Smart IT Governance Boosts Financial Performance and Business Alignment

Do you have persistent challenges aligning business and IT strategy? Do projects get bogged down in constant consensus-building and lose momentum? Do decisions continually get unnecessarily elevated to higher executive levels, slowing time-to-market? Many companies have well-established governance mechanisms for finance and other corporate functions, but these same companies often have immature IT governance mechanisms despite significant IT assets, capital investments and operating budgets.

Immature governance can lead to misaligned priorities, inefficient use of scarce human and investment capital, and business dissatisfaction with the value derived from the IT function. IT governance is more than financial decision-making; it should support broad strategic goals that drive the best use of IT capabilities and further key business imperatives.

The effective use of IT continues to be critical to overall business success. Companies are looking to leverage technology solutions that improve revenue growth, profitability, customer intimacy and employee productivity and no longer view IT as a necessary, but opaque, back-office cost center. To boost the performance of your IT organization, consider these Top 5 IT governance ideas:

1. Explicitly define a multi-level IT governance framework. Effective IT governance involves many levels within your business, from business executives to line IT leaders, in the appropriate oversight of IT investments. A sound governance framework encourages customer engagement, leadership alignment, effective use of scarce investment resources and efficient ongoing operations. Furthermore, a multi-level framework identifies those fundamental corporate decisions that should not be delegated or confined solely to the IT organization.

2. Create clear and transparent decision rights. Adopt explicit models for decision-making rights. A well-articulated set of decision rights creates transparency into IT priorities across the enterprise and assures business customers that they have a critical and defined role in the use of IT. Formalizing how decisions get made also allows for effective delegation of authority and accountability within the IT organization and helps break down key barriers and friction to implementing solutions.

3. Educate and train key stakeholders. Be sure to invest in the education and training of key constituents in the IT governance process, both IT and non-IT alike. Create customized communications and training materials targeted to each stakeholder group. Use the implementation of IT governance to “reset” key business relationships with IT. Keep in mind the maxim that behaviors, not strategies, create value.

4. Build in metrics and feedback. Measure and report key metrics to improve ongoing governance. Be sure to define a manageable number of key metrics focused on the appropriate audience. Measuring IT governance effectiveness not only improves governance but enables the efficacy of other critical processes, such as strategy development, demand management and capacity planning.

5. Use IT governance to increase transparency into business use of cloud and other IT “shadow” initiatives. We’ve all experienced non-IT procured solutions that suddenly require integration into the broader IT environment. Well-run IT governance processes should encourage transparency around non-IT procurement of services, such as SaaS, cloud and other IT-enabled capabilities. By partnering more effectively with your business customers through well-structured governance, IT leaders can be viewed as enablers of solutions rather than potential roadblocks to progress.

Leading practice IT governance has been shown to sustain double-digit competitive advantage in key financial metrics such as return on assets, return on equity and market cap growth, according to a comprehensive study conducted by the MIT Sloan School of Management Center for Information Systems Research (CISR). In addition, companies with smart IT governance better align IT with business strategies, improve agility and create greater satisfaction for both business partners and IT staff. For more information on how to design and implement effective IT governance within your organization, contact Paul Schmidt at ISG.

By Paul Schmidt, Partner, ISG

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