of charging out IT costs to the
business, with more than 3,300 technical cost components being charged to more than 3,400
cost account centers, was unwieldy, and provided little useful management information. The
VP Finance & Control Ground Services concluded: “As a result, business perceived IT as a
29
black box which they could not control, and therefore as something that was very likely to be
too expensive”. Drastic simplification of the budgeting process was needed, essentially from
charging hundreds of technical items to hundreds of departments of users, to charging only
seven products with associated cost: two for innovation and five for continuity, to twelve
respective single/unique business owners (units). All budgets and costs (both continuity and
innovation) are managed, forecasted and made transparent through a cost portal, driven by
activity based costing principles, enabling clear and active ownership of the business of all IT
related costs.
7.4 ALIGNMENT RELATED ANTECEDENTS
An analysis of our interview data revealed that the following alignment related antecedents
were consistently mentioned. They include:

More successful projects, leading to lower IT continuity cost per business production
unit

Increased capacity for innovation

Increased alignment of investments in IT to strategic goals

Management commitment to engage through more trust and the emergence of a
value culture
More successful (selection, resourcing, execution, and decommissioning of) projects
and services leading to lower IT continuity cost per business production unit
A primary goal of the CIO-Office is to continuously promote, improve and demonstrate the
value of the IT governance principles and practices in ensuring that IT-enabled investments
projects became more successful. In this effort, one of the metrics reported by the CIO-Office
is the relation between all IT continuity costs and ‘Equivalent Available Seat Kilometers’
(EASK), a key metric used to monitor airline production, which represents the total number of
seats and cargo capacity multiplied by the total number of kilometers flown by the airline fleet.
The graph below shows that although many business investments involving IT, such as eTickets, more web-based sales and web-based check-in, resulted in a year-on-year increase
30
in the total IT budget, the unit cost of providing IT services (IT Continuity cost) per airline
production unit actually decreased by more than 20%. (The slight upward curve for the last 3
years is due to a temporary decrease in response to the world economic crisis.) This
substitution of labour by IT also resulted in lower business cost per unit, since IT is cheaper
than labour.
ICT Continuity Cost per EASK
0.30
Cost in € cent
0.25
0.20
0.15
0.10
0.05
0.00
01/02
02/03
03/04
04/05
05/06
06/07
07/08 08/09
09/10
10/11
11/12
Figure 11: IT Continuity per Business Operation Cost
Increased capacity for innovation
In addition to direct cost savings, the innovation capacity was reported as having increased as
lower, or at least stable IT continuity costs contributed to freeing up financials for IT-based
innovation. Again here, the CIO-Office develops metrics to demonstrate this outcome, of
which one example is shown in Figure 12. This bar chart shows a relative stable IT continuity
budget, enabling the increase of the total IT budget to go almost entirely to new innovation,
which has increased from 25% in 2004/2005 to 39% in 2010/2011. Illustration of a recent
realized IT enabled innovation, leveraging this investment capacity, includes eTag and
eTrack. The eTag is a permanent electronic label that lets the passenger load the flight data
for the tag at home before the flight, replacing the current airline luggage sticker. It uses
Bluetooth technology and syncs with the smartphone, so passengers do not need to relabel
bags for each trip and details are updated automatically. The most time-saving part of this is
31
that using the eTag means passengers get to just drop off bags at a fast drop and no agent
interaction required.
Figure 12: IT Continuity versus Innovation Budget
Increased alignment of investments to strategic goals: The use of an innovative and
inclusive process to capture and prioritise the business drivers of business units has enabled
investment decisions to move beyond what was previously a fairly arbitrary process (in the
case of cost reductions), or a largely subjective and emotional discussion (in the case of new
innovations), to a more objective one. The new process, which involves discussions with and
between business units and the CIO-Office, is based on contribution of existing or proposed
spend to business drivers. It has resulted in increased alignment of investment and spend
with business unit drivers and strategic goals, and increased confidence in the decisionmaking process. This increased confidence has also resulted in the business/IT board
spending less time debating the merits of major programmes and generally endorsing the
outcome of the portfolio management process.
Management commitment to engage through more trust and a value culture: An
important reported outcome of the structure, processes and mechanism of IT governance at
KLM is the increased trust between business and IT. The whole governance and portfolio
32
management process has resulted in improved and more transparent decision-making. The
results of the driver prioritization and investment contribution to the business strategy are
visible for every manager and stakeholder involved. It makes it difficult for executives to
overvalue their own favourite proposals. Because of this, there is more management
commitment to engage, and this helps in continuing the ‘IT: a collaborative effort’ journey.
Also, the process of managing the change towards improved IT governance has its own
benefits. The communication and discussions on portfolio management have improved
management awareness and understanding, and supported the transformation from cost
towards a value culture. It also continues to identify further opportunities to improve existing
governance processes and practices.
8.
DISCUSSION
We have argued that most studies of IT governance hold an implicit assumption that planning
went into the design of what is observed and reported. This is usually not the situation. In the
case of KLM, there was no grand plan when they embarked on their journey at the turn of the
millennium, outside of a broad objective to improve the contribution from IT. The IT
governance model that exists today at KLM gradually evolved over a period of 10 years. It
was built up in piecemeal fashion as situations emerged and as managers felt that some
governance was required. As deficiencies were identified they were addressed. Much of what
the company did was “trial and error”: they tried something and if it didn’t have the desired
outcome, it was evaluated to understand why it was not having the desired effect and it was
reworked. If they found a process or mechanism was having the anticipated outcome, they
retained it. In essence, they were constructing a viable system and we would argue that if
they had used the VSM as a blueprint they could have perhaps been more proactive in
designing their governance model.
Using the VSM we were able to retrospective revisit KLM case to interpret in a more theorybased way what they did and why. The VSM model identifies the functions required for selforganisation. Our re-interpretation of the VSM in the context of IT governance, identifies what
it is that organisations needs to do to optimize and maintain a higher degree of alignment, i.e.
the functions that are required (the what), rather than the how (processes or mechanisms).
33
The ‘why,’ to optimize value from IT, provides the rationale for establishing governance
around IT in the first instance. From our analysis of the case data, we can see that these
functions where addressed by KLM through adopting specific structures, processes and
relational mechanisms in line the expectation of each of these functions.
As shown in Table 3, the governance principles in the case clearly contribute to establishing a
coherent IT governance model, indicating clear strategic direction and guidance. The case
also references “mantras” used the KLM staff such as “IT: A Collaborative Effort” which again
gives a clear focus and identity of the objectives of investments in IT towards alignment with
business drivers. The portfolio management processes addressed to need for promoting
innovation and evaluating opportunities and threats to prepare for the future, which adheres to
the VSM System 4. Systems 1-2-3 of the VSM link to more operational and execution aspects
as illustrated in for example the “Surfboard” related to sourcing and the mirror roles in
business and IT as structures in the service management and portfolio management
processes. In our view, each of governance practices at the different VSM levels contributed
to getting out of the initial status of mis-alignment, by contributing to alignment antecedents
such as management commitment to enage, increased alignment of the investment portfolio
to the goals of the organization etc.
34
IT Governance Approach
Aligment antecedents
VSM Domains
Structures
Processes
Relational Mechanisms
Business/IT board
Executive committee
CIO office
"Surfboard" decision
framework on sourcing
Strategic Information
Systems Planning (SISP)
Internal communication
(surfboard, bicycle).
IT savvy CEO
Business savyy CIO
Business/IT board
Innovation organizer
Business demand office
Portfolio management
process
Business case process
Innovation process
Prioritization process
Mirror roles between
business and IT
Internal communication
(surfboard, bicycle).
Alignment of IT porftolio to strategic goals
Day-to-day monitoring of projects, IT
services and operations (System 3*)
Project management office
IT management team
Exploitation manager
Business service manager
Budgetting process
Cost accounting process
Continuity / service
management process
Project management
methodologies
Mirror roles between
business and IT
Optimum selection of projects
Decomissioning of services
Day-to-day control of IT projects, services
and operations (Systems 3)
Project management office
CIO/Information Services
Management Team
Exploitation manager
Business service manager
Project steering committee
Budgetting process
Cost accounting process
Continuity / service
management process
Project management
methodologies
Mirror roles between
business and IT
Efficient resourcing of projects and services
Day-to-day coordination of
project/programmes across KLM (System 2)
Project management office
CIO/Information Services
Management Team
Exploitation manager
Business service manager
Budgetting process
Cost accounting process
Continuity / service
management process
Project management
methodologies
Mirror roles between
business and IT
Successfull execution projects and services
Day-to-day execution of IT
projects/programmes, IT services operations
(System 1)
Project management office
CIO/Information Services
Management Team
Exploitation manager
Business service manager
Budgetting process
Cost accounting process
Continuity / service
management process
Project management
methodologies
Mirror roles between
business and IT
Successfull projects and services
Role of IT, principles and enterprise
architecture (System 5)
Innovation and portfolio management
(System 4)
Managagement committment to engage
Table 3: VSM applied to the IT governance approach of KLM case
The theory is that if any organization does not address each of the functions, as defined by
the VSM, by establishing structures, processes and mechanism, alignment will not achieved,
and consequently, any value derived from IT investments will be sub-optimal. This moves the
focus away from what decisions should be governed (for example, the five major decisions
proposed by Weill, 2004) to the functions necessary for IT to be viable and not be a burden
on the organization. It also provides for a more holistic view of alignment and the governance
necessary to achieve it.
Moreover, the VSM not only allows us to explain why specific practices are required, but it
can also identify potential weaknesses in an existing governance framework. While we were
able to populate the VSM defined IT governance framework from our data, we could also use
it to identify areas that required further development. The following three examples illustrate
the diagnosis of weaknesses based using the VSM as a lens to explore the KLM case data..
Systems 3 addresses the need for the delivery of benefits from IT investments. Indeed, the
importance of demonstrating the benefits from investments in business cases developed for
proposed investments has led to a situation where they are often over stated or multiple
35
investments claiming the same benefit. The VP Finance and Control Ground Services
pointed out: “If we would sum up all business cases, KLM would be very rich and have no
people working anymore. So benefits management and ownership is a difficult process, but
the Directors Finance and Control can play an important role in putting the topic on the
agenda of the business owners”. This requires some mechanism to look across all business
cases to ensure that this not happening but also requires addressing the benefits
management process as well as the methods and metrics used to assess investment
outcomes.
A second example of a weakness identified in KLM by applying the VSM logic – in this case
System 3 – pertains to resource allocation. Clearly, a continuous alignment between the
availability and interdependencies between business and IT resources is an important
success factor for effective value creation. But resource optimization is a challenge at KLM. In
the words of the VP BDO Passenger Operations: “New applications never change business
behaviour. It is the business resources that have to generate the benefits and, at this
moment, it is not always clear when and how these business resources will be committed.
The BDOs are very well positioned to facilitate the business change aspect, and this role is
even embedded in our function description”. On the other hand, the business sometimes
reports the opposite, claiming they are ready to start but having to wait for IT resources, as
the VP Finance and Control Ground Services explained to us: “We sometimes feel restricted
by the resources not yet available through IT, if such situation becoming prevailing, the risk
can emerge that that the business starts looking outside for external IT services”.
As a third example of using the VSM in diagnostic mode relates to weaknesses in the
coherence function (systems 5). In our interviews we captured a concern related to the fact
that the individual business units drive the current portfolio management processes, but that
no real aggregation occurs at KLM corporate level. In this way, a potential situation exists
where some business units receive little or no money. The VP BDO Passenger Operations
argues however: “Conceptually, a consolidation at group level would be desirable, but in the
end, there is always the strong hand of finance over-viewing the whole budget, and a strong
practical sense of reality. The business unit directors will never agree with ‘getting nothing’,
but by the same token neither will they put forward unrealistic demands. For this process to
36
be successful, leadership and the acceptance of this leadership, is important. The executive
committee must play a crucial role in the optimisation at group level, they are responsible for
turning all the crumbs of the business cases into a good-tasting cookie for the KLM group”.
Broadening the discussion beyond this case, the VSM focuses on the resources and
relationships necessary to support an organization’s viability rather than on the organisation’s
formal structure, thus offering a way to overcome an overemphasis on hierarchical
relationships or organization charts. Its basic assumption is that viable organisations emerge
when people find successful strategies for working together, to the extent that they are able to
develop and maintain group identity in spite of environmental disturbances. In a small
business all these functions might be performed by one person or shared between a small
number of people. In larger enterprises roles can differentiate and become more specialized
emphasizing one or more aspects of the VSM.
As a contribution to practice, the VSM can be used a model to evaluate existing practices and
identify improvement programs. Also, VSM can help in identifying root-causes to explain
symptoms of misalignment. For example, a lot alignment research emphasizes on alignment
of business and IT strategies and assumes that value will be delivered if strategic alignment
achieved. Yet research over the decades has reported the high failure rate of IT investments:
just because an IT investment makes strategic sense it may not be successfully implemented
and the organization may not achieve expected benefits. In the language of VSM, the system
in focus is concerned with IT projects, service delivery and IT operations. The VSM
perspective as such helps in explaining why symptoms occur and can advise organizations
which areas to address to prevent the symptoms from happening in the future.
Finally, this VSM view on IT governance as an enabler for alignment can be used to build new
theory-based hypothesis for further research. Contributing to other scholarly work, other case
studies could be researched verifying the applicability of the VSM across multiple cases and
hypothesis could be built on each of the VSM systems as antecedents towards expected
alignment outcomes. What happens if for example organizations focus their governance
model on the more operational areas (systems 1-2-3) and do not or merely address the more
strategic VSM function addressed in system 4 and 5. How can the VSM view on IT
governance as an enabler for alignment be applied in the context of inter-organizational
37
networks as opposed to intra-organizational environments (as in the KLM case)? Other
hypothesis could, for example, examine contingency factors impacting each of the VSM
systems or the relationship between the systems, including size of organizations, culture, etc.
As such, this exploration of a VSM based theory on IT governance and alignment aims to
inspire future theory testing activities.
9.
CONCLUSION
In this paper, we introduce the Viable Systems Model (VSM) as a sensitizing lens with which
to explore the governance of IT as an antecedent for alignment and ultimately optimizing the
value derived from IT. As such, we aim to provide the foundations for building a theory to
better describe and analyse this alignment enabler. A lot of the current research on IT
governance is descriptive and heuristic (i.e. what are companies doing in terms of IT
governance practices). Our focus is to build theory that helps in explaining the ‘what’ and the
‘how’ to achieve alignment. Building on the VSM model, our proposition is that organizations
should adopt practices that work on each of the VSM functions, covering Strategy, policy and
identity (System 5), Envisioning opportunities and treats (System 4) and Day-to-day running/
coordination and control of IT projects/services and operations (systems 1 – 2 – 3).
We have illustrated the utility of this lens by presenting a case study of Dutch airline company
KLM. In this case, IT governance structures, processes and relational mechanisms could be
distilled focusing on each of the VSM functions. These findings were however captured in a
retrospective way and KLM did never plan the address each of the VSM areas in an explicit
and pro-active way. The build-up of their governance model was rather evolutionary, each
times adding new elements when problems occurred or when improvements were identified.
We use the VSM perspective to propose a theory of IT governance that incorporates strategy
alignment but also expands it to acknowledge the implementation of this strategy and to
sustain the viability of the organization over time. Building on our findings, our proposition if
that the VSM model can be used in practice as a reference framework to verify whether
existing and future IT governance approaches are complete and consistent. Also, new VSM
38
theory based hypothesis could be built for further research to better understand the
association between IT governance and alignment.
39
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