Anatomy of Agile Enterprise

Janne J. Korhonen

IT Governance Paradox and How to Overcome IT

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In his excellent book Enterprise Governance and Enterprise Engineering, Jan A. P. Hoogervorst coins the notion of IT governance paradox:

"when it was possible to involve management heavily with IT developments, there was seemingly less need, and while at the moment there was a need to involve management heavily, it was apparently less possible".
For a long time, IT used to be about data processing: automating and supporting structured enterprise activities. There was no need to have management heavily involved in IT. It was seen as a separate, value-adding function that needed to be aligned with business. Organizational goals and objectives were passed down to the IT function in top-down, deterministic and reductionistic manner. Consequently, IT governance has traditionally focused on structural aspects pertinent to decision-making and accountability.

In the last few decades, however, the development of information technology has been revolutionary. All in the sudden, it has had fundamental consequences in organizations and the society at large: unprecedented computing power, infinity of virtual space and ubiquitous connectivity have enormous potential to create enterprise effectiveness, increase flexibility and enable entirely new business models. IT would certainly require more attention from the management to release this potential. But as Hoogervorst points out, management involvement is less possible. The vast complexity of engineering the entire business-IT amalgam far exceeds the comprehension of any single individual.

As I have pointed out before, traditional business-IT alignment may render IT a bottleneck rather than a strategic asset. Mere functional integration between organizational infrastructure and IT infrastructure results in tight coupling that may not accommodate future. The alignment may be perfect within the current strategy, but when the business priorities change, reengineering the organization or information systems is often difficult and laborious. Compromises, corner-cutting and workarounds are commonplace and over time deteriorate IT architecture. Too much change also leads to overworked, cynical and slapdash employees. The deficiency of structurally-oriented IT governance is emphasized in today's increasingly complex and competitive business environment that requires frequent strategic adjustments.

Agility must be built in the design of enterprise governance, of which IT should be an integral aspect. Governance arrangements can compensate for the rigidity of organizational structure and help companies to achieve seemingly conflicting objectives: "[R]ather than restructuring each time priorities shift, new governance mechanisms can force new behaviors without requiring reorganization. Governance mechanisms can provide organizational stability by demanding disciplined processes" (Weill and Ross 2005).

Volberda (1996) maintains that organizational flexibility requires high responsiveness (controllability) of the organization and sufficient managerial capabilities (control capacity of management). In his definition:

"Flexibility is the degree to which an organization has a variety of managerial capabilities and the speed at which they can be activated, to increase the control capacity of management and improve the controllability of the organization."

According to Peterson (2004), there are three basic value drivers of IT governance: service infrastructure, solution integration and strategic innovation. The complexity of IT governance model, and thereby the required control capacity of management, is contingent on the value drivers as follows:


  • A company pursuing service-infrastructure will adopt a centralized IT governance model to meet enterprise-wide demands.
  • A company pursuing service infrastructure and solution integration will adopt an IT-centric federal model to meet both enterprise-wide and business-specific demands.
  • A company pursuing service infrastructure, solution integration, and strategic innovation will adopt a business centric federal model. IT decision-making authority over customer business applications is allocated to local business executives to address the demands for strategic innovation.
Peterson recognizes the importance of IT effectiveness and argues for an "emerging IT governance paradigm". "Getting IT right" goes beyond the traditional division of responsibilities and differentiation of IT decision-making authority. The ability to coordinate and integrate formal and informal IT decision-making authority across business and IT communities is captured by Horizontal Integration Capabilities (HICs) that can be classified as follows:

  1. Structural capability (connection). Key mechanisms here are formal positions and (integrator) roles, and/or formal groups and team arrangements, e.g. committees (temporary) and councils (more permanent).
  2. Process capability (coordination). This capability formalizes and institutionalizes strategic IT decision-making and IT monitoring procedures. The focus is on the alignment of strategic IT decisions and investments with the strategic goals and objectives of the company. Examples of such capabilities include balanced scorecard, critical success factors and service-level agreements.
  3. Relational capability (collaboration). Whereas structural and process capabilities are often mandatory, tangible and driven top-down, relational capabilities are "voluntary" actions and often intangible and tacit. The capability is about collaborative relationships among corporate executives, IT management and business management. Mechanisms such as informal direct contacts between business and IT, joint performance incentives or co-location of business and IT facilitate relational integration, whereas mechanisms such as strategic dialogues, active conflict resolution or cross-functional training promote shared learning.
Centralized governance approaches (such as Business Monarchy or IT Monarchy in Weill & Ross archetypology) are favored by companies that emphasize efficient and low-cost operations, whereas decentralized approaches (such as Feudal design) are employed by companies focusing on innovation, growth, time-to-market and responsiveness to local customer needs. Hybrid approaches such as the federal model mix elements of both centralized and decentralized governance and aim at optimal asset utilization. The federal structure tries to achieve both efficiency and standardization for the infrastructure, and effectiveness and flexibility for application development.

Structural and process capabilities may be sufficient to centralized and decentralized settings, but the federal model of IT governance requires relational capabilities as well -- to reach effective IT governance, two-way communication and a good collaboration relationship between business and IT are needed.

To overcome IT, then, requisite governance capabilities must be established to match the complexity of the business environment. Contemporary enterprises in unpredictable, dynamic and complex environments must direct their efforts towards the organization's strategic goals by distributing IT decision-making rights and responsibilities among stakeholders across traditional organizational lines, specifying the procedures and mechanisms for making and monitoring strategic decisions regarding IT, and establishing personal interactions, intermediaries and interactive structures to improve the controllability, and thereby responsiveness, of the organization.

By having both the vertical control structure and horizontal collaboration structure in place, an organization can flexibly adjust its IT-related behavior to varying business priorities and find an appropriate balance between IT efficiency and effectiveness.

References:

  • Hoogervorst, J. A. P. (2009). Enterprise Governance and Enterprise Engineering, Springer.
  • Peterson, R. (2004). "Crafting Information Technology Governance", Information Systems Management, 21, 4.
  • Volberda, H. W. (1996) "Toward the Flexible Form: How to Remain Vital in Hypercompetitive Environments", Organization Science, 7, 4.
  • Weill, P. & J. Ross (2005). "A Matrixed Approach to Designing IT Governance", MIT Sloan Management Review, 46, 2.

Janne J. Korhonen provides insights into how information technology can be applied strategically to catalyze organizational change and responsiveness. Drawing from both theory and practice, he discusses agile enterprise and its governance.

Janne J. Korhonen

Janne J. Korhonen is an independent business and IT consultant,specializing in enterprise architecture, business process management,service-oriented architecture and pertinent governance models. He has over ten years of experience as an architect and consultant in a variety of extensive and mission-critical IT projects. With strong theoretical underpinnings, his consulting encompasses systemic co-development of business, organization and information technology.

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