In today’s organisations, where such strategic importance is placed on the IT function developing and delivering complex systems to support both corporate policy and external regulations, IT governance has a major impact on business strategy.
The successful alignment of IT and the business is more critical than ever, and mature IT governance practices enhance the ability of IT to deliver strategic initiatives based on efficiency, control and value. But how do you measure the realisation of business value delivery through IT? How can assurance be provided that the IT organisation is not investing in bad projects and that there are adequate control mechanisms in place?
The IT function continues to see ever-increasing challenges from the business in the delivery of products, services and systems. The context of this delivery, and the environment in which the IT function operates, is also continuously changing. New regulatory requirements, increased competition, complex supply chains, and a diverse group of key stakeholders whose expectations need to be managed, all conspire to increase the challenge.
In the face of these significant challenges, IT governance can bring clarity around the responsibility, authority, communication and reporting flows which enhance decision making.
Accompanying policies, processes, standards and control mechanisms enable people to carry out their roles and responsibilities. Effective IT governance is therefore a key strategic enabler for growth and prosperity and helps to achieve the fusion of IT and the business. However, to achieve these ambitions it must be addressed in the context of the wider business governance, and be strategically aligned through the value chain.
Designing an effective IT governance structure around the organisation’s value chain, objectives and performance goals, is therefore a significant challenge and one which needs to be approached in stages through a supporting governance framework which takes account of all the key considerations.
The IT Governance Framework, when implemented, will include supporting structure, processes and mechanisms. In this context, the processes include strategic decision making and monitoring through methods such as the balanced scorecard. The importance of the IT function justifies the use of the balanced scorecard to further assess the effectiveness of IT governance changes introduced.
The balanced scorecard
The balanced scorecard can be an effective strategic planning and management tool for aligning activities to the vision and strategy of the organisation, improving both the internal and external communications, and monitoring organisation performance against strategic goals. Ideally, the balanced scorecard should be a pragmatic tool for easily identifying how well the IT governance process is going and how it can be improved. The scorecard:
Balances both financial and non-financial measures;
Balances performance drivers (lead) with outcome measures (lag);
Balances short and long term objectives/measures.
The business balanced scorecard tracks performance and progress against strategic goals which are divided into a four-way view of an organisation’s performance:
Customer: This aspect focuses on the measurement of performance as perceived by the customer;
Financial: Measures the fiscal health associated with organisational performance;
Internal Business Processes Perspective: Measures internal business practices and system processes for efficiency and effectiveness;
Innovation, Growth and Learning: Measures progress towards achieving the attraction, development and retention of staff.
Each of these perspectives contains objectives which are the means through which to achieve the strategic goals and, ultimately, company vision and mission statements. The scorecard is a living method which can be continuously monitored and revised, based on identified priorities.
The IT balanced scorecard focuses on different but interrelated perspectives from the business scorecard, focusing on:
User Orientation: How users view the IT function;
Operational Excellence: Measures the effectiveness and efficiency of IT;
Business Contribution: Reflects management’s view of the IT function;
Future Orientation/Innovation: Measures how well IT is positioned to meet future needs.
To ensure the effectiveness of the IT balanced scorecard for measuring success of IT governance changes, the scorecard must be fully aligned with the business balanced scorecards. To achieve this alignment and to ensure communication and agreement of the IT scorecard with key business stakeholders, the IT scorecard must not be developed in isolation.
The IT scorecard enables focused measurement of IT-related change, such as IT governance changes, only if seen in the context of the broader group-wide picture, therefore considering the impact on other key business functions. The corporate strategy, mission and vision, filtered through the business scorecard should then flow through and be aligned with the IT strategy, mission and vision. IT scorecard effectiveness therefore depends on:
Alignment with the corporate strategy;
Clear integration with the business scorecard, based on common values;
Goals and strategy cascading down through the business and its functions;
Group involvement (across functions).
These considerations can help ensure that the IT scorecard approach becomes an enabler for the business as the IT governance changes measured make the IT function an improved enabler of business value.
In conjunction with an aligned approach to scorecard development, the introduction of critical success factors can help to further ensure that the IT balanced scorecard approach is applied in context. Critical success factors might, for example, focus on strong leadership and alignment, clear and measurable goals and clearly defined roles and responsibilities.
In order to effectively track progress against the objectives stated in the IT balanced scorecard, a further enhancement to the approach uses a strategy articulation map (SAM) for each balanced scorecard developed. The SAM introduces the concept of Strategic Themes around the key strategic objectives. These strategic themes correspond to the scorecard perspectives. It is possible to have more than one strategic theme for each perspective. The Vision, Mission and Strategic Themes from the Corporate (or Level 1) Scorecard are then cascaded down to all subsequent scorecard levels.
Key performance indicators (KPIs) can be used to measure the achievement of strategic objectives. A strategic objective may be measured by one or more KPIs. A number of strategic objectives may be grouped and measured by one KPI. The key to successful tracking is then to apply the SMART approach to choose appropriate KPIs. The acronym SMART stands for:
S – simple: uncomplicated, meaningful, unambiguous;
M – measurable: can be quantified, data is available;
A – achievable: users have the ability to achieve;
R – realistic: users have the ability to influence or control;
T – timely: short-term, monthly or quarterly timeframe.
The delivery of value from the IT function is dependent on aligning IT with business strategy. Establishing mature IT governance practices enhances the ability of IT to deliver strategic IT initiatives based on efficiency, control and value. However, good governance requires measurement to ensure its effectiveness. The IT balanced scorecard approach is an effective mechanism for measurement of governance effect-iveness. Ultimately, the use of a scorecard approach which is based on strategic objectives and goals supporting clearly articulated vision and mission statements will therefore help to bring IT governance to light and act as an IT strategy enabler.
About the author:
Edward Miles-Kingston is business advisory global practice lead at Birchman Group, a consulting firm that specialises in value management.