Methods that Link IT Governance to Business Goals - Research Paper Example

Methods that link IT Governance to Business Goals

Introduction

Information Technology is a vital business facilitator in today’s world. IT is instrumental in supporting and sustaining business activities and growth. The persistent use of technology has created an important dependency on IT that has necessitated a concentration on IT governance. Governing IT involves applying leadership and organizational structures and processes to manage information and technology resources to align with the companies’ vision and aims. Many global businesses have adopted IT governance in their operations as a risk-reduction and efficiency strategy. Since IT governance is specific to organization’s individual needs, a standardized model of approach is still lacking even as every organization develop its own version. The implication is while companies are implementing high-level IT governance models, sustainability is still a challenge that needs to be addressed. The fundamental requirement for IT governance is that once the model is implemented, it enable that IT supports and spread the business objectives. How IT governance is implemented in organizations and alignment with business objectives remain an unexploited domain of research.

Many academic and research activities focus on some detailed exigencies such as the effect of centralized versus decentralized governance structures and how their alignment to business objectives affects the performance of the business. Limited studies present how organizations are implementing IT governance in a day-to-day operations and the effect of the implementation to business/IT alignment. Through this research, more insights will be offered concerning IT governance models in organizations and how they can effectively be used.

Conceptual frameworks

The conceptual framework guiding this research is formulated in question form. In general, a probe on how organizations are implementing IT governance to align with IT and the business objectives is the guiding question. However, to answer this question, two other questions are formulated. They include the following:

• How companies implement IT governance
• The relationship between IT governance and business alignment

For the former, the presence of IT governance in an organization does not infer that governance is really working. Deriving the IT governance is the first step and actualizing it is the second but challenging stage. According to …… IT governance can be deployed in some combinations of structures, processes and relational approaches. The structures are the resources for connecting and facilitating horizontal liaison or the points of contact between the IT and the business functions. An example is a project committee. The processes refers to the formalization of decisions and procedures for managing IT resources in a company. For instance, an IT balanced scorecard is an IT governance process. Lastly, the relational approaches refer to the interactions and collaborations between the different actors in the company including the executive team, IT managers and line managers. An example of a relational approach is training offered to different players within the company to enhance sustenance of business/IT alignment.

As for the latter question, the role of IT governance is to synchronize IT and business functions in an amicable manner. The ultimate consideration then becomes whether the implemented processes, structures, and relational mechanisms will facilitate the achievement of IT/business alignment. There are approaches already developed by Henderson, Venkatraman, and Oldach in the late 20th centuries that discusses strategic alignment models. Several other authors have commented on these strategic and operational alignment approaches.

With the complex nature of business/IT alignment, it is essential to recognize that analysis of any one single component (process, structure or relational approach) is insufficient to answer the holistic question of IT governance and business/IT alignment. Based on this argument, this report do not focus on any specific one but rather analyses the impact of a mixture of the various components.

The research is scoped down based on several aspects. First, the industry chosen for the analysis is financial services. Financial services industry is preferred because it has a long history of the use of information technologies, along with others such as manufacturing and retail. The industry is also mature on the domains of IT and business alignment. The second scoping consideration is the size of the organization and the geography. It is decided that American financial services organizations with employees ranging from 100 to 1000 be analyzed. The last scoping factor is the organizational level of IT governance initiatives. According to Van Grembergen (2003), IT governance is available at multiple levels in the organization. There is the strategic level involving the top level management and the board and the operational level with operational IT and business organization. From the two levels, it is clear that business and IT aspects of the IT governance must be addressed sufficiently with their individual roles and responsibilities delineated. Since IT governance is a broad area involving the transformation of IT to meet current and future business requirements, the scoping will solely rely on the strategic perspective. The operational perspective of IT governance is eliminated based on the definition provided by Peterson (2003) that argues that IT governance is the responsibility of board of directors and top-level executives.

Thus, the general question becomes:

How are American mid and large size financial services companies implementing IT governance to achieve better alignment between business and IT?

Methods

The domain of IT governance and alignment with IT/business is relatively new as no significant amount of research has been done. The theoretical models concerning the topic are scarce and hence the nature of the research will be exploratory rather than testing a hypothesis. Further, researchers on IS have not been successful as their counterparts in other research fields such as business in developing cumulative research tradition. Without cumulative results, it becomes difficult to design and assess theoretical models so that prescriptive actions can be suggested for practice.

The choice of exploratory methodology is informed by past research conducted by Mahmood and Mann (1993) on the link between investments in IT and financial performance. Like the research domain explored in this research, the manner was fairly new at the time and was ranked high on the agenda of many companies. Since theoretical models were scarce, the researcher opted for exploratory research methodology to develop a basis for future research.

Exploratory research will build on secondary data such as literature reviews of qualitative and quantitative approaches, case studies or pilot projects. The research will cover a wide range of strategies including case studies, pilot projects, Delphi method research, and benchmarking. The combination of the various approaches will allow the researcher to obtain a richer understanding of reality concerning the research questions. The varied methods are applied one after the other or in parallel.

The research is conducted by searching through detailed literatures in the area of business/IT alignment and IT governance. The resources used for the literature search include those with academic and professional content such as journals. The researcher collected, read, summarized, and organized the content to give a complete overview of the literature significant to the research. Since the focus was on classifying the structures, processes and relational approaches that companies leverage to institute IT governance, at this stage, the research was not scoped down to American financial services sector. Apart from the initial list of IT literatures, pilot cases was also used and they comprised of two in-depth cases and four mini cases. The cases are exploratory in nature and are based on interviews with IT and business professionals and managers.

In selecting the sample for pilot cases studies, the researcher utilized two criteria: 1) proximity to the researcher to enable ease of access to conduct in-depth interviews at the site and 2) diversity to facilitate gathering of as rich data relating to structures, processes, and relational approaches in practice (Peterson, 2003). Thus American organizations were selected that engaged in different facets of financial services.

Delphi research

Delphi research methodology is a critical approach for structuring group communication process such that it is efficient for actors to manage a complex scenario. Delphi approach is appropriate for this research because of its exploratory approach. An expert panel of 30 participants including senior IT and business experts are gathered from American financial service providers selected. 75% of the participants was included in the full Delphi research. They were required to fill out questionnaires in three rounds. The content in the questionnaires emerged from the literature research and the in-depth exploratory case research. From the predefined list of practices, participants were asked to modify the list as they deem appropriate. The focus of the modification is to validate the list developed by the researcher. In the second phase, participants were asked to rate the significance of the IT governance practices using the Likert scale where represented absence of effectiveness while 5 represented “very effective”. The participants were also requested, based on their own personal experience, to list the top 10 IT governance practices that are decisive or form a minimum baseline for any sound IT governance procedure in any organization. The final phase is where the respondents were asked to scrutinize their scores and compare with the team average to derive reliance with the group consensus. The degree of consensus among the experts is obtained from Kendall’s W coefficient.

Benchmarking

Benchmarking is a process that seeks to establish relevance between the IT governance implementation and business/IT alignment (Orozco, Tarhini, & Tarhini, 2015). The researcher commenced by developing a benchmark for the financial services sector in the US by sampling 10 firms. Five respondents from each firm are asked to complete a questionnaire probing the maturity of IT/business alignment. This approach is based on the works of Cumps (2006) and Sledgianowski, Luftman, and Reilly (2006) that validated and assessment tool based on a model with multiple standards and levels to portray varied degrees of alignment (not mature – very mature). Seventy IT and business experts participated in the benchmarking process and the results indicated five extreme cases of performers of business/IT alignment (3 very mature and two not mature).

Results and Discussion

In this section, a detailed cross-case analysis is provided that suggests the reasons promoting or inhibiting business/IT alignment in organizations. Using the data collected, comparisons are made between high and low performers to determine the IT governance practices that facilitate business/IT alignment maturity.

It is established different drivers impact on IT governance in organizations. The most critical determinant is the need to adhere to Sarbanes-Oxley provision as it relates to control in information technology resources. Other significant pushers for IT governance include economies of scale after acquisitions and merges and budget limits. As budget allocation to new projects gets smaller, the challenge is to conduct optimal allocation to projects that deliver value to the business.

A list of IT governance practices composed from literature reviews and validated by respondent interviews are presented in the table below.

Structure

Process

Relational approach

IT strategy team

IT steering team

CIO and Executive board engagement

CEO and CIO engagement

Architecture team

COBIT

Balanced scorecard

Portfolio management

Strategic planning

SLA

Charge back agreement

Job rotation

Co-location

IT leadership

Role model by senior management

Knowledge management

Cross training

Informal engagement between senior IT and business managers

The 30 participants engaged in the Delphi research revealed that the American financial services sector can benefit from a variety of structures, process and relational approaches in the implementation of IT governance to support business/IT alignment. The IT governance practices at the strategic executive level of IT and business are inexhaustible. Some of the commonly identified practices are tabulated in the table below.

Type

Strategy

Effectiveness (0-5)

Ease/Difficulty of Implementation (0-5)

Structure

IT Strategy team at executive level

3.66

3.39

IT expertise at board of directors

3.10

2.2

IT audit at board level

3.20

3.39

CIO executive committee engagement

4.27

3.45

CIO, CEO, COO engagement

4.55

4.31

IT steering committee

4.71

3.36

IT governance officer

2.89

3.08

Architecture officer

3.04

3.10

Governance integration and alignment

3.20

2.61

Process

Strategic system planning

3.80

2.80

IT performance measurement

3.98

2.75

SLA

3.55

3.03

COBIT

3.35

2.41

IT budget control

4.02

4.20

Relational Approach

IT leadership

3.60

2.62

IT governance awareness campaign

2.80

3.12

Corporate internal communication to IT regularly

3.42

3.41

Job rotation

2.33

2.37

Cross training

2.77

2.81

Knowledge management on IT governance

3.22

2.68

From the table, it is clear that some practices score high in implementation than others. The practices that are found to be most effective for American financial services include CIO-CEO/COO engagement, CIO executive committee engagement, IT budget and control, IT steering team, and portfolio management. These practices are also perceived as easy to implement. Those that are least effective to implement include job rotation and cross training. Some practices are termed as relatively effective but difficult to implement. For instance, charge back arrangements and COBIT are high effective practices that are difficult to implement. COBIT is a framework that is solid to work with and has a higher relative level of abstraction than other practices considered in the research. The benefit with COBIT is that the exhaustive practices discussed form its integral parts (Haes, & Grembergen, 2015). For instance, portfolio management and IT steering team are the instrumental components of the framework that emerge in the synthesis.

An interesting finding in the research is that IT governance structures and processes are generally perceived as equally effective. Still, IT governance structures are easier to implement than IT governance processes. To illustrate, IT steering team is an essential component to building up portfolio management but the steering team is perceived as easier to implement than portfolio management. Finally, relational approaches are thought of as easier to implement that processes because they exhibit informal character, an example being business and IT – executive team engagement.

From the Delphi research, a baseline for IT governance implementation is organizations emerges. Such practices as IT steering team, IT portfolio management, CIO-executive team engagement, and IT budget control are the minimum baseline. Others include strategic information systems planning, IT leadership, CIO-CEO/COO engagement, and IT project steering team.

IT governance and Business/IT alignment

The average score for American financial service sector in terms of business/IT alignment is approximated to be 2.70 on a scale of 0-5. As earlier indicated, the benchmark produced three high performer and two low performers in business/IT alignment. The remaining organizations scored slightly above or below the overall average. Given the dependence of financial service sector on IT, it remain baffling what the required benchmark or to-be scenario. One can argue that a level of 3 out of 5 would be appropriate for the financial services sector. One insight derived from the results is that the top performers of business/IT alignment possessed pronounced IT governance structures and processes. Similarly, organizations with low level of business/alignment did have sufficient practices in place but with low maturity level of less than level 2.

Conclusion

The research revealed that IT governance is a major consideration among many organizations. Organizations that implement a mix of structures, processes and relational approaches have a higher degree of business/IT alignment maturity than the rest. The conclusion thus becomes, the level of business/IT alignment maturity is high when companies are using a combination of IT governance approaches and low when using a poor combination of IT governance practices. From the research, it was demonstrated that it is simpler to implement IT governance structures than IT governance processes. It also emerged that relational approaches are instrumental in the beginning of IT governance framework. The research has also provided a minimum baseline for IT governance practices that organizations in the financial sector should implement. Practitioners should start with setting up the seven approaches that are highly effective and easy to implement.