IT Governance: delivering value from e-Business

1. IT Governance: delivering value from e-Business Chapter 12 ICT326

2. Business value and IT • Successful organisations must face global competition & deliver value to customers through • Effective, efficient business processes & activities by which products & services are created and delivered to customers • Effective relationships with suppliers, business partners, etc. • Often now dependent on IT to enable these processes, activities & relationships ICT326

3. Business value of IT • How effectively IT is woven into fabric of organisation and exploited to create value for business • Associated with • Efficiency gains from IT • Eg. Increased throughputs and/or decreased costs • Effective gains from IT • Eg. Improved customer service • Organisational improvements created through timely & appropriate application & exploitation of information & IT ICT326

4. Business value of IT • Role of IT changing • Many investments now geared more towards revenue generation rather than cost reduction • Improved quality, quality controls • Responsiveness to changing customer preferences, needs • Building relationships • Notion of value changes according to type of IT investment • Efficiency gains – more measurable through headcount reductions, increased throughputs, etc • Effectiveness gains – more intangible, less direct, more diffused across range of organisational activities ICT326

5. Required IT capabilities • Value derived from IT depends on building required IT capabilities • Need IT capabilities to deliver timely, accurate reliable, quality information across enterprise and trading partners • Need IT capabilities to provide appropriate support for knowledge workers • Need IT capabilities to support core business processes • Need to exploit opportunities for IT innovation ICT326

6. Return on IT investments • Concerns expressed about whether organisations achieve acceptable returns from IT investments • Failures, disappointment with IS • Failure to achieve expected business benefits • IT infrastructure unable to accommodate business change • Obsolescence, integration problems • Require sound IT governance principles, mechanisms and practices to ensure value is derived from IT investments ICT326

7. IT and business value • Provide fast, accurate, secure, reliable, quality IS & information throughout enterprise • Enhance ability to share knowledge & expertise across enterprise • Improve efficiency • Reduce costs, time, throughputs, productivity… • Enhance effectiveness • Value-add from different perspectives • Customers, suppliers, partners, alliances… • Take advantage of new opportunities ICT326

8. Understanding IT governance • Principles, processes, structures, procedures & leadership that organisations implements to ensure IT investments directly support the achievement of business goals and objectives • business value is derived from IT & IT risks are managed • Ensure IT is managed from organisation-wide perspective • Build effective cross-functional relationships between IRT and rest of business ICT326

9. Objectives of IT governance • Understand strategic importance of IT • Understand role of IT in strategic & operational domains • Implement strategies for IT • Future business growth, development, innovation • Set realistic expectations for IT • Delivering expected benefits and value • Ensure expectations are met • Performance measurement • Innovation, growth • Manage risks associated with IT ICT326

10. Aims of IT governance • Sound IT governance processes • Support an environment for the exercise & exploitation of IT resources & capabilities • provide framework for exploitation and explication of relationships between IT and rest of business • Underpin series of organisational routines and procedures through which the business value of IT is realised and IT risk contained ICT326

11. Effective IT governance • Supports decision making about IT and e-Business • About high level IT maxims (principles) • How IT is used • About IS/IT strategy • About IT infrastructure • Shared & standard services across enterprise…local requirements • About IT architecture • Technical choices • Business applications + information architecture • Buy vs build • Investment & prioritisaton (from Weill & Woodham 2002) ICT326

12. Who makes decisions? • Business – ‘C’ level execs • IT – CIO • SBU leaders – localised authority • Business + IT – ‘C’ levels • Business + IT (‘C’ levels), plus SBU leaders, or process owners • Federal approach • Anarchy (From Broadbent & Weill 2002) ICT326

13. Who makes decisions? • IT infrastructure & architecture – IT makes decision, with federal inputs • All other decisions – Federal approach (From Broadbent & Weill 2002) ICT326

14. Effective IT governance mechanisms • Executive committees (C level) • Formal tracking of business value from IT • Effective processes for planning, monitoring & controlling IT • Good (deliberate) relationships between business & IT • Relationship managers? • Good mgmt of IT projects • Business Projects Office • Formal exception handling process • Capital approval committees • SBUs/Process teams with IT membership (From Broadbent & Weill 2002) ICT326

15. Characteristics of good governance • More focused strategies • Clearer business objectives for IT investments • More involvement of senior non-IT executives in IT governance • Effective IT processes – IT strategy formulation, IT evaluation, IT benefits realisation, etc. – are formally established & well understood • Fewer ‘renegade’ IT behaviours, activities (From Broadbent & Weill 2002) ICT326

16. Provide directions Compare Monitor performance Overview of IT Governance • Set objectives • IT aligned with business • IT used to exploit opportunities, • IT used to maximise benefits • IT resources used responsibly • IT risks managed • IT activities • increase efficiency • decrease costs • increase effectiveness • manage risks ICT326 (ITGI: Broad Briefing on IT Governance 2001:11)

17. Effective IT governance Effective IT Governance is evidenced through Maxims Structures Processes Capabilities with the aim of monitoring & controlling IT investments & associated activities to ensure the delivery of business value from IT ICT326

18. Steps towards IT governance • Support for business objectives • Build compelling business case • Originates in SBU (or SBU + IT) Output: Specific proposal for IT investment Phase 1: Building the business case ICT326

19. Steps towards IT governance • higher level scrutiny by entity or committee • large projects to Board • 3-6 monthly reviews of planning • proposal considered against changing initiatives, priorities • resultant investment aligned with business goals & objectives Output: Prioritised list of investments Phase 2: Alignment & prioritisation ICT326

20. Steps towards IT governance • Rigorous cost/benefit analysis • Development of risk profiles • Grapple with problem of intangible benefits • Cancellation still occurs at this stage Output: Go/no-go decision Phase 3: Evaluation ICT326

21. Steps towards IT governance • build vs buy vs outsource decision • on-going evaluation & scrutiny • rigorous project governance mechanisms Output: Robust system for implementation Phase 4: System acquisition ICT326

22. Steps towards IT governance • post-implementation reviews • project mgmt success • PIRs consume resources • business benefits vs new opportunities? • 80% of expected benefits good enough? Output: functioning system, not delivering all benefits expected Phase 5: Implementation ICT326

23. Responsibilities of CIO • Understand the business • internal + external environment • Establish IS dept credibility • successful & reliable • Increase technological maturity • Create corporate vision for IT • Implement IS architecture • based on view of how organisation will operate in future • Build relationships with rest of business ICT326

24. Importance of evaluating IT investments • Find out if IT is meeting expectations • Senior executives unsure of whether IT is delivering value • Justify large-scale investments • Post implementation, to ensure IT is delivering expected benefits to organisation, & therefore to stakeholders • Contribution of IT to other business projects ICT326

25. Issues in evaluating IT • Existing measures such as cost benefit analysis may be inadequate • Many benefits may be intangible, and therefore difficult to precisely measure • Costs and benefits may extend beyond traditional organisational boundaries ICT326

26. Approaches to Evaluation • ROI • all ROI methods based on proposition that an investment now must yield a positive return over a period of time • works best when • application under review is expected to generate direct savings or directly attributable benefits • estimates of savings / benefits can be supported by reliable calculations or demonstration • low uncertainty regarding the outcomes • least effective when • benefits cannot be precisely estimated in cash flow terms • there is considerable uncertainty about the value of estimates ICT326

27. Approaches to Evaluation • Cost-Benefit Analysis • tries to overcome problem of valuing intangibles • attempts to find surrogate measure for intangible cost or benefit expressed in money terms • Of particular value • when many costs & benefits are intangible • where there is broad agreement on the measures used to attach a value to the intangibles • Fails • when there are different views on intrinsic value of intangibles & disagreement on the appropriate form of surrogate money value • where there is considerable uncertainty about the realisation of the intangible benefits ICT326

28. IT investment mapping Investment Orientation Infrastructure Business Process Market Influence Planned Business Strategy - Focus on Opportunity Business Expansion Risk Minimisation Benefit Current & Planned IT Investments - Focus on cost Enhance Productivity ICT326

29. Information economics Traditional Cost-Benefit Value-linking Value-acceleration Value-restructuring Innovation VALUE + + Enhanced ROI Business Domain Assessment Technology Domain Assessment = Strategic Match Strategic IS Architecture Competitive Advantage Definitional Uncertainty Management Information Technical Uncertainty Competitive Response ICT326 IS Infrastructure Risk Organisational Risk

30. IE for EC • + customer value (Avram 2001) ICT326

31. Create value for shareholders Generate satisfactory ROI & succeed financially Establish efficient, effective internal processes (& external?) Create value for customers ICT326 Change over time  need for on-going learning & development

32. Balanced scorecard Return on assets ROA Accounts receivable Operating expenses Financial Customer satisfaction Customers On-time delivery Leading Lagging Shorter cycle time Lower rework Internal Business Processes Process quality Learning & Growth Employee suggestions Employee skill Employee morale ICT326

33. Balanced scorecard • Rejects profit & ROI as only mission • investing in competence/capabilities, cultivating relationships with customers, creating databases, etc. important for future success • Method for reaching agreement on where organisation should be heading & making sure it stays on course • Links short-term operational controls to long-term vision & strategy • Believes no single measure is adequate ICT326

34. Balanced scorecard • Often applied as measure of IT department efficiency & effectiveness • Caution needed to avoid confusion between evaluating a specific IT investment proposal and evaluating performance of IT dept ICT326

35. Deriving benefits • pre-investment, benefits from IS/IT investment are potential (expected) benefits only • subsequent events & managerial actions will impact on whether or not they are actually realised as benefits to organisation •  need for post-implementation evaluation ICT326

36. Realising benefits • most benefits derived post-project implementation • need to evaluate pre-project to articulate / quantify potential benefits • need to evaluate effects of changes post-project to determine if benefits have been realised “If no measurable effects can be identified post-project, other than the implementation of the technology itself, then one must conclude that no benefits have actually been realised.” (Ward et al. 1996) ICT326

37. Evaluation required Potential benefits of EC investments Realised benefits of IS/IT investments Development and/or acquisition Pre-investment Post-implementation Time On-going evaluation of IT investments Proactive benefits management required ICT326

38. Benefits management process model Identifying & structuring benefits Planning benefits realisation Potential for further benefits Executing the benefits realisation plan Evaluating & reviewing results ICT326

39. Identifying & structuring benefits • proposed benefits identified • suitable business measures identified • both financial & non-financial • structure benefits to understand linkage between • technology effects • business change • business objectives ICT326

40. Planning benefits realisation • allocate specific responsibilities for realising benefits • reject benefit if responsibility cannot be allocated • required business changes assessed and planned for • identify times when benefits will appear ICT326

41. Planning benefits realisation • Consider full cost of • IT development + on-going operations, etc. • business changes • is project viable? ICT326

42. Executing the benefits realisation plan • implement IS/IT project • carry out necessary business changes • change implementation plan ICT326

43. Evaluating and reviewing results • Measures identified in Stage 1 used to evaluate effects of project • review is of realisation of benefits, not of project progress • not a system quality review • not a witch hunt • not an audit ICT326

44. Evaluating and reviewing results • Identify intended benefits that have/have not been achieved • Identify benefits achieved that were not anticipated • Identify non-benefits • decide on action at deal with problems • Identify future potential benefits ICT326

45. Evaluating and reviewing results • Learn from success and failure • Vital in multi-stage projects where subsequent benefits depend on capabilities developed early on ICT326

46. Potential for further benefits • Post-project review • further benefits now realisable (not envisaged earlier) • Need now to plan to realise these further benefits ICT326

47. Broadening considerations of value of IT * Where are we headed? * What are our objectives? * How can IS/IT support / enable achievement of objectives? * Are we proposing coherent, strategic investments? Planning/Alignment Evaluation * Are we aware of the value of our Benefits IT investments at certain critical points in the life cycle? * Are we deriving the maximum benefit for the organisation? * Can we establish a realistic business case? * Are we addressing change management issues? * Are we getting things well done? - processes - training - trading partners - job redesign ICT326

48. IT Evaluation & Benefits Management Life Cycle ICT326

49. Summary • Chapter has focused • on business value from IT • need to implement sound IT governance processes & practices • need to carefully evaluate IT investments • need to proactively manage realisation of benefits from IT • need to create ongoing cycle of planning, evaluation, benefits management ICT326