IT governance Weill and Ross

IT Governance: How Top Performers Manage

IT Decision Rights for Superior Results

Peter Weill and Jeanne W. Ross

2004

Harvard Business School Press

IT Governance Themes

1. Governance Definition2. Effective Governance & Governance

Decisions and Archetypes3. Governance and Management4. Governance Mechanisms5. Importance of Good Governance6. Characteristics of Top Governance

Performers7. Additional Information

Governance

“Providing the structure for determining organizational objectives and monitoring

performance to ensure that objectives are attained.” (OECD 1999)

IT Governance

“Specifying the decision rights and accountability framework to encourage desirable behavior in using IT. IT governance is not about

making specific IT decisions−management does that−but rather determines who systematically

makes and contributes to those decisions,” (Weill & Ross 2004, p. 2).

Governance Components

• Strategy: Set of choices• Desirable behaviors: Beliefs and culture

of organization defined and enacted by strategy, mission statements, etc. (Beyer and Sproull

1981)

• Assets Human, financial, physical, intellectual property, information & IT, relationships

• Governance of assets: Through organizational mechanisms such as committees & procedures

Behavioral Side of Governance

• Definition– “…the relationships and ensuing patterns of

behavior between different agents in a limited liability corporation; the way managers and shareholders but also employees, creditors, key customers, and communities interact with each other to form the strategy of the company.” (Nestor 2000)

• In IT Governance– Formal and informal relationships– Assign decision rights to specific individuals or

groups of individuals

Normative Side of Governance

• Definition:– “Refers to the set of rules that frame these

relationships and private behaviors, thus shaping corporation strategy formation. These can by the company law, securities regulation, listing requirements. But they may also be private, self-regulation.” (Nestor 2000)

• In IT governance– Defines mechanisms for formalizing relationships– Rules and operating procedures to ensure

objectives are met

Effective Governance

• “Actively designed…set of IT governance mechanisms (committees, budgeting processes, approvals, and so on) that encourage behavior consistent with the organization’s mission, strategy, values, norms, and culture,” (Weill & Ross 2004, p. 2-3).

• Can overcome limitations of organizational structure– Increase organization agility, ability to recognize and

respond to changes

Effective IT governance must address three questions

1. What decisions must be made to ensure effective management and use of IT?

2. Who should make these decisions?3. How will these decisions be made

and monitored?

What decisions must be made be made?

• IT principles– Clarifying business role of IT

• IT architecture– Defining integration and standardization

• IT infrastructure– Determining shared and enabling services

• Business application needs– Specifying business need for purchased or internally

developed IT applications

• IT Investment and prioritization– Choosing which initiatives to fund and how much to

spend

Who should make these decisions?

Governance Archetypes

• Business monarchy: top managers• IT monarchy: IT specialists• Feudal: each unit makes independent decisions• Federal: combination of corporate center and

business units with or without IT people involved• IT duopoly: IT group and one other group (ex:

top management or business unit leaders)• Anarchy: isolated individual or small group

decision making

Decision IT principles IT architecture

IT infrastructure strategies

Application needs

IT investment

Archetype

Domain monarchy

IT monarchy

Federal

Duopoly

Feudal

Anarchy

Governance as a system

Weill & Ross, 2004

Starting Principles for Governance Arrangements

• Federal model for input into IT decisions• Duopoly arrangements for IT principles

and investment decisions– Avoid federal arrangements for decision-

making if possible• If used, must be mature enough to balance needs

of center and business units

– Business-oriented IT decisions (investments, principles, business application needs)

• Joint decision-making with business and IT representatives

Governance & Management

• Governance–Determines who makes decisions–Defines decision-making

procedures

• Management–Process of making and

implementing decisions

Four Key Management Principles

1. Make tough choices2. Develop metrics to formalize strategic

choices3. Determine where organizational structure

limits desirable behaviors and design governance mechanisms to overcome limitations

4. Allow governance to evolve as management learns role of IT and how to accept accountability for maximizing IT value

1. Decision-making structures– Organizational units and roles responsible for making IT

decisions – Committees, executive teams, and business/IT

relationship managers

2. Alignment processes– Formal processes for ensuring that daily behaviors are

consistent with IT policies and provide input back to decisions.

– IT investment proposal and evaluation processes, architecture exception processes, service-level agreements, chargeback, and metrics

Effective Governance Deploys Three Different Types of

Mechanisms

3. Communication approaches – Announcements, advocates, channels,

and education efforts that disseminate IT governance principles and policies and outcomes of IT decision-making processes

Effective Governance Deploys Three Different Types of

Mechanisms cont’d

Three Characteristics of Effective Governance Mechanisms

1. Simple– “Mechanisms should unambiguously define the

responsibility or objective for a specific person or group” (Weill and Ross 2004, p. 114)

2. Transparent– Those affected by, or those who want to

challenge governance process, should know how mechanisms work

3. Suitable– Individuals engaged in best way to make given

decisions

1. Choose mechanisms from all three types

2. Limit decision-making structures3. Provide for overlapping membership

in decision-making structures4. Implement mechanisms at multiple

levels in the enterprise5. Clarify accountability

Five Principles for Designing Effective Mechanisms

Importance of Good Governance

• Good IT governance pays off– Good governance = superior profits

• IT is expensive– Focus IT spending on strategic priorities

• IT is pervasive– “Well-defined IT governance

arrangements distribute IT decision-making to those responsible for outcomes,” (Weill and Ross 2004, p. 15)

Importance of Good Governance cont’d

• New technologies create opportunities and threats– Foresight to establish right infrastructure at

right time creates new business opportunities

• IT governance critical to organizational learning about IT value– Effective governance creates mechanisms

to debate potential value and formalize learning

Importance of Good Governance cont’d

• IT value depends on more than good technology– Right people involved in IT decision making

process

• Senior management has limited bandwidth– Decisions throughout enterprise must be

consistent with management direction

Top Governance Performers

• Link governance structures to performance measure on which they excel– Ex: growth or return on assets

• Harmonize business objectives, governance approach, governance mechanisms, performance goals and metrics

• Balance multiple performance goals• Governance models blend centralized and

decentralized decision-making • Tension around IT decisions, such as

standardization and innovation, are made transparent

Characteristics of Top Governance Performers

1. More managers in leadership positions can describe IT governance

2. Senior management engaged in governance and communicates to rest of organization

3. More direct involvement of senior leaders in IT governance

4. Clear business objectives for IT investment5. Differentiated business strategies6. Fewer renegade and more formally approved

exceptions7. Fewer changes in governance from year to year

Top 10 Leadership Principles of Effective IT Governance

1. Actively design governance2. Know when to redesign3. Involve senior managers4. Make choices5. Clarify the exception-handling process6. Provide the right incentives7. Assign ownership and accountability for IT governance8. Design governance at multiple organizational levels9. Provide transparency and education 10. Implement common mechanisms across the six key

assets

Additional Information

• Chapter 2: Five Key IT Decisions: Making IT a strategic asset

• Chapter 3: IT Governance Archetypes for Allocating Decision Rights

• Chapter 7: Government and Not-For-Profit organizations

• Chapter 8: Leadership Principles for IT Governance

• References

FIVE KEY IT DECISIONS: MAKING IT A STRATEGIC ASSET

Chapter 2

IT Principles

• What is the enterprise’s operating model?

• What is the role of IT in the business?

• What are ID-desirable behaviors?• How will IT be funded?

IT Architecture• What are the core business processes of the

enterprise? How are they related?• What information drives these core processes?

How must the data be integrated?• What technical capabilities should be standardized

enterprise-wide to support IT efficiencies and facilitate process standardization and integration?

• What activities must be standardized enterprise-wide to support data integration?

• What technology choices will guide the enterprise’s approach to IT initiatives?

IT Infrastructure• What infrastructure services are most critical to

achieving the enterprise’s strategic objectives?• For each capability cluster, what infrastructure

services should be implemented enterprise-wide and what are the service-level requirements of those services?

• How should infrastructure services be priced?• What is the plan for keeping underlying

technologies up to date?• What infrastructure services should be

outsourced?

Business Application Needs

• What are the market and business process opportunities for new business applications?

• How are experiments designed to assess whether they are successful?

• How can business needs be addressed within architectural standards? When does a business need justify an exception to a standard?

• Who will own the outcomes of each project and institute organizational changes to ensure the value?

It Investment and Prioritization

• What process changes or enhancements are strategically most important to the enterprise?

• What are the distributions in the current and proposed IT portfolios? Are these portfolios consistent with the enterprise’s strategic objectives?

• What is the relative important of enterprise-wide versus business unit investments? Do actual investment practices reflect their relative importance?

IT GOVERNANCE ARCHETYPES FOR ALLOCATING DECISION

RIGHTS

Chapter 3

Monarchy: Business & IT

• Business Monarchy– Business executives or individual executives

• Committees of senior business executives• Excludes IT executives acting independently

– Business decisions affect enterprise as a whole

– Input from many sources

• IT Monarchy• Individuals or groups of IT executives make

decisions about IT architecture

Feudal

• Business unit, key process owners or their delegates, region, or function

• Does not facilitate business-wide decision-making

Federal

• Equivalent to central and state governments working together– C-level executives and business units or processes

• IT executives as additional participants

• Most difficult decision-making model– Business leaders have different interests than

business unit leaders– Biggest, most powerful business units get most

attention and have greatest influence– Management teams and executive committees

resolve inherent conflicts

IT Duopoly

• Bilateral agreement between IT executives and one other group

• Advantages– Two decision-making parties can achieve federal

model objectives with simpler management structure– Central IT can view enterprise as a whole and look for

opportunities– Manage adherence to IT architecture

• Disadvantage– Expensive and ineffective for organization-wide

issues

Anarchy

• Each individual user makes local decisions based on own needs

• Expensive to support and secure• Very few enterprises have formally

sanctioned anarchy governance models

Starting Principles for Governance Arrangements

• Federal model for input into IT decisions• Duopoly arrangements for IT principles

and investment decisions– Avoid federal arrangements for decision-

making if possible• If used, must be mature enough to balance needs

of center and business units

– Business-oriented IT decisions (investments, principles, business application needs)

• Joint decision-making with business and IT representatives

GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS

Chapter 7

Not-for-Profits

• IT governance in not-for-profits similar to for-profits

• Different approaches come from broader definition of public value and ability to develop external capabilities and co-production

• Cultural norms focus on consensus, transparency, equity – Affect governance design

Governance Challenges in Not-for-Profits

• Measuring performance and value• Culture of formal committees• Limited budgets• Endless opportunities to create value• Performance measures not as clear

as in for-profit firm

Value Framework in Not-For-Profits(Moore 1995)

• Authorizing environment– Potential clients or customers, funding sources,

political influences– Not for profit authorized to fulfill charter by

clients, funding, political influences

• Capabilities– Resources in the form of money and authority

to create capabilities– Legislation, regulation, influence can require

other organizations to add capabilities that help not-for-profit meet goals

Value Framework in Not-For-Profits cont’d

• Public Value– Generated in addition to private value

• Represented by goods and services

– Public goods & equity– Extends beyond the organization, like

concentric circles– Public value created by not-for-profit goes back

to authorizing environment in the form of transfers and provision of services

• Authorizing environment grants permission back to the creators of public value in the form of market signals (increased demand) and political acceptance

Value Framework in Not-For-Profits cont’d

• All three components (authorizing framework, capabilities & public value) must be aligned

• Goal for managers to create public value to maximum extent possible given authorizing environment expectations and available internal and external capabilities

Successful Governance in Not-for-Profits

• Partnerships and joint decisions between IT and business leaders

• Heavy use of formal mechanisms, like committees

• Broader definition of value recognized by inclusion of representatives from outside the organization in IT governance mechanisms

• Mechanisms change with less frequency because communication and implementation of new procedures takes longer

Governance Mechanisms: Not-for-Profit Top Performers

• Executive committees focused on all key assets including IT

• IT council comprising business and IT executives

• IT leadership committee comprising IT executives

• Architecture committee• Tracking of IT projects and resources

consumed• Business/IT relationship managers

LEADERSHIP PRINCIPLES FOR IT GOVERNANCE

Chapter 8

Symptoms of Ineffective Governance

• Senior management senses low value from IT investments

• IT often seen as barrier to implementing new strategies

• Mechanisms to make IT decisions are slow or contradictory

• Senior management cannot explain IT governance• IT projects often run late or are over budget• Senior management sees outsourcing as a quick

fix to IT problems• Governance changes frequently

IT Governance Mechanisms Audit

• How many mechanisms are in use?• Do they overlap across more than

one key IT decision?• Are they used to govern other key

assets (like human relationships)?• Are they effective independently and

together?

References• See Beyer, J., and Sproull, L., Ed. Nystrom, P.C., and Starbuck,

W.H., 1981, Handbook of Organization Design, Volume 2, New

York, Oxford University Press• Moore, M., 1995, Creating Public Value: Strategic Management in

Government, Harvard University Press, Harvard, MA• Nestor, S., 2000, International Efforts to Improve Corporate

Governance: Why and How, Organization for Economic Cooperation and Development

• Organization for Economic Cooperation and Development, Directorate for Financial, Fiscal and Enterprise Affairs, OECD Principles of Corporate

• Weill, P., and Ross., J.W., 2004, IT Governance: How Top Performers Manage IT Decisions Rights for Superior Results, Harvard Business School Press, Boston, MA

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