GOVERNANCE OF IT

Question 1

5 major decision domains of IT governance

Answer 1

• IT principles comprise the high-level decisions about the strategic role of IT in the business.
• IT architecture includes an integrated set of technical choices to guide the organisation in satisfying business needs.
• IT infrastructure consists of the centrally coordinated, shared IT services that provide the foundation for the enterprise’s IT capability and were typically created before precise usage needs were known.
• Business application needs are the business requirements for purchased or internally developed IT applications.
• Prioritisation and investment decisions determine how much and where to invest in IT.

Question 2

6 approaches to IT decision making

Answer 2

• Business monarchy: the most centralised approach — a senior business executive or a group of senior executives makes all the IT- related decisions for the enterprise.
• IT monarchy decisions are made by an individual IT executive or a group of IT executives.
• Federal system, C-level executives and business representatives of all the operating groups collaborate with the IT department. This is equivalent to the central government and the states working together.
• IT duopoly, a two-party decision- making approach involves IT executives and a group of business leaders representing the operating units.
• Feudal system, business unit or process leaders make separate decisions on the basis of the unit or process needs.
• Anarchy, in which each individual user or small group pursues his, her or their own IT agenda. It is the most decentralised system

Question 3

Design and implementation of coordinated governance mechanisms (3)

Answer 3

• Decision making structures: the most visible IT governance (Anarchies require no decision-making structures at all. Feudal arrangements rely on local decision-making structures. But monarchy, federal or duopoly arrangements demand deci- sion-making structures with the representation and authority to produce enterprise-wide synergies)
• Alignment processes: management techniques for securing widespread and effective involvement in governance decisions and their implementation.
• Formal communications: A huge barrier to effective IT governance is lack of understanding about how decisions are made —> Management can communicate governance processes in a variety of ways: general announcements, the institution of formal committees, regular communication from the office of the CIO or the office of IT governance, one-on-one sessions, intranets and so on.

Question 4

Different IT approaches (3)

Answer 4

A. Centralised approaches and profitability: strategies emphasise efficient operations. Accordingly, it is desirable for IT governance to encourage a high degree of standardisation in the pursuit of low business costs
B. Decentralised approaches and growth: fastest-growing companies are focused on innovation and time to market. They insist on local accountability. They measure success through growth in revenues, which are often generated from products introduced in the last two or three years. These companies seek to maximise responsiveness to local customer needs and minimise constraints on creativity and business unit autonomy by establishing few, if any, enterprise-wide technology and business-process standards.
C. Hybrid approaches and sets utilisation: companies seeking optimal asset utilisation attempt to balance the contrasts between governance for profitability and governance for revenue growth and innovation. They focus on using shared services to achieve either responsiveness to customers or economies of scale — or both. Their IT principles emphasise sharing and reuse of processes, systems, technologies and data.

Question 5

Recommendations to guide effective IT governance design

Answer 5

1. Identify the company’s needs for synergy and autonomy: consider realistically both the benefits and costs of such synergies
2. Establish the role of organisation structure: the complexity of matrices can overwhelm managers and limit effectiveness. By establishing organisational priorities for autonomy and synergy, companies can introduce organisational designs and incentive systems that reinforce their priorities.
3. Identify the desirable IT-related behaviours that fall outside the scope of organisational structures: identify the additional behaviours they must promote in order to achieve their objectives.
4. Thoughtfully design IT governance on one page: design IT governance by outlining governance arrangements and then specifying the mechanisms that will implement the intended arrangements. —> Companies that have not been effective in using IT strategically should expect to invest in organisational learning

Question 6

EFFECTS ON INFORMATION TECHNOLOGY FAILURES ON THE MARKET VALUE OF FIRMS: hypothesis

Answer 6

• H1: IT failures will result in negative abnormal returns for the firm —> Failures adversely impact not only the firm’s operations but also its external reputation and can result in investors questioning the capability of the firm to achieve growth and revenue targets.
• H2: The negative abnormal returns due to implementation (new system) failures will be larger when compared to operating (existing system) failures.
• H3: The negative abnormal returns will be larger for IT failures of greater severity. —> when existing systems or new system implementations fail, they can cause disruptions for both the firm and its customers. Severity of failure is conceived here as the extent to which the failure causes a minor or major disruption in customer transactions (a proxy for the strategic importance of the system to the firm) and whether the scope of the failure is narrow or broad (i.e., number of systems or people affected).
• H4: Negative abnormal return will be larger for firms that experience repeated IT failures. While some failures might result purely from chance (e.g. an unexpected virus attack on an IT system), the management literature suggests that many failures occur because of the characteristics of the organisational system. Firm characteristics such as structure, processes, and problem-solving routines interact to produce failures

Question 7

EFFECTS ON INFORMATION TECHNOLOGY FAILURES ON THE MARKET VALUE OF FIRMS: results

Answer 7

1. RQ1: When IT resources fail unexpectedly, they most definitely have a negative impact on firm value. —> IT failures result in a 2% average cumulative abnormal drop in stock prices over a 2-day event window. Thus, the evidence clearly indicates that investors do care about IT failures.
2. RQ2: results also show that the market’s assessment takes into account the circumstances under which failure occurs
   * The market responds more negatively to implementation failures affecting new systems than to operating failures involving current systems.
   * More severe IT failures result in a greater decline in firm value and that firms with a history of IT failures suffer a greater negative impact.

Question 8

EFFECTS ON INFORMATION TECHNOLOGY FAILURES ON THE MARKET VALUE OF FIRMS: implications

Answer 8

• The results suggest that corporate boards and executives could be motivated to engage in IT governance activities by the market value impact of IT-related events that become known to the market.
• The demonstrated negative market reaction to IT failures should help managers make the case for organisational changes needed to improve the reliability of existing IT systems and to ensure the success of new IT system implementations. It should also provide motivation for boards and executives to ensure that corporate IS/IT strategies and related IT governance practices— including project governance practices, regular assessment of core systems, business continuity risk analyses, and disaster recovery procedures—are appropriate, proactive and effective in minimising the occurrence of IT failures.

Question 9

HOW INFORMATION TECHNOLOGY GOVERNANCE MECHANISMS AND STRATEGIC ALIGNMENT INFLUENCE ORGANISATIONAL PERFORMANCE: INSIGHTS FROM A MATCHED SURVEY OF BUSINESS AND IT MANAGERS: hypothesis

Answer 9

IS intellectual strategic alignment mediates the positive impact of IT governance mechanism on organisational performance

Question 10

HOW INFORMATION TECHNOLOGY GOVERNANCE MECHANISMS AND STRATEGIC ALIGNMENT INFLUENCE ORGANISATIONAL PERFORMANCE: INSIGHTS FROM A MATCHED SURVEY OF BUSINESS AND IT MANAGERS: results

Answer 10

1. The research uncovers a positive, significant, and impactful linkage between IT governance mechanisms and strategic alignment and, further, between strategic alignment and organisational performance.
2. Shows that the effect of IT governance mechanisms on organisational performance is fully mediated by strategic alignment.
3. The research suggests that IT governance mechanisms serve as an institutionalised context for promoting IT– business shared understanding (i.e., social alignment).

Question 11

HOW INFORMATION TECHNOLOGY GOVERNANCE MECHANISMS AND STRATEGIC ALIGNMENT INFLUENCE ORGANISATIONAL PERFORMANCE: INSIGHTS FROM A MATCHED SURVEY OF BUSINESS AND IT MANAGERS: implications

Answer 11

• Placing CIOs on executive committees is an effective mechanism for promotion of IT/business alignment —> structural governance mechanisms provide the institutionalised context for CIOs and TMTs to participate in the decision-making process. Together these parties can and should interact with each other and share domain knowledge.
• The importance of communication approaches can be explained through the alignment benefits that come from knowledge sharing among IT and business executives and a shared understanding of the role and capabilities of IT —>This shared understanding and knowledge between IT and business executives can best be achieved by more conscious communication.