What Does Good IT Governance Look Like?

There is currently a lack of consensus as to exactly what good IT governance looks like. Multinational professional services firms, worldwide associations of IT professionals and top universities have all weighed in with significant contributions, producing some agreement, a lot of disagreement and occasional innovations on what constitutes leading practices. But even through all this ambiguity, companies that successfully implement governance realize greater value from their IT investments and increase their corporate competitiveness.

Needless to say, the lack of consensus makes it difficult to define which real or conceptual framework for IT governance will work best in your organization. This difficulty is further compounded by your organization’s unique abilities, culture, structure and objectives, as well as any deficiencies. Cleary, when it comes to governance, one size does not fit all.

Based on our experience, we have been able to identify some commonalities of good IT governance practices. Among firms that are considered more mature, the focus has not necessarily been on implementing a specific industry framework, but on three common areas designed to underpin IT decision making. Their focus, really, is on how IT creates value that fits into the overall corporate strategy. In this model, the governance process is not seen as an IT discipline on its own, but instead requires partnership between IT and the business.

Three areas of leading practice

Firms that have more mature IT governance have made a commitment to excellence in the areas of strategic decision making, IT investment management and effective controls for IT value delivery. This is not a simple task to achieve. However, through these commitments, a firm will be able to leverage its technology for business growth, revenue generation and business agility.

• Strategic decision making is a firm’s commitment to decide on its overall strategic direction and what role technology has to play in supporting that direction—aligning IT initiatives to business goals and objectives.
• IT investment management is a firm’s commitment to communicating with the IT investing business community as well as using clearly defined measures to make its investment decisions—focusing on value contribution and making hard decisions about priorities.
• Effective value delivery controls are a firm’s processes and tools for implementing the portfolio successfully, managing risk, realizing the benefits and remaining in compliance with regulatory obligations.

Strategy

All leading industry frameworks for IT governance emphasize the importance of applying business strategy in choosing how a firm should operate in order to optimize IT investment business value generation and mitigate IT-related risks. Strategic decisions help focus and establish clear priorities for IT investment and business management. Strategic decision making means not only that a firm is committing to a particular direction, but also that it is choosing not to pursue potential alternatives or stop projects.

There are several key factors to consider when structuring your IT governance strategy:

• Integration with corporate strategy. An effective corporate governance strategy allows a firm to manage all aspects of its business in order to meet its objectives. The corporate strategy should therefore provide the framing for the IT strategy and decision-making processes. That is, any IT governance approach should be integrated into the overall governance process and not create additional non-value-added processes.
• Mature organizational structures. The effectiveness of IT governance committees and advisory boards is directly influenced by their use of shared leadership, the involvement of non-biased members and the application of well-defined roles and responsibilities. Maturing the process speeds decision making and reduces ineffective governance overhead.
• Balanced IT supply and demand. The impact of corporate needs and business demands on the supply and demand of IT is understood and provides IT with the ability to make better business-supporting decisions and communicate the value delivered back to the business. The key is to balance innovation, control and risk.

Investment

While strategy dominates the IT governance body of work, competing industry frameworks begin to diverge at the point where companies begin implementing strategic choices. Research shows that over 76 percent of IT investments fail to achieve their promised return on investment (ROI)^[1]. Most of this shortfall can be prevented through a disciplined investment process focused on finding and stopping these avoidable value leaks. It is essential to have strategies that maximize the business payoff from IT projects and confidence in qualifying the true business value of funding a desired IT project, along with its benefits realization.

Like any good investment portfolio, your IT investments should be well structured, diversified and designed to maximize your value. There are several key factors to consider when structuring your IT investment management:

• IT service, investment and project valuation. The organization needs to clearly define the value it places on IT services and investments and how this value links back to the overriding strategy. The valuation process needs to consider risk in addition to other monetary measures. Effective investment processes look to balance good business risks with the potential value to be accrued.
• Standard set of measures. To focus on value measures that really matter, the organization needs to move away from a simple-to-understand, yet complex-to-calculate measure like ROI. Value measures will vary based on industry and business objectives. To measure and benchmark performance, each firm needs to use standard terminology and metrics that allow for effective comparison of proposed investments and give the ability to measure delivered value on an ongoing basis.
• IT investment portfolio. Use the understanding of the value created or maintained by IT services and investments to make value-based decisions about the content of a balanced portfolio, designed to provide the greatest support to corporate strategy. Focusing too much on spend related to operations will not enable transformation goals. There needs to be a balance among investments related to run, grow and compliance initiatives.

The key enabler for the processes above is open and transparent two-way communication between IT and the investment community. This communication needs to provide the right information to the right stakeholders at the right time. It is especially important that it provides transparency into the decision-making process and the ability to influence that process.

Value delivery controls

In order to realize the value that the investment portfolio is designed to deliver, companies need effective governance controls over the management of the portfolio. This is important to ensure the continued alignment of the portfolio with day-to-day decision making, project delivery and overall strategic direction and business value drivers.

There are several key factors to consider when structuring your IT governance process in value delivery:

• Comply. The integration of risk, compliance and regulatory obligations in the responsibilities of a firm ensures that business and IT regularly assess and report IT-related risks and their organizational impact. In addition, mature organizations will use technology to help manage and automate solutions for their compliance and regulatory obligations.
• Grow and transform. An agile governance structure will speed effective decision making over growth investments, from the original business case through the life cycle to the ultimate measurement of value.
• Run. Ensuring the continued alignment of day-to-day operations with corporate and IT strategies will require mature, yet flexible governance processes with clearly defined roles and responsibilities. It is also important to hold the right people accountable.

Conclusion

Effective IT governance requires a mature, stable overall governance structure and strong, well-functioning committees and Boards. The focus must be on achieving results from strategic choices and helping the IT investment community and stakeholders navigate through the most challenging financial and implementation issues. Enhancing value creation by getting the most out of your IT portfolio requires making the difficult decisions about how to allocate finite resources among all of the potential opportunities and then sequencing the ones that are approved. The business needs to be accountable for the delivery of value from IT-enabled operational capabilities.

Solving this challenge is not simply a matter of implementing an industry-leading IT governance framework. Instead, real solutions are custom-tailored. A key first step is understanding where your governance processes are on the maturity curve and what strengths you have that can be leveraged. Understanding this can help you begin to design a governance approach that is tailored to your organization, along with strategic goals based on the mix of your portfolio. Don’t be surprised if multiple frameworks may need to be blended to meet your unique needs.