VideoA balance of powers, clear accountability, a framework for decision-making: these are some of the fundamental building blocks of good governance. They apply just as much to the boardroom as they do to the halls of Congress, and thanks to Sarbanes-Oxley, companies have spent plenty of time addressing corporate governance.
Less visible but no less urgent is the related issue of IT governance. Although its roots lie in such long-established practices as the formation of IT steering committees, the broader arena of IT governance — which spans everything from strategy formation to purchasing decisions to staffing levels to project management—is now a hot topic of conversation among CFOs, CIOs, and other senior executives.
According to a report from PricewaterhouseCoopers for the IT Governance Institute (ITGI), 83 percent of the 276 organizations surveyed worldwide have implemented or are considering deploying some form of IT governance. Vendors, naturally, are taking advantage of companies' desire to create a basic decision-making and accountability framework for technology management and use by offering a range of software products that purport to do some or all of that. But analysts and customers caution that these tools play, at best, a supporting role. The primary challenges are organizational and managerial.
Driving the trend is a pervading sense that despite tighter fiscal controls, companies still lack a clear view of IT spending. When asked what problems their organizations had experienced in IT in the past 12 months, 41 percent of respondents cited an "inadequate view on how well IT is performing" and 40 percent cited "operational failures of IT."
There is evidence that IT governance can solve such problems. A 2003 study of 250 large enterprises conducted by Gartner and the Massachusetts Institute of Technology showed that companies with well-designed governance programs have at least 20 percent higher profits than those with poor governance, given the same strategic objectives.
Key components of IT governance include resource, asset, and project-portfolio management; risk management; accountability; improved alignment between IT and business goals; and measurement of the value created by technology initiatives. Laudable goals, to be sure, but is "IT governance" just a fancy label applied to the long-standing mission of those aforementioned steering committees? Marios Damianides, international president of the ITGI, a Rolling Meadows, Illinois, organization that helps enterprises plan governance programs, says no. "Given today's environment in terms of regulations and the business demands placed on IT, things are very different than in the days when the IT committee was the sole governance element," he says. When many of those committees were formed, IT was expected to be an autonomous cost center that quietly did its job keeping systems running. "Today, it's more value-driven," says Damianides. "The focus is now on the value that IT can add to the corporation and assessing its quantifiable results."
Even as companies demand more, they are spending less. An annual survey by Gartner showed that IT spending declined in 2002 and 2003, and was flat last year. "In that environment, you need to make hard decisions on where to spend," says Mark McDonald, group vice president and head of research at Gartner Executive Programs.
Industry analysts say the governance model of choice emerging at many organizations splits decision-making among IT, finance, and lines of business. "The focus now is on having much more of an open, shared decision-making environment" that usually includes the CIO, CFO, and business-line executives, says Brian Burke, vice president (international) of enterprise planning and architecture strategies at Meta Group. It's a structured, collaborative approach in which an executive council evaluates and prioritizes IT projects and spending based on the changing needs of the organization. In many cases, experts say, governance councils will strive for balanced portfolios of low-risk and high-risk IT investments, evaluating investments periodically to determine whether they're still warranted.
Another goal is to move away from silo spending, in which various business units exercise autonomy with little regard for standardization or integration. But many of those approaches grew out of the difficulty of establishing a master plan that meets every department's needs. The pendulum of IT strategy has long swung between centralization and decentralization. Current governance efforts, in fact, may benefit from the relatively long history of quasi failures, as most companies have had plenty of opportunity to learn things the hard way.
Employment-services provider Manpower Inc. of Milwaukee has developed an IT-governance program (dubbed the "Manpower Way") to control technology spending and ensure that IT projects align with business needs and are deployed in a consistent way around the world. Manpower's governance is based on a "global/local" model, which keeps technology decision-making at a high level but allows for some autonomy at facilities around the world, so that Manpower offices in different countries can gear applications to home markets, says CIO Rick Davidson. This allows Manpower to get economies of scale through enterprisewide IT purchases and lets branches modify applications as needed.
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