Recipe for Good Governance, J. Ross & P. Weill, 6/15/04 CIO Magazine

http://www.cio.com/archive/061504/keynote.html

Edited for classroom usage (Original word count: 2,224; final count: 494 – 22%)

Firms with above average IT governance earn higher returns than those with weaker governance (based on a study of 256 CIOs). IT governance ensures IT-related decisions match company-wide objectives by establishing mechanisms for linking objectives to measurable goals. IT governance is the decision rights and accountability framework for encouraging desirable behavior in the use of IT. Firms make various IT decisions: the enterprise role of IT, IT architecture (technical choices), IT infrastructure (shared IT services), business application requirements, and IT investment and prioritization decisions. The IT steering committee at UPS, three senior executives (including the CIO), sets IT principles. An IT governance committee, IT executives headed by the CIO, follows the mandates of the IT steering committee in making key architecture decisions. A standards committee of technologists determines when a standard is obsolete or cannot meet the needs of a specific application. This committee handles standards negotiations, but escalates decisions to the IT governance committee when a standards decision has implications beyond one application.

Principles of effective design and implementation of IT

Decision-making structures. Assign clear responsibility for IT decisions to individuals who can accept accountability for the outcomes of those decisions. Mechanisms include service-level agreements, chargeback, project-resource and business-value tracking, enterprise-wide budgeting, and senior management announcements to clarify desirable behavior and individual responsibility for IT management and use.
Overlap responsibilities. Top firms have overlapping membership in decision-making bodies. At Campbell Soup, the CIO sits on the executive committee that sets strategic direction. She heads an IT leadership team that sets IT architecture and infrastructure. Its architecture review board is headed by a member of the IT leadership team.

Senior management. If senior management is not involved in IT decision making, the organization will lack a clear link between business objectives and IT capabilities.
Exception processes. Allow exceptions to technology and business process standards. Governance exception processes review standards that limit business success. Organizations with effective governance have fewer renegade exceptions, but more exceptions approved through a formal exception process.

Changing governance. Changing governance, communicating the changes and then institutionalizing it is lengthy, six months or longer. Top performers change governance less than once a year; poorer performers as much as three times a year. Because it takes time to learn new governance mechanisms, changes should be rare.
Transparency. The key predictor of governance performance is the percentage of managers who can describe the enterprise's IT governance. When more managers can describe governance, it is part of the enterprise's management culture, and likely to be followed. Nearly half of all of the managers in the top 50% of governance performers can describe their IT governance; fewer than 30% can do so in poorer performers.

Firms that use IT strategically demonstrate stronger financial performance, but strategic use of IT is possible only when companies design and communicate IT decision-making parameters and mechanisms.