Find the 'Sweet Spot' for IT Governance,
Strategy and Value

The IT organization's contribution to business performance can only be maximized when governance, strategy and business value are aligned, followed by good execution.

Key Issues How can the IS organization leverage its IT governance to align investments and services to further the enterprise's goals?

WHAT YOU NEED TO KNOW

The IT organization's contribution to business performance will be maximized and recognized only when all stakeholders participate actively in IT governance, strategy and delivering business value through IT.

ANALYSIS

CIOs regularly list alignment with the business, governance, business value and strategic planning among their most challenging issues. CIOs are searching for the "sweet spot" that will maximize the IT organization's contribution to business performance. They are never in complete control of their destiny, because they can only achieve success in harmony with business managers. That requires collaborative work on IT strategy, IT governance and understanding business values (see Figure 1). It also requires a systematic approach to delivering business value.

Figure 1. Maximizing the IT Organization's Contribution

Source: Gartner (August 2005)

Success emerges when the triumvirate of IT governance, IT strategy and business value of IT are all highly developed. Sound IT governance and effective IT strategies are dependent on stakeholders and participants having a unified view of how IT can create business value.

For example, too often, CIOs initiate a project to fix a perceived weakness in one area, such as IT strategy, and ignore the others. They are subsequently disappointed to find that they can't get buy-in to the strategy, because business managers weren't part of the decision-making process (governance), and those managers can't see why spending on IT infrastructure or applications should be a priority (understanding value) when they don't have sufficient funds to develop all of the opportunities in their business areas.

Similarly, CIOs who are unhappy with business participation in IT steering committees may decide to change the IT governance framework, but business managers are unwilling to be involved because they have more important issues to address, and they can't see the value of the IT organization's contributions. This can often be traced back to inadequate business cases for IT investments (a prioritization process that is siloed) and a lack of post-implementation performance metrics.

CIOs also regularly indicate business and IT alignment as an issue. Addressing this requires a better appreciation of how IT delivers business value, greater participation by the business in strategy development, and improved understanding of the critical importance of IT governance.

Every CIO is looking for ways to improve performance in these areas, and a holistic approach will achieve better outcomes than single-focus initiatives. The approach must address the why (understanding value), the what (strategy) and the how (governance) of key decisions.

• IT strategy integrated with business strategies provides the road map.
• Sound IT governance secures the right business inputs to strategic decisions.
• Understanding how IT contributes to business value results in better strategic decisions.

Specific steps that can be taken depend on the starting point, but are likely to include the following.

1. Gain recognition of how IT contributes to business success. Although business cases are almost universally applied to IT investment decisions, the quality of those business cases varies enormously. Relatively few organizations have mechanisms in place to track and report value achievement. If IT projects are reported solely in terms of costs, time to deliver and development productivity, but without metrics that identify the changes the projects deliver to business processes, then IT will remain a cost center. To be successful, IT projects must be business-change projects, with business metrics that are agreed-on and assigned as part of IT governance processes.

Improving the understanding of the IT organization's value contribution depends on the maturity of IT governance and a consensus about IT's strategic direction. All three areas need to be strengthened together to find the sweet spot.

2. Create an IT governance framework that establishes the mechanisms for making effective decisions about IT. Those decisions can include:

• Policies and principles for IT usage by the business
• Defining vision and mission
• Integration of business and IT strategies
• Information architecture and technology directions
• Business applications (investment and support, IT infrastructure), investments and services
• IT security and risk management, and procurement and asset management
• IT shared services, service levels and performance metrics
• Cost allocation and chargeback
• Achieving business value from IT
• Oversight council and steering committee roles
• Assignment of ownership, accountability and custodians
• Post-implementation reviews
• Compliance with policies

3. Create an IT strategic road map that prioritizes IT investments. IT investment decisions are easier to make if there is a sound IT strategic plan in place. An IT strategy that simply represents a wish list of projects from a range of business units will be ineffective. Increasingly, there needs to be an integrated view of the entire organization, because each business process and its associated data have many interconnections to other processes, especially as we move toward the real-time enterprise (RTE). Effective IT strategies cannot be created without integration with cohesive business.

Putting those opportunities into a prioritized IT strategic plan relies on effective IT governance, as does the successful implementation of those strategies. Business value will only be achieved from IT investments if there are clear performance targets in place, and defined accountability to achieve those targets.

4. Build credibility by communicating the progress being made, and plan for improvement. Solicit feedback from stakeholders about their perceptions of IT performance. Without IT organization credibility, companies find it difficult to exploit IT's maximum value and capability to support strategic, critical business imperatives.

The costs of IT are explicit, but the value IT delivers can be elusive to define and quantify. The business value of IT is embedded in a myriad of business processes and activities. Value is achieved when: business processes are conducted more reliably, faster and at lower costs; inventories are better controlled, revenue is increased and time to market is reduced; and the right information is available at the right time to the right person, enabling better decisions to be made. The application of IT creates the business value, which is a management responsibility that requires effective IT governance and integrated business/IT organization strategies.

Finding the sweet spot requires a balanced approach. Perfection may be impossible to achieve, but working in unison in a spirit of continuous improvement across the areas of IT strategy, IT governance and understanding IT's business value contributions will deliver better outcomes.

Tactical Guidelines

• Improve business performance by integrating strategy, governance and the IT organization's value contribution, rather than treating them as separate initiatives.
• Use IT governance to get the right inputs to make decisions, use IT strategy to create the road map for the future and use an increased understanding of business value contributions to maximize the deliverables.

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