Thursday, May 22, 2003

Transcription

1 M CIO Summit 2003 Don t Just Lead, Govern! Effective Governance Thursday, May 22, 2003 This research was made possible by the support of CISR sponsors and, in particular, CISR patron Gartner. Professor Peter Weill Director, Center for Information Systems Research (CISR) M Sloan School of Management Phone: (617) , Fax: (617)

2 Why is Governance Important? Because: Links to corporate governance is now completely embedded in enterprises => maturity Demand for new use of comes from talented people in all areas of the enterprise Leadership has limited bandwidth Some enterprises get consistently above industry returns => they must make consistently better decisions Learn from good corporate and financial governance Governance can be explained on two pages Top performing enterprises govern differently =>Rethink Governance: set vision, decision rights, accountabilities and desirable behaviors. Don t Just Lead, Govern! M Sloan Center for Information Systems Research Weill Center for Information Systems Research

3 Domain Archetype Governance Research Overview Setting Strategy 3 Value disciplines Governance Arrangements Key Decisions Principles Infrastructure Architecture Application Investment Strategies Needs Input Decision Input Decision Input Decision Input Decision Input Decision Monarchy Monarchy Feudal Federal Duopoly Anarchy No Data or Don t Know Archetypes Governance Awareness % of managers in leadership positions Governance Performance Average of 4 performance measures weighted by importance Flexibility Growth % Margin ROE ROI Profit Financial Performance ROA Asset Utilization Market Cap change Valuation Size Number of BUs Synergy &/or Autonomy of BUs Intensity $, People Mechanisms Councils SLAs Organization Chargeback Architecture Committee Communication Approaches Meetings Documented procedures Portal Exceptions % projects Cost Asset Utilization Weights Score out of 100 Cost-effective use of Effective use of for growth Effective use of for asset utilization Effective use of for business flexibility Growth % Change in Revenue Productivity Revenue / Employee 3 year averages Industry adjusted % change M Sloan Center for Information Systems Research Weill Center for Information Systems Research

4 What is Governance? Decision rights and accountability framework to encourage desirable behavior in the use of Who has decision rights and input to key decisions. Principles role for Infrastructure what is shared and put in first Architecture integration & compatibility application needs what is required Investment & Prioritization how much and when What is desirable behavior in the enterprise. Sharing, reuse, cost savings, innovation, growth What mechanisms are used to implement governance. E.g., council, process teams, architecture office, SLAs How much business value. Responsibilities, accountabilities, measurement and metrics Source: Don t Just Lead, Govern! Empowering Effective Enterprise Use of, P. Weill & J. Ross, Harvard School Press: Boston, Forthcoming. M Sloan Center for Information Systems Research Weill Center for Information Systems Research

5 What decisions need to be made? five major decisions principles infrastructure strategies High level statements about how is used in the business Strategies for the base foundation of budgeted-for capability (both technical and human), shared throughout the firm as reliable services, and centrally coordinated (e.g., network, help desk, shared data) architecture An integrated set of technical choices to guide the organization in satisfying business needs. The architecture is a set of policies and rules that govern the use of and plot a migration path to the way business will be done (includes data, technology, and applications) application needs investment and prioritization Identifying business applications to be acquired or built Decisions about how much and where to invest in including project approvals and justification techniques M Sloan Center for Information Systems Research Weill Center for Information Systems Research

6 Governance Archetypes Decision rights or inputs to decisions for a particular domain are held by: Monarchy Monarchy A group of, or individual business executives (i.e., CxOs). Includes committees comprised of senior business executives (may include CIO). Excludes executives acting independently. Individuals or groups of executives Feudal unit leaders, key process owners or their delegates Duopoly Federal executives and one other group (e.g., CxO or BU leaders) Shared by C level executives and at least one other business group (e.g., CxO and BU leaders) may also include executives. Equivalent of the center and states working together. Anarchy Each individual user Note: Some governance styles inspired by Tom Davenport, Information Ecology. Oxford University Press, M Sloan Center for Information Systems Research Weill Center for Information Systems Research

7 How do enterprises govern? Decision Domain Principles Infrastructure Strategies Architecture Application Needs Investment Governance Archetype Input Decision Input Decision Input Decision Input Decision Input Decision Monarchy Monarchy Feudal Federal Duopoly Anarchy Most common pattern for all firms. The numbers in each cell are percentages of the 256 enterprises studied in 23 countries. The columns add to 100%. No Data or Don t Know M Sloan Center for Information Systems Research 2002 Weill. This framework is adapted from Weill & Woodham's work originally published and copyrighted by the M Sloan CISR as Working Paper No. 326, "Don't Just Lead, Govern: Implementing Effective Governance," April M Sloan Center for Information Systems Research Weill Center for Information Systems Research

8 Best and Worst Governance Performers had: (in general without considering other factors) Style Domain principles infrastructure architecture application needs investment and prioritization Monarchy Monarchy Feudal Federal Duopoly + + Anarchy Poor Performers (*) + Top Performers (*) *Statistically significant relationship with governance performance. Governance performance is the effectiveness of governance assessed by the CIO to deliver four objectives weighted by importance: cost effective use of & effective use of for asset utilization, revenue growth & business flexibility. M Sloan Center for Information Systems Research Weill Center for Information Systems Research

9 Top Three Governance Performers (in general without considering other factors) Style Domain principles infrastructure architecture application needs investment and prioritization Monarchy Monarchy Feudal Federal 1 3 Duopoly Anarchy Top Three Performers - Governance performance is the effectiveness of governance assessed by the CIO to deliver four objectives weighted by importance: cost effective use of & effective use of for asset utilization, revenue growth & business flexibility M Sloan Center for Information Systems Research (Weill) and Gartner, M Sloan Inc., Center drawing for on Information the framework Systems of Weill Research and Woodham, Weill Center for Information Systems Research

10 Don t Just Lead, Govern! Critical Success Factors Governance leverages the ingenuity of all the enterprise s people, not just the leaders, while ensuring compliance with the overall vision and principles. 1. Transparency: more transparency => more confidence. 2. Actively design governance: ineffective governance is often the result of governance by default and uncoordinated mechanisms. 3. Know when to redesign: implementation takes months only change governance when desirable behaviors radically change. 4. Educate: educate managers why governance is important engage, reinforce & redirect behaviors. 5. Good governance requires choices: Only a small number of goals, behaviors and metrics can be optimized by governance. 6. Have a clear exception handling process: exceptions are how enterprises learn should encourage debate but escalate quickly to senior management. 7. Ensure governance is owned and has metrics. 8. Design governance at enterprise and BU levels. Can your enterprise pass the acid test? M Sloan Center for Information Systems Research Weill Center for Information Systems Research

11 Supplementary Material M Sloan Center for Information Systems Research Weill Center for Information Systems Research

12 Assessing Governance Performance* Governance Performance = the effectiveness of governance in delivering four objectives weighted by their importance to the enterprise: 1. Cost effective use of 2. Effective use of for asset utilization 3. Effective use of for growth 4. Effective use of for business flexibility Maximum = 100 Average = 69 Top 1/3 > 74 Maximum = 100 Average = 69 Top 1/3 > 74 Assessed by CIO Only 17% of enterprises scored 80+ and 7% scored 90+ * Governance performance has statistically significant positive relationship with several measures of financial performance (I.e. ROA, ROE, market cap growth) M Sloan Center for Information Systems Research Weill Center for Information Systems Research

13 Effective Governance requires harmony in two directions Enterprise Strategy & Organization Governance Arrangements - Decision Rights via Monarchies, Federal etc. Performance Goals Organization & Desirable Behavior Governance Mechanisms (e.g., Committees, budgets etc.) Decision Domains Principles Infrastructure Architecture Applications Investment Metrics & Accountabilities Harmonize What Harmonize How M Sloan Center for Information Systems Research Weill Center for Information Systems Research

14 Human Assets Corporate and Key Asset Governance Shareholders Monitoring Strategy Financial Assets Financial Governance Mechanisms Executive Committee Budgeting Process Capital Approval Process Cash Flow Management Etc. Key Asset Governance Corporate Governance Board Senior Executive Team Key Assets Physical Assets IP Assets Stakeholders e.g., employees, customers, creditors Desirable Behavior Disclosure Information (& ) Assets Governance Mechanisms Executive Committee Steering Committee Budget Process Organization Architecture Committee Service Level Agreements Process Teams with Members Relationship Assets M Sloan Center for Information Systems Research Weill Center for Information Systems Research Source: Don t Just Lead, Govern! Empowering Effective Enterprise Use of P. Weill & J. Ross, Harvard School Press, Forthcoming.

15 Making Governance Mechanisms Work Mechanisms 1 Executive and senior management committee Formal tracking of business value of Capital investment approval and budgets Process teams with membership Service level agreements Chargeback Architecture Committee Objectives Holistic view business including Measure investments and contribution to business value often using balanced scorecard Consider as another business investment Take process view using (and other assets) effectively Specify and measure service Recoup costs from business Identify strategic technologies and standards enforcement? Desirable Behavior Seamless management incorporating Makes transparent: goals, benefits and costs Prudent investing different approaches for different investment types End-to-end process management Professional supply and demand Responsible use of driven decision making Undesirable Behavior Observed ignored Separates from other assets Focus on $ not value Paralysis by analysis Small projects to avoid screen Stagnation of functional skills and fragmented Infrastructure Manage to SLA not business need Arguments about charges and warped demand police and delays Top governance performers use for 2 Principles Architectures and business needs Encourage sharing and reuse Enabling coordination with business partners (e.g. suppliers) Used effectively by leading performers 3 Market Cap Growth, ROE Growth, Market Cap Growth Market Cap Growth ROA, ROE ROI, ROE, Market Cap Growth ROA, ROI Market Cap Growth, ROA, ROE, Productivity 1 Listed in decreasing order of predictor of governance performance 2 Statistically significant relationship 3 Statistically significant positive relationship between the use of the mechanism and the industry adjusted performance measure Source: Don t Just Lead, Govern! Empowering Effective Enterprise Use of, P. Weill & J. Ross, Harvard School Press, Forthcoming. M Sloan Center for Information Systems Research Weill Center for Information Systems Research

16 M Sloan Center for Information Systems Research (CISR) CISR gratefully acknowledges the support and contributions of its Research Patrons and Sponsors PATRONS AND SPONSORS MISSION CISR Research Patrons Accenture Gartner Hewlett-Packard Company IBM Corporation Microsoft Corporation CISR Sponsors Aetna Inc. Allstate Insurance Co. Campbell Soup Co. Celanese Det Norske Veritas AS EMC Corp. Freddie Mac The Gillette Co. The Guardian Life Insurance Co. of America ING Intel Corp. International Finance Corp./World Bank Marsh, Inc. Merrill Lynch & Co., Inc. MetLife Mitsubishi Corp. Mohegan Sun National Kidney Foundation (Singapore) Nomura Research Institute, Ltd. Ortho Biotech Products, L.P. Pfizer Inc. PFPC, Inc. Qwest Communications State Street Corp. TRW, Inc. Founded in 1974; CISR has a strong track record of practice-based research on how firms manage & generate business value from Research is disseminated via electronic research briefings, working papers, research workshops & executive education programs including CISR Summer Session Current Issues in Managing TOPICS Effective Governance Architecture-Driven Strategies Infrastructure as Variable Cost The Portfolio Benchmarks & Performance NSF Project on Impacts Models & Investments Assessing Architecture Outcomes Managing -related Risk Contact Information: 3 Cambridge Center, NE Cambridge, MA Ph , Fax cisr@mit.edu; M Sloan 2003 Center M Sloan for Information CISR Center Systems Research Weill Center for for Information Information Systems Systems Research Research