Title: Corporate Approaches to IT Governance
1Corporate Approaches to IT Governance
March 1999 Ministry of International Trade and
Industry
2What is IT governance?
- Govern
- " to control and direct the making and
administration of policy " (Webster's
Dictionary) - IT governance
- The organizational capacity to control the
formulation and implementation of IT (information
technology) strategy and guide to proper
direction for the purpose of achieving
competitive advantages for the corporation.
3Changes of Business Paradigms by IT (1)
Rearrangement of the Business Model Itself (The
case of Amazon.Com)
Conventional bookstore Sales Agent
(Supplier-oriented concept)
Ordinary Internet bookstore (automation of sales
activities)
Amazon.Com Purchasing Agent (Consumer-oriented
concept)
Search
Customer required to come to the bookstore.
Bookstore comes to your house. (On-line access)
Access
On-line access
Easy to find books that you want. System knows
your preferences and guides you accordingly.
(Provides customized information based on
purchasing history.)
Customer searches through shelves.
Like the new books rack in a conventional store.
Navigation
The customer action of purchasing books
Limited stock of books. Those books not in
inventory have to be ordered, which takes time.
Just access the service to get any book you
want. (3 million titles)
Like sales in a conventional store.
Availability
Sold at publishers suggested retail price.
Same price as a conventional store.
Even best-sellers sold at a discount to market
price. (20-40 off)
Purchasing
Possible to be delivered, but its quicker to
come to the store and buy it yourself.
Delivered to your door. (Next-day shipping )
Bringing home
Customer carries.
Example of a company that has been successful in
using IT to change business paradigms.
4Changes of Business Paradigms by IT (2)
Reforming Business Processes(The GE procurement
system)
Inquiry
Bid
Order
Delivery
Prior to 1995
Procurement time/Procurement costs Slightly lower
Determination of supplier price
Inquiry
Bid
Order
Delivery
1996 Company to company EDI
Substituted Internet transmissions for
conventional paper and telephone-based ordering
work only.
History of the GE procurement system
Procurement time 50 savings Procurement price
30 savings
Delivery
1997 Web-based procurement
Web-based procurement
Change the inquiry/ordering process itself.
- GE has opened its system to other companies,
developing it into a royalty business. - From internal system to market maker.
Present
5Scope of IT Application has been expanding from
Simple Operational Improvements to Changes in
Business Paradigms (Conceptual Diagram)
1960s - 1970s
1980s - 1990s
Decision-making support
Decision-making support
Sales Marketing Systems
EIS
Global Product Development
Customer Service
Mgmt. Reports
Mgmt. Reports
Role of IT
EDI
rder essing
O Proc
Payroll Accounting Manufacturing
rder essing
O Proc
Payroll Accounting Manufacturing
Operational efficiency Labor savings
Operational efficiency Labor savings
Management level (how to fit into strategy, how
to change ways of doing business) Operational
level (ease of use, development costs)
IT focus
The expansion of IT application range has made
the control (governance) of IT as part of
corporate governance an extremely important
managerial factor.
6The importance of CIO (Chief Information Officer)
has been increasing both in USA and Japan
Direct supervisor (direct recipient of reports)
of the CIO
USA
Japan
()
()
100
100
80
80
President (Chairman) Vice President Executive
Managing Director Managing Director or
lower Other
CEO CFO COO Other
60
60
40
40
20
20
0
0
1995
1997
1995
1996
Source CIO Magazine (USA), Japan CIO
Consultative Council
7Real Distance between CIO and Top Management is
still Wide in Japanese Companies (From Studies
and Research on Information Systems by the Japan
CIO Consultative Council)
Japan
USA
Ratio of direct reporting to president (corrected
for work load)
Direct reporting by CIO (immediate supervisor)
Component of CIOs IT-related work load
Position of CIO
()
100
13
Less than 10
22
President
80
10- Less than 20
Vice President or above 8
22
Director 26
Managing Director 34
Executive Managing Director 24
52
CEO
Other 8
Concurrent 63
20- Less than 40
60
17
40-Less than 60
7
Other than president
78
40
3
60-Less than 80
1
Less than 80
Other than CEO
48
Other 78
100
37
20
Director 11
Full time
0
0
20
40
60
80
100
Executive Managing Director 4
()
Managing Director 7
There appear to be large differences between
Japan and USA in the amount of IT-related
information making its way to the top management.
Assumptions 1. When the CIOs position is
other, it is assumed that direct reporting is
made to someone besides the president when the
position is director or above, it is assumed
that direct reporting is made to the
president. 2. For CIOs concurrently serving in
other positions, the ratio of direct reporting to
the president is discounted for the IT-related
work load ratio. Source Japan CIO Consultative
Council, analysis by BCG.
8The ordinary CIO at a Japanese company is in
charge of managing information. Rather than being
responsible for formulating IT strategy, he tends
to manage the information systems organization.
President
Division C
Division B
Administration Department D
Administration Department C
Administration Department B
Administration Department A
Division A
Information Systems Department
Information Systems Department
Information Systems Department
Range of directors responsibility/authority Repor
ting systems of the IT department Officer Informat
ion systems department head
- CIO has limited authority
- Only responsible for (expense) budget and
personnel of head office information systems
department. - Investment authority rests with director in
charge of business divisions or director in
charge of accounting.
9Profile of CIOs in the USA
Federal Express
GE
Morgan Stanley
CIO Dennis Jones Previous post VP for
marketing Tasks Use and expansion of customer
interface system satisfaction of customer needs
and internal operational needs
- CIO Gary Reiner
- Previous post VP for strategy
- Tasks Create integrated merits of IT investments
across multiple divisions - Web-based EDI
- 6-sigma (develop into a brand that goes beyond
quality control) - Discover and use information and technology that
have been accumulated within the group.
CIO Kevin Parker Previous post
Trader Tasks Build and manage an
inter-divisional IT system
Share and use customer information that is
scattered among several divisions. My job is to
search for differentiated ways that no one else
is doing.
We use IT to develop the most advanced
distribution services in the world, of which our
customers may not be aware.
The CIO were looking for is like a triathlon
athlete. First, he must be able to serve as a
leader who can motivate those above and below
him. Second, he must be able to think about
business in strategic terms. Third, he must be
able to handle extremely complex technical
problems. (Russel Reynolds)
Has since been replaced by someone
else. Source BCG interviews.
10IT Organization Patterns
Decentralized type
Centralized type
Mixed type
Suitability Conglomerates companies for
which built-in applications provide an
advantage. Examples GE (1980s), Motorola
Suitability Single/similar businesses
companies for which costs provide an
advantage. Example Walmart
Suitability Portfolio companies able to
capitalize on synergy. Examples HP, GE (today)
Information systems department
Information systems department
Profit Center type
Outsourced type
Suitability Businesses that are
extremely sensitive to costs
Suitability Companies with differing
user needs and view competitive advantages, when
these companies are not cost-sensitive.
SS
Third party
Intentionally designed or overhauled
IT functions/responsibility
11What Is Needed to Apply IT to Management Reform
From the Organizational Perspective
The process of applying IT to management reform
( IT governance) is exactly the same as the
process of forming and implementing strategy in
corporate governance.
- Formation of organizational consensus
- Clear articulation of the organization wishes
to do
- Implementation/
- measurement of results
- Implementation and follow-up of the results
based on organizational consensus
- Aware of strategy variables
- What can and should be controlled
- Aware of business environment
- Sense of crisis
Organizational process
Top management
Responsible principal
Staff, business units
12Framework for Corporate Governance from the
Perspective of Organizational Structure
Corporate governance/Corporate decision-making
Top management
President (CEO)
Responsible directors
Core corporate governance functions
Staff functions
Line functions
Business unit (I)
Governance support functions
(II)
(III)
...
Business unit service functions
13Example Financial Governance
Top management
President/CEO
CFO
Staff functions
Line functions
Business unit (I)
Finance/Accounting Department
(II)
- Governance support functions
- Financial strategy
- Fund-raising strategy
(III)
...
- Business unit service functions
- Fund-raising work,
- accounting process
14Designing of IT Governance Score Card
Structure of Score Card
IT strategy discussion/decision-making
Top management
I. Top Management Decision-making
Structure 1) Role of president/CEO and functions
of the top management meetings and board 2) Role
of CIO
President/CEO
CIO
Staff functions
Line functions
Business unit (I)
Head Office IT Department (Information Systems
Department)
(II)
- Governance support functions
- Formulation of IT
- strategy and planning
(III)
II. Performance of Staff Functions 3) Support
for top management, support for company-wide
optimization 4) Services to business units
...
- Business unit service functions
- Provision of services,
- development support
Arrange by Two Headings/Four Subheadings
15Score Card Design Steps
STEP 1
STEP 2
STEP 3
Formulating BCG assumptions concerning basic
framework of score card
Fleshing out of score card measurement items
Consolidation into a practical score card
Definition of Two Headings/Four Subheadings
Factor analysis of framework elements Creation of
detailed questions
Concentration into essential questions
2/4 Framework factors
125 Detailed questions
25 Score Card questions
16Key points of score card creation
- 1. In light of the basic role played by IT
governance in corporate management, the score
card is designed to be filled in by the CIO
himself (or an executive of similar status) - Avoid wherever possible detailed, technical
questions. - 2. Limit the number of questions taking into
consideration the time required. - Should take no more than 30 minutes to complete
(no more than 30 questions). - 3. Balance the number of questions among the two
headings (I. Top Management Decision-making
Structure and II. Performance of Staff
Functions) - Balance is essential to IT governance.
- 4. Make the score easy to compute.
- 25 questions 4 points 100 points
17IT Governance Score Card Questions (BCG proposal)
I. Top Management Decision-making Structure
Basic Framework for IT governance
1) Role of president/CEO and functions of the top
management meetings and board Q 1 Awareness of
business environment Q 2 Position of IT in
management reform/business reform Q 3 Indicate
intentions regarding IT utilization Q 4 Forum
for discussion of IT strategy by top management
Q 5 Use of IT by top managers themselves Q
6 CIOs full-time position or concurrent
position Q 7 Positioning of CIO within top
management
2) Role of CIO Q 8 Role and expectations of CIO
Q 9 Mission of CIO Q 10 Authority of CIO Q
11 Skills of CIO Q 12 Relationship of CIO to
user divisions Q 13 Involvement of CIO in
operations
IT strategy discussion/decision-making
Top management team
1. President/ CEO
2. CIO
II. Performance of Staff Functions
Staff functions
3) Support for top management, support for
company-wide optimization Q 14 Organizational
design of head office IT department Q 15 Voicing
of opinions on IT strategy to top management Q
16 Prioritization of companys investment
projects Q 17 Management of skills of company IT
personnel Q 18 Literacy management Q 19 Use of
unified, standardized architecture for
company-wide optimization
4) Support to user divisions Q 20 Communication
with user divisions Q 21 Applications management
Q 22 Information management Q 23 Service
(cost) management Q 24 Project management Q
25 Performance reviews
Business unit
Head Office IT Department (Information Systems
Department)
3. Governance support functions
4. Business unit service functions
18IT Governance Score Card Release 1.0
19Table of Contents
- Purpose of IT Governance and this Score Card
- How to complete the score card
- The score card
- Reference
- - Sample diagnoses
20Purpose of IT Governance and this Score Card
- What is IT governance?
- The organizational capacity to control the
formulation and implementation of IT (information
technology) strategy and guide to proper
direction for the purpose of achieving
competitive advantages for the corporation.
- Purpose of this score card
- Rapid advances in recent years in IT (information
technology) have dramatically increased the
importance of IT to management as a source of
competitive advantage. This score card was
developed as a self-diagnostic tool for the
purpose of encouraging companies to improve their
IT governance.
21IT Governance Score Card Questions
I. Top Management Decision-making Structure
Basic Framework for IT governance
1) Role of president/CEO and functions of the top
management meetings and board Q 1 Awareness of
business environment Q 2 Position of IT in
management reform/business reform Q 3 Indicate
intentions regarding IT utilization Q 4 Forum
for discussion of IT strategy by top management
Q 5 Use of IT by top managers themselves Q
6 CIOs full-time position or concurrent
position Q 7 Positioning of CIO within top
management
2) Role of CIO Q 8 Role and expectations of CIO
Q 9 Mission of CIO Q 10 Authority of CIO Q
11 Skills of CIO Q 12 Relationship of CIO to
user divisions Q 13 Involvement of CIO in
operations
IT strategy discussion/decision-making
Top management team
1. President/ CEO
2. CIO
II. Performance of Staff Functions
Staff functions
Business unit
3) Support for top management, support for
company-wide optimization Q 14 Organizational
design of head office IT department Q 15 Voicing
of opinions on IT strategy to top management Q
16 Prioritization of companys investment
projects Q 17 Management of skills of company IT
personnel Q 18 Literacy management Q 19 Use of
unified, standardized architecture for
company-wide optimization
4) Support to user divisions Q 20 Communication
with user divisions Q 21 Applications management
Q 22 Information management Q 23 Service
(cost) management Q 24 Project management Q
25 Performance reviews
Head Office IT Department (Information Systems
Department)
3. Governance support functions
4. Business unit service functions
22How to complete the score card
- 11. This score card should be filled in by the
CIO or another executive of similar status. - 2. Questions ask for judgements of the degree of
achievement in this company, not the degree of
importance to the person filling out the score
card. - 3. The score card consists of 25 questions
covering important aspects of IT management. It
should require about 30 minutes to complete. - 4 I am extremely confident that it has been
achieved. - 3 I think it has been achieved.
- 2 I cant say one way or the other.
- 1 I dont think it has been achieved.
- 0 It has not been achieved, and I think it is
a major problem.
234 I am extremely confident that it has been
achieved. 3 I think it has been achieved. 2 I
cant say one way or the other. 1 I dont think
it has been achieved. 0 It has not been
achieved, and I think it is a major problem.
I. Top Management Decision-making Structure 1)
Role of president/CEO and functions of the top
management meetings and board
- Top management refers to the president and to a
few other core directors who are responsible for
the overall running of the company. - Example Members of a company-wide top management
meeting (7-8 people)
- Is top management sufficiently aware of the
business environment and the need for management
and business reform? - Does top management position IT as a source and
tool for competitive differentiation and
creation of added-value in management and
business reform? - IT is considered only a tool for operations
rationalization and labor-savings. - Has top management clearly articulated exactly
what it wants to accomplish with IT? - Top management uses ambiguous phrases like make
full use of IT, or it issues specific requests
and instructions like use IT to cut lead time in
half. - Is there a top management board specifically for
the discussion of company-wide IT strategy and
does it function appropriately? Or, is there
sufficient discussion of company-wide IT strategy
at top management-level meetings (for example,
managing directors meeting)? - Not just leaving IT to subordinates or being
satisfied with discussions in form only. - Does top management use IT output for objective
verification and discussion of, for example,
decision-making concerning strategy formulation
or performance evaluation? Do people at all
levels of the company have an accurate
understanding of the IT output that top
management uses? - Not just daily sales trends or the like.
1. Awareness of business environment 2. Position
of IT in management reform/business
reform 3. Instructions regarding IT
utilization 4. Forum for discussion of IT
strategy by top management 5. Use of IT by
top managers themselves
244 I am extremely confident that it has been
achieved. 3 I think it has been achieved. 2 I
cant say one way or the other. 1 I dont think
it has been achieved. 0 It has not been
achieved, and I think it is a major problem.
- Is there a person who serves full-time as CIO, or
is there a senior director who virtually serves
as CIO and invests a considerable portion of his
time in IT-related business? - Is CIO a position that reports directly to the
president? Is the CIO a member of the top
management committee?
6. CIOs full-time position or concurrent
position 7. Position of CIO within top
management
Hours invested as CIO
Grading
100 80100 5080 3050 030
4 3 2 1 0
(Hereafter, we refer to full-time CIOs,
concurrent CIOs, and de facto CIOs as the CIO.)
Position of CIO
Grading
Executive managing director or higher Managing
director Director reporting to president Director
not reporting to president No CIO
4 3 2 1 0
2) Role of CIO
- Is the CIO merely head of a functional division
or is he an agent for change in management and
business practices? - Examples Reforms of engineering and supply
chains. - Has the company articulated a clear mission for
the CIO, including specific responsibilities for
IT that go above and beyond management of the
head office IT department. - For example, formulation of an IT vision or
strategy, or evaluation of company-wide IT
investments.
8. Role and expectations of CIO 9. Mission of
CIO
254 I am extremely confident that it has been
achieved. 3 I think it has been achieved. 2 I
cant say one way or the other. 1 I dont think
it has been achieved. 0 It has not been
achieved, and I think it is a major problem.
- Does the authority of the CIO extend beyond
approval authority at the head office IT
department? Does the CIO have clearly defined
authority over IT and does this authority
function in practice? - Example Approval authority over company-wide IT
budget, authority to evaluate IT systems of
individual user departments, authority over
personnel decisions and evaluations of IT
officers in user departments. - Does the CIO have sufficient mastery of the
following skills? - Business sense Possessed of deep insights into
the potential for optimizing IT operations based
on rich business and planning experience. - Communication skills Able to explain in an
understandable way IT and the potential for
optimizing IT operations to someone who knows
almost nothing about IT. - Technical understanding Able to read and
understand publications like Nikkei Computer and
Nikkei Communication. - Is the CIO always (or when necessary) asked to
attend major strategy formulation meetings of
user departments? Does he attend voluntarily? - Not just formal attendance but real contributions
are expected. - Is the CIO individually involved in IT projects
of strategy importance or those in the top 10 of
investment amounts (project base)? Does he
directly control progress and investment? - He leaves everything to subordinates, or only
receive formal reports.
10. Authority of CIO 11. Skills of
CIO 12. Relationship of CIO to user
divisions 13. Involvement of CIO in operations
264 I am extremely confident that it has been
achieved. 3 I think it has been achieved. 2 I
cant say one way or the other. 1 I dont think
it has been achieved. 0 It has not been
achieved, and I think it is a major problem.
II. Performance of Staff Functions 3) Support
for top management, support for company-wide
optimization
- Have the role of the head office IT department
and its relationship with user departments been
clearly defined in terms of the need for and
urgency of IT-driven business reform and the
ability to utilize IT in the company? Have
organizations been designed accordingly and do
they operate accordingly? - Examples of roles
- Centralized type The majority of IT functions
are centralized in the head office IT department,
with overall optimization the goal. - Decentralized type IT functions are spread out
among user departments with each seeking its own
merits and the head office IT department
providing the minimum necessary coordination. - Profit center type The head office IT department
provides the added-value services required by
user departments for a price. - When it makes decisions on IT strategy, is top
management provided by the head office IT
department with a number of strategic options
that could be taken? Does the head office IT
department provide comparisons and explanations
of the managerial significance, merits, and
demerits of each? - Proposals are returned because there is not
enough information to arrive at a decision, or
alternative proposals are requested. - Does the head office IT department prioritize IT
investment projects within a company-wide
framework based on the quantified investment
value of the project. (When projects are
difficult to quantify, does the head office IT
department assign priorities after clearly noting
the points on which it would like to defer to a
decision by the top management?) - Departmental ego undermines company-wide
optimization.
14. Organizational design of head office IT
department 15. Voicing of opinions on IT
strategy to top management 16. Priority among
company investments
274 I am extremely confident that it has been
achieved. 3 I think it has been achieved. 2 I
cant say one way or the other. 1 I dont think
it has been achieved. 0 It has not been
achieved, and I think it is a major problem.
- Is there a clear definition of the number and
skills of the IT personnel the company requires
in terms of the position of IT within company
strategy and the price/quality competitiveness of
vendors? Are sufficient investments made in the
education and training that would achieve these
requirements? - The company lacks an IT staffing plan, or it has
failed to achieve its plan, or have IT personnel
has turned into non-performing assets. - Is training and encouragement provided so that IT
can be sufficiently used at all levels of the
company? - Examples The individual IT skills of the CEO,
CIO, directors, and employees have been measured
and recorded, with education and training
provided according to individual needs, and
strong encouragement given for IT utilization.
17. Management of skills of company IT personnel
(outsourcing strategy) 18. Literacy management
- Is there a clear understanding of the economic
value of a uniform, standardized systems
architecture for the entire company, and has the
head office IT department taken the leadership
necessary to fully optimize systems to
company-wide requirements? - Example Given the changes in IT strategy and
technological advances that are likely,
architecture is constantly studied from the
perspective of two years in the future. - Example There has been a definition of those
areas that should be standardized throughout the
company and those that can be left to individual
user departments, and this is managed in an
appropriate fashion. - Is the head office IT department in close
communication with user departments and able to
balance the needs of users with the achievement
of company-wide optimization? - Examples of mechanisms that ensure communication
meetings (between CIO and user department heads,
between head office IT department and user
department IT officers), assignment of IT
officers to user departments.
19. Use of unified, standardized architecture for
company-wide optimization
4) Support to user divisions
20. Communication with user divisions
284 I am extremely confident that it has been
achieved. 3 I think it has been achieved. 2 I
cant say one way or the other. 1 I dont think
it has been achieved. 0 It has not been
achieved, and I think it is a major problem.
- Is there a clear understanding of the importance
of user department ownership in applications
development, and is there a development system in
place that allows user departments to exert
leadership in the utilization of head office IT
department skills and abilities? - Everything is left up to the head office IT
department, or the key people in the user
department fail to be adequately involved. - Is there a clear consideration of the kind of
information required by different strategic
objectives? Are systems built to gather and
process data accordingly and without redundancy?
Is data maintained according to strategic
objectives? - Example Using a data warehouse to develop
marketing. - Do user departments have a healthy understanding
of the costs involved in their utilization of IT
services? - Their clear contracts between the service
provider (in-house/subsidiary IT personnel or
outside vendors) and the user department are
covering the level of service and the costs
incurred. - Do the people making decisions on projects
receive at least monthly reports on the progress
and flow of funds for individual projects? When
problems are encountered, do they take steps to
minimize excess time and costs? - Not just aware of the status, but able to quickly
make course corrections (including cancellation
of the project entirely). - Are the systems installed measured not only in
terms of fulfillment of technical
specifications but also investment effects from
a business perspective and user satisfaction?
Is this linked to the personnel and performance
evaluations of IT staff?
21. Applications management 22. Information
management 23. Service (cost)
management 24. Project management 25. Per
formance reviews
29Example of diagnosis (1)Property analysis based
on headings
4.0
Performance of Staff Functions
Operations-oriented type
Balanced progress type
3.0
Average score for 3) Support for top management,
support for company-wide optimization 4) Support
to user divisions
2.0
Top-driven type
Status quo type
1.0
1.0
2.0
3.0
4.0
Top Management Decision- making Structure
Average score for 1) Top management/management 2)
Role of CIO
30Example of diagnosis (2)Property analysis based
on subheadings
Typical examples of IT governance evolution at
different companies
The top management has started to be aware of IT
and the CIO has started to function, but work has
not progressed. This is a developing company.
1) President/ management
Top-driven company where the top management,
and particularly the CIO, exert strong leadership.
1) President/ management
1) President/ management
Balanced overall
2)CIO
2)CIO
4)Head office IT/Support to user divisions
2)CIO
4)Head office IT/Support to user divisions
4)Head office IT/Support to user divisions
Company that is still not aware of the importance
of IT
Operations-oriented company in which top
management is not all that aware of IT, but the
operations level is sound.
3) Head office IT/Support for top management,
support for company-wide optimization
3) Head office IT/Support for top management,
support for company-wide optimization
3) Head office IT/Support for top management,
support for company-wide optimization
Top management and staff united by flat
organization. Able to function without much
leadership from the CIO.
General degree of evolution
31Example of diagnosis (3) Property analysis
based on subheadings
Example of self-diagnosis
Top management is more aware of IT, but has still
not begun to use it in any real sense.
There has been a concerted effort in recent years
to improve project management, and this has been
fairly effective. The next step is to improve
data security.
Q1
4
Q2
Q25
Q3
Q24
3
Q4
Q23
2
Q5
Q22
1
Q6
Q21
0
Q7
Q20
Q8
Q19
Q9
Q18
Q10
Q17
The CIO has a clearly defined mission and
authority, but working-level tasks remain, such
as relations with user departments and
involvement in operations.
IT organizations were overhauled last year and
their functions have been streamlined. Results
have been seen from programs to improve IT
literacy. But many tasks remain in investment
prioritzation and system optimization.
Q11
Q16
Q12
Q15
Q13
Q14