Ch 5: IT Governance

1. Ch 5: IT Governance The Secret Sauce of Frugal and Strategic IT AJ Raven

2. 2 Architecture 1 Strategy Governance Payoffs 3 4

3. Agenda Demand: Cheap yet strategic IT? IT Governance ~ who decides what Lever for making IT frugal and strategic Linking governance to architecture

4. Jargon Decoder • IT governance: Who—IT or non-IT managers—makes what IT decisions • Accountability accompanies such authority • Independently for IT infrastructure, apps, and data • IT governance structure • Decentralized if non-IT managers make an IT decision • Centralized if IT unit does • Governance tradeoffs • Centralization more economical, better integrated • Decentralization fosters business agility and innovation • IT Governance • Infrastructure governance • Apps governance • Data governance Who decides what about our each of them

5. Expecting Miracles from IT? • Cheap yet strategically impactful • Loathe spending more yet want it to be a strategic catalyst • Hopelessly contradictory? • Not quite; some firms do just that • Secret sauce = effective IT governance • #1 determinant of business value • Help tailor IT to business priorities without forsaking economy • Mechanism for non-IT managers to influence corporate IT decisions • Key idea: IT and line responsible for different types of IT decisions

6. Tradeoffs But need both Economical Firm-wide integration Centralized • Tailored to business • Business agility • Biz users set IT direction Decentralized Piecemeal IT decisions  One-size-fits-all

7. Governance~Allocation of IT Decision Rights • Who makes what IT decisions •  whether IT assets are decentralized (that’s IT architecture) • Direction-setting + oversight to ensure desirable business outcomes • Authority + accountability go hand in hand • Must purposefully choose • Not deliberately choosing defacto centralization to IT • IT governance can change over time IT users IT producers Your Choice Decentralized Centralized (Line functions decide) (IT unit decides) Federated (Both decide together) Worst of both worlds Extremes are rare Costly & unresponsive in practice

8. Focus on What, not How Non-IT managers’ sole focus Decisions about Needs non-IT IT infrastructure Data IT apps Strategic What ? ? ? Direction-setting ? ? ? How Operational

9. Input Rights – Takes Two to Tango • Any IT decision requires fusing business with IT expertise • IT decisions always needs input from the other side • No “how” IT decision right can ever be solo More IT input Line function decides Less IT input With IT’s input Decentralized Centralized Decentralization band Centralization band (Line functions decide) (IT unit decides) A B

10. Three Classes of IT decisions Infrastructure Apps Data Who decides “what” Centralized or decentralized? Independent for each class

11. IT Infrastructure Governance Who decides what your IT infrastructure must accomplish IT infrastructure… • Serves the entire firm ~ substrate that weaves together apps • Is not unique to individual line functions • A costly necessity, never a differentiator • Provides scaffolding to link all business apps • Demands frugal adequacy • Economy and reliability matter more • Decentralization… • aggravates IT complexity • makes apps harder to tweak • unjustifiably spirals costs • But centralization demands business inputs too Decentralized Decentralization band Centralized Centralization band

12. How Centralized Should Infrastructure Be? Needs non-IT managers to answer: How good is good enough? • Truly necessary reliability and responsiveness? • Risk of indecisiveness: Paying for overkill • Higher reliability costs more • 9999.9 doubles costs • Netflix 99.99% reliability • Commercial sites: 99.9% • Internal corporate IT systems: 99% • Imperfect technology greases innovation • Land lines 99.99% >> iPhones 99%, but they do a lot more • Over-investment creates sunk cost barriers to adopt new infrastructural innovations

13. IT Apps Governance Who decides what your IT apps must accomplish Apps • Must be uniquely tailored to various line functions • Include customer facing, production (e.g., supply chain), and business support apps (e.g., accounting) • Responsiveness to business needs matters more than economy • Clumsy apps decisions blunt execution of strategy • Draw on line functions’ business knowledge of business processes • Centralization of apps decisions… • disconnects apps from business needs • slows IT decisions • makes business benefits less likely loses focus on business value • But decentralization demands IT unit knowledge of total IT portfolio Decentralized Decentralization band Centralized Centralization band

14. How Decentralized should Apps Governance Be? Depends on non-IT manager’s answers to 2x questions: • Which IT capabilities should be firmwide? • Firmwide  stretches apps across multiple line functions • Forces centralization of IT app architecture • What’s more important? Integration or functional autonomy? • Choice must match your firm’s strategic aspiration • Which business processes should get IT dollars? • Top performers rarely the biggest IT spenders • Extract more business value by spending IT $$$ on the right things • Business goals define right • Must begin with crystal-clear business goals for IT apps

15. Data Governance Who decides what about how your data assets must accomplish • Line functions’ activities both generate and use firm’s data • better suited to make direction-setting decisions than IT unit • Data governance  data architecture • Trickier than infrastructure and apps governance because you can’t directly govern data • Rather biz unit preferences about data influence how the IT unit executes apps and infrastructure decisions Decentralized Decentralization band Centralized Centralization band

16. How Centralized should Data Governance Be? Depends on non-IT manager’s answers to 3x questions: • What data is needed faster? • Instantaneously rather than archival? • What big data streams are not worth capturing at all • Firmwide versus local data? • e.g., within a line function or geography • What fragmented data needs integration for firmwide decisions? • Stewardship? • Which line function will be the steward of what data? • Who has what access privileges? • Entails responsibility for preempting errors (quality)

17. Piecing together Overall IT Governance • Neither centralization nor decentralization dominates • Must individually choose for each class of IT assets • Governing them differently economizes infrastructure and tailors apps • Syncing requires giving and taking away authority from IT Decentralized (strategic) Centralized (IT unit) IT infrastructure IT apps Data

18. Powerful Lever to Achieve Both All others = unnecessarily costlier or unsynced Economical and synced Costly but synced Line Functions 4 1 Apps decision rights 2 3 Costly and unsynced Economical but unsynced IT Unit IT Unit Line Functions Infrastructure decision rights  and  most commonly used

19. Must Match Architecture of What’s Governed Crux: Decentralized architecture, decentralized governance • gives apps autonomy to evolve with changing needs • must simultaneously decentralize apps governance to leverage it Stifles apps’ evolvability Dictatorial overcontrol Apps Decentralized 4 1 IT architecture 2 3 Chaotic undercontrol Infrastructure Centralized Centralized Decentralized IT governance • Too many cooks • Chaotic, conflicting infrastructure decisions Match magnifies impact Mismatch squanders architecture

20. Summary • IT governance = who decides what about IT • implemented by explicitly allocating IT decision rights • Decision right = authority + accountability • Spans IT infrastructure, apps, and data • IT governance ~ secret sauce of business impact • Delivers frugality + strategic oomph • Centralizing infrastructure governance lowers costs • Decentralizing apps governance increases agility • Federated governance good only in theory; avoid • Non-IT contribution focus: “What” direction-setting decisions

21. Downtime Caps for Reliability Choices