Towards a Deeper Understanding of IT Governance Effectiveness: A Capabilities-Based Approach

1. TOWARDS A DEEPER UNDERSTANDING OF INFORMATION TECHNOLOGY GOVERNANCE EFFECTIVENESS: A CAPABILITIES-BASED APPROACH Acklesh Prasad Jon Heales Peter Green UQ Business School The University of Queensland

2. Presentation Outline • Introduction • Motivation and Objective • Overview of IT Governance • Theoretical Basis • Hypotheses Development • Methodology • Results • Discussion • Contributions and Implications • Limitations • Conclusions

3. Introduction and Motivation • Organisation and IT Resources • Critical role in maintaining businesses well-being. • Consumption of financial and human resources. • IT Governance – “it is the responsibility of the board of directors and executives, and consists of leadership, organizational structures, and processes that ensure the enterprise’s IT sustains and extends the organizations strategies and objectives.” • Effective management of organisational resources - prevalent for long but had received renewed attention in the recent times.

4. Introduction and Motivation • Key focus of IT governance arrangements - Structure • Information systems structure and IT governance decisions rights (Bowen et al., 2007; Brown, 1997; Brown and Magill, 1994; Sambamurthy and Zmud, 1999). • Pre-decision activities (Xue et al., 2008). • However: • Our understanding of the effectiveness of such initiatives is less concrete • So far…… • Assessing the level of effectiveness in delivering four objectives (cost, growth, asset utilization, and business flexibility (Weill and Ross, 2004). • Compliance with legal and regulatory requirements (Bowen et al., 2007). • Perceived overall effectiveness of IT governance (Ali and Green, 2007; Goodhue and Thompson, 1995).

5. Introduction and Motivation The strategic necessity hypothesis. • The importance of IT-Related Capabilities as a source of business value. • Important to align IT Governance initiatives to develop and sustain IT-related capabilities. • Business Processes – The focal point of IT Resource consumption. • Firm-Level performance – Overall health of business. • OBJECTIVE To increase our understanding about the effectiveness of firms IT governance initiatives, by considering its relationship with IT-related capabilities, and their impact on process-level and firm-level performance.

6. Conceptual Model

7. Overview of IT Governance • IT Governance • At an abstract level, is a subset discipline of Corporate Governance focused on information and IT assets. • Initially - through compliance initiatives (Sarbanes-Oxley, and Basel II), today demands greater level of commitment from management. • Within various conceptualizations of IT governance (e.g., ITGI, AS8015) - the decision rights and the effective use and management of IT resources is a critical component . • COBIT, ISO/IEC 38500:2008 • Focus - IT-related decision making structure and methodologies to plan, organize, and control IT activates. • Prior research has focused on the structure and organization of the IT governance mechanism (for example, Bowen et al., 2007; Brown, 1997; Brown, 1999; Brown and Magill, 1994; Sambamurthy and Zmud, 1999; Weill and Ross, 2004; Xue et al., 2008). • The most prominent - IT steering committees (Doll and Torkzadeh, 1987; Karimi et al., 2000; Van Grembergen et al., 2004).

8. Theoretical Basis • The Resource-Based View of the Firm • Focus - firm as a bundle of resources, and focuses on the relationship between firms internal characteristics and performance. • re-establishes the importance of the individual firm as a critical unit of analysis. • It is the firms capabilities that enables them to achieve competitive advantage and leads to superior long-term performance (Barney, 1991; Dierickx and Cool, 1989; Grant, 1991; Wernerfelt, 1984). • Consequently, a true measure of any IT-related governance initiative is in its ability to contribute to IT-related capability building.

9. IT-Related Capabilities • Top Management Commitment - Successful IT requires top executives to act as ‘business visionaries’ and ‘prioritizors’ (Henderson and Venkatraman, 1993). • Effective IT Steering Committee- Provides assurance of overall consensus that a particular IT initiative is beneficial to the organization as wholeand has the potential to galvanize management commitment, from which IT management would benefit (Karimi et al., 2000). • Shared Organizational Knowledge - determines the strategic use of IT (Boynton et al., 1994;), that may influence how IT resources are used in support of a process. • Effective IT Steering Committee - provides the visibility of IT initiatives (Earl, 1989), IT sophistication requires the assimilative capability of different types of management (McFarlan, 1984; Raho et al., 1987), and will provide an appropriate mix of business and IT executives, which ensures strategic alignment, a balanced portfolio of IT investments, and close coordination of business and IT in the organization. Acts as ideal “harmonizer” of potential incongruence in the perceived objectives of IT and unit managers. • Flexible IT Infrastructure - can influence the firm’s IT resources’ ability to contribute to performance (Sambamurthy et al., 2003). • Effective IT Steering Committee - promotes agility and leadership in exploiting and managing IT (Doll and Torkzadeh, 1987), resulting in dynamic resource allocation and exploitation (Thomas, 1996). Promotes a structure, flexible and intelligent enough to identify competitive opportunities, and capitalize on existing strengths (Thomas, 1996). Encourages a shared vision that also aids in building this dynamics, and encourages managers to be agile, and vision how current IT structure could facilitate leveraging of potential opportunities (Karimi et al., 2000).

10. Capabilities and Business Value • Business Value • Internal Process Coordination • Enhancing customer service is of critical importance in any form of business organization. • IT-related capabilities would essentially promote automation of processes, improvement in existing technology, and reallocation of resources through changes in strategy, processes, and organizational structure. • These organizational changes build organizational capacity, through enhancement of business processes and increasing the capacity of the employees, some of whom deal with customers. • IT related initiatives will build employee competency and capacity to fulfill their core roles, including that of improved customer service. • Appropriate applications of IT may improve both customer satisfaction and productivity simultaneously (Anderson and Fornell, 1994). • Firm-Level Performance

11. Research Model

12. Research Methodology • Survey Approach • Construct Operationalization • Instrument Validation • Data Collection: • 2215 Public and Private Companies • 216 valid responses (response rate of 13.16%) • Good industry representation. • Mainly completed by senior executives. • Good representation – size, age, years of IT investment. • Diagnostics Checks • Non-Response Bias • Missing Data – Random (Maximum likelihood estimation to impute missing data) • Multiple Methods

13. Measurement Model – Key Statistics Note: AV – Average Variance Extracted, CA – Cronbach’s Alpha, CR – Composite Reliability CS -- Customer Service (CS), FP -- Firm--Level Performance, FI -- Flexible IT Infrastructure, PP -- Internal Process Performance, IG -- IT Governance, SO -- Shared Organisational Knowledge, TM -- Top Management Commitment.

14. Structural Model

15. Discussion • There are many pitfalls to the strategy of IT deployment than what one may anticipate. • A deeper understanding of the potential of the technology, and more importantly, the potential of generating unique capabilities from these IT resources is critical. • An effective IT steering committees can help with by bringing the IT and business units together, and promoting a shared understanding of each other for common organizational good. • Brings knowledge together by breaking of traditional barriers, internal walls between users and providers of technology. • IT steering committees help in overall harmony in IT usage, and resultant capability building, is important in demonstrating that IT governance is an organization-wide responsibility. • Effective IT steering committees driven IT-related capabilities’ benefits flow down to the business processes. • Firms who want to ensure that their IT steering committee has a vertical focus must ensure a lateral representation of members of the organization. • IT-capabilities-based IT governance effectiveness model provides an ideal approach to linking firm’s mechanisms for managing their IT resources to a set of resources that are deemed to be source of IT-related value. • Relates firms resource management efforts to level-unit of measure, their capable resources, thus suggesting a more direct and agile path to assessing their IT resource management efforts.

16. Limitations • Response Rate – 13.16% • Other factors related to IT steering Committees (size, experience level, and representation of business units) can conceivably impact IT-related capability building. • Other IT governance initiatives.

17. Implications for Theory and Practice • Theoretical Implications • A robust model with theoretical linkages for understanding the effectiveness of a firm’s IT governance initiatives. • Introduction of IT-capabilities as a resource against which the effectiveness of IT governance initiatives could be measured, and resource-based theory provides a more robust explanation of determinants of measures of a firm’s IT governance initiatives. • Useful theoretical lens when evaluating other IT governance initiatives effectiveness in relation to how they may contribute to building performance-differentiating IT-related capabilities. • Provides a basis to map capability generation at process level where IT resources are consumed and eventually at the firm-level. • Practical Implications • IT governance is truly a coordinated effort, embracing all levels of human resources. • Demonstrates the importance of this embracive management position on IT resource management. • Gives decision makers with some insights on the potential resources that they may wish to target as benchmarks against which they may evaluate their governance efforts. • IT-usage knowledge that reside with subordinate level IT users, and that their input is valued when contemplating on a strategy of IT management and deployment.

18. Conclusion • Presents a capabilities-based approach to understanding IT governance effectiveness, and the importance of mapping this IT governance and IT-related capabilities relationship at the process and firm level. • However, much more research will be vital in building this body of knowledge • Future studies need to look at different IT governance mechanics, different IT-related capabilities, and contingent factors to strengthen our understanding of the mechanics of IT governance that results in IT-related capabilities that provides benefits at process and firm levels. • The resource-centric approach provides other researchers to innovate their explorations of a deeper understanding of IT governance effectiveness, a much needed fuel to drive continued confidence in IT resources in organizations.

19. Thank you