IT Governance Strategies from State Street, 3M and Others

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But CIOs can’t keep too much to themselves or they risk alienating the top execs. So education is important. At Milwaukee-based sign-maker Brady, Keith Kaczanowski feeds the company’s top executives information about a technology before they have to make a decision about it. Brady recently centralized its computing infrastructure on a new ERP system, which raised the stakes on issues such as security and disaster recovery now that all the company’s digital eggs have been placed in one system basket. Kaczanowski, who is vice president of IT and process improvement, devoted a meeting to educating the top executives on those issues because he knows he’ll soon be recommending some new spending in those areas. At Atlanta-based package giant United Parcel Service, CIO Ken Lacy also uses education to set expectations. "The top executives travel all the time, and they’re hearing things about new technologies wherever they go," says Lacy. "So I listen for that. And we’ll have education sessions on Linux, for example, where our people will present the issues and talk about why we think we should wait on Linux or go ahead with it."

Governance from the middle out: When You’re Decentralized

Not all CIOs can expect to get that kind of attention from senior executives. That is why having a good committee governance structure at the middle level is so important.

Jeff Balagna, senior vice president and CIO for Minneapolis-based Medtronic, which makes pacemakers and other electronic medical devices, was brought in from GE in 2001 to establish a core governance structure. Medtronic is highly decentralized and was not interested in powerful supergroups. So Balagna formed a committee of senior IT leaders from the company’s five business units. Many companies use this device, the IT council, to govern the IT function when they have multiple independent business units, each with its own IT staff.

Though he does not have the leaders of the different business units in the council, Balagna adds an interesting twist to this governance mechanism that gives it more strategic significance: Each CIO of Medtronic’s five business units reports directly to the president of those business units, not to Balagna, who gets dotted-line authority over them. The divisional CIOs sit in on their business units’ strategy sessions and bring those strategies with them to the meetings of the IT council. That helps the council set an overall strategy for IT that reflects the business interests of the business units. When the committee decides to make a big IT investment or a major policy change, final approval goes to Medtronic’s executive committee of top business honchos, but most of the company’s IT discussion and strategizing remains at the IT level.

Too much governance?

If all these governance mechanisms sound like extra layers of bureaucracy, you’re right. However, "large company bureaucracy is not always a bad thing," says Balagna. "It can keep you from doing knee-jerk technology projects."

But CIOs need to be careful. As layers of governance build up, innovation and flexibility suffer. Companies with highly formalized structures for investing in IT, for example, tend to invest only in projects that support current business. In a survey of 40 companies, MIT’s Weill found that companies that do well in terms of return on assets tend to have tight, centralized governance mechanisms, while companies looking to maximize their market caps tend to push IT decision making out to the local business unit or end users.

All the committees and rules that come with good governance tend to lead to investment decisions short on risk or creativity. So companies have to be willing to devote a certain percent of the budget to experimentation?5 percent seems to be average for companies that maintain this innovative edge, according to Ross. At UPS, for example, Lacy has an advanced technology department that works with UPS’s major vendors to test new technologies. And the department has the power to commission small-scale pilots from scratch. "There isn’t a whole lot of off-the-shelf technology you can buy for transportation," Lacy says. To change that, UPS also has a Strategic Enterprise Fund that invests in small or startup vendors that could eventually deliver the functionality UPS is looking for.

The end of governance

At 3M, Drew says IT is surviving just fine without his supergroup. The company still has a corporate council, composed of all the functional heads, that talks about enterprise IT strategy on a regular basis. And IT projects over $3 million still pop up to the executive committee, which gives Drew a forum to talk IT strategy with all the top execs. Beneath this level, he has built steering committees in each business unit and an IT operating committee, composed of the different business unit IT leaders, that meets regularly to talk strategy and prioritize investments.

Asked if he thinks his supergroup will ever reunite, Drew says no. 3M’s new CEO is a Six Sigma fanatic, so the quest for zero defects in business processes will occupy top management for the foreseeable future. Drew has responded by placing IT people on all the Six Sigma teams and doing his best to anticipate the IT requests that will come out of the exercises.

In the end, and above all, governance must be adaptable.

"You can’t solve everything with committees," Drew says. "You have to figure out the most practical way to interrelate with senior management on IT issues and be prepared to change the way you do it. There’s no standard model for that."

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Copyright © 2002 IDG Communications, Inc.

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