IT Governance – What is It and Why is It Important?

Over the past few years one of the most common topics with customers seeking to improve their overall performance of the IT groups was “governance”. It often showed up in the following statements:

• “The key to our success is governance”
• “What we are really missing is good, solid governance”
• “We would be doing better if we only had good governance”

After a while, this got me to thinking. What does ‘governance’ mean? Apparently, it is important to have it. However, when I started talking with people I started to get widely different answers as to what ‘governance’ was, what it consisted of, and why it was so important. What follows below is the outcome of these discussions and ideas. In this post, I will help the reader to better understand the components of governance and why it is important to a high-performing IT organization.

I found the best place to start with this topic is with the definition. If one goes to the dictionary governance would be defined as ‘establishing chains of responsibility, authority, and communication to empower people’. A closer look at the key words reveals these additional details. Governance includes responsibility (being held accountable for a specific duty, task, or decision); authority (the power to influence behavior); communication (exchanging information); and empowering (giving official authority to act). To more easily remember these items; just use the mnemonic ‘RACE’ (Responsibility, Accountability, Communication, Empowerment). Governance also involves establishing measurement and control mechanisms to enable people to carry out their roles and responsibilities. Using this definition as a guideline, the goal of governance is to ensure the results of an organization’s business processes meet the strategic requirements of the organization.

How is IT Governance any different? Based on the above concepts, IT governance can be described as having two distinct components. There is a structural component that pertains to the organization’s information technology activities, the way those activities support the goals of the business, and the people who help manage those activities. There is also a process component that defines the decision-making rights associated with IT as well as the mechanisms and policies used to measure and control the way IT decisions are made and carried out within the organization.

Does the business drive IT through governance? Most people would answer this question with a resounding ‘YES’. There might even be a cynical ‘Duh!’ added at the end of the answer. However, in many cases, this is not necessarily the case. In order for effective governance to be in place, the goals of the IT organization and the goals of the business must be clearly tied together. Too often, a very casual relationship exists between the two or none exists at all. When this occurs, IT initiatives crop up that have no bearing on the strategic business goals. When this happens, both the business and IT resource begin to wonder why a specific project is even being deployed. The question – what is this expected to accomplish? – is often asked. Worse yet, no one can really provide a clear answer.

I attended a conference a few years back that depicted the alignment between business and technology.  The illustration they used is shown below.  This is one of the best pictures I have seen that demonstrates how business goals and IT projects become aligned with one another.  At the top the goals of the business are clearly stated.  These goals should be easily understood by all people from the top to the bottom of the organization.  Once the business goals have been established, the business strategies are developed.  When successfully executed, these business strategies will accomplish the business goals.  Business Process Capabilities – the next layer – are areas in which the business must improve in order to accomplish the business strategies (which, in turn, will achieve the business goals).  Finally, the bottom layer depicts the various business process improvement projects and IT projects that are being deployed.  As an organization considers IT projects, it is critical to align them with the business strategies and business goals.  Doing this creates a very clear picture as to what is expected to be accomplished and how these expectations fit within what the business wants to accomplish.  At its core, this is what IT governance accomplishes.

 

Some key points about this diagram. The first thing is the number of business goals is probably about right. Any organization, no matter its size or reach, cannot do everything. There are a few things it will seek to do to truly be successful. The next item is that the business capabilities must be well-understood and well-defined. It is important to know what capabilities will drive the business toward its goals. It is at this level where business value drivers come into play. If those items that drive value are identified, defined, and measured, then it becomes must easier to understand how improved performance is going to achieve the business goals. I have read some publications that discuss how companies have defined these capabilities for the entire enterprise and have used these value drivers as the foundation for the business case of any (and all) projects, whether or not they are IT-related.

Finally, while this picture is meant to be illustrative of how all of these items should be linked, consider actually drawing this for the next round of your projects. The result will create a clear linkage of the projects to the specific business goals.

In the end, this is exactly what IT governance seeks to achieve. IT governance creates clarity between business goals and IT projects. This is why it is so important. Think of the statements made at the beginning of this post (“The key to our success is governance.” “What we are really missing is good, solid governance”, etc.). It all starts to make sense why these statements ring true. IT governance is a key element of a well-performing IT organization. So … after all of this explanation, what is IT governance? IT governance is:

• Clearly understanding the business strategy and aligning the technology strategy with
the business strategy

• Providing clarity between the business strategy and the IT initiatives – drawing the
links between business objectives and project objectives

• Providing clarity through the preparation of a business case for each initiative – it is not
enough just to create the links but also to help build the case as to how the project will
improve the business capabilities

• Attaining agreement on priorities – as a group looking at the entire enterprise, it is
making a determination as to what initiatives move forward

• Attaining agreement on which priorities should finish first

• Understanding the resources necessary to accomplish the initiatives – good
governance establishes priorities on resources – both human and financial.
Approving capital funds is not enough, approving the people is usually more difficult

Does your organization (or customer) need to improve your IT governance? We can help.

Doug Shuptar is a Principal in SAP’s Industry Business Consulting Group. He can be reached at douglas.shuptar@sap.com with questions and comments.

Brought to you by SAP Services.

 

  • Michiel

    The model is missing! It leaves me very curious now!

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