Information technology (IT) governance has been a perennial item on the corporate agenda of many organizations. Ever since IT proved to be more than an administrative tool, researchers and practitioners have pondered its governance. Defined as the locus of IT decision-making authority (Brown & Magill, 1994; Sambamurthy & Zmud, 1999), discussions concerning IT governance have flourished for more than four decades across research communities and boardrooms. Posed as a question of centralization during the 70s, IT governance drifted towards decentralization in the 80s, and the recentralization of IT decision-making was a 90s trend. Today, IT governance is experiencing yet another transformation, and persists as a complex and evolving phenomenon (Grembergen, 2003). As business environments continuously change and new technologies evolve rapidly, how to govern IT effectively remains an enduring and challenging question. This chapter discusses past developments and the present status quo of IT governance, and outlines several critical questions, which are pending future investigation.
Traditionally, three IT governance models have been distinguished (Brown & Magill, 1998; Sambamurthy & Zmud, 1999). In each model, stakeholder constituencies take different lead roles and responsibilities for IT decision-making across the IT portfolio. In the centralized model, corporate IT management has decision-making authority concerning IT infrastructure and IT applications. In the decentralized model, division IT management and business management have authority for IT infrastructure and IT applications. In the federal model, corporate IT has authority over IT infrastructure, and (either or both) division IT and business-units have authority over IT applications.
In general, it is argued that centralization provides greater efficiency, control, and standardization, while decentralization improves business ownership, flexibility, and responsiveness (Brown, 1997; Rockart, Earl, & Ross, 1996). Literature suggests that the federal model provides the benefits of both centralization and decentralization (see Figure 1). Research indicates that organizations adopt a federal model when pursuing multiple competing objectives involving a simultaneous focus on cost-efficiency and business-flexibility (Peterson, O’Callaghan, & Ribbers, 2000; Sambamurthy & Zmud, 1999).
Figure 1. Top
Drivers and design of IT governance (Adapted from Hodgkinson, 1996; Peterson, O’Callaghan, & Ribbers, 2000; Sambamurthy & Zmud, 1999)
While the federal model seems to be the dominant configuration in contemporary firms (Peterson, O’Callaghan, & Ribbers, 2000; Sambamurthy & Zmud, 1999), empirical studies regarding the complexity of this configuration are sparse. Specifically, allocation of IT decision-making authority does not resolve the need for effective coordination between corporate IT, division IT and business-unit management. Continuous differentiation leads to fragmentation, unless a corresponding process of integration complements it. The problems reported in practice and research regarding the lack of, for example, IT prioritization, top management IT commitment, IT management business understanding, business management IT responsibility, and IT value generation, are symptomatic of this fragmentation and are typically encountered in the federal IT governance model (Peterson, 2001; Weill & Broadbent, 1998).
Key Terms in this Chapter
IT Applications: Local business-functional applications embedded in business processes, activities, products and/or services.
Collaboration: A close, functionally interdependent relationship, in which organizational units strive to create mutually beneficial outcomes. Collaboration involves mutual trust, the sharing of information and knowledge at multiple levels, and includes a process of sharing benefits and risks. Effective collaboration cannot be mandated.
Integration: 1) The process of achieving unity of effort among various subsystems in the accomplishment of the organizational task ( process focus ). 2) The quality of the state of collaboration that exists among departments, which is required to achieve unity of effort by the demands of the environment ( outcome focus ).
Centralized Model: The concentration of decision-making in a single point in the organization, in which a single decision applies.
Shared Learning: The co-creation of mutual understanding by members of organizational sub-units of each other’s goals and objectives.
IT Infrastructure: The base foundation of the IT portfolio, delivered as reliable shared services throughout the organization, and centrally directed, usually by corporate IT management.
Participation: Process in which influence is exercised and shared among stakeholders, regardless of their formal position or hierarchical level in the organization.
Differentiation: The state of segmentation or division of an organizational system into subsystems, each of which tends to develop particular attributes in relation to the requirements posed by the relevant environment. This includes both the formal division, as well as, behavioral attributes of the members of organizational subsystems.
IT Governance: 1) Locus of IT decision-making authority (narrow definition). 2) The distribution of IT decision-making rights and responsibilities among different stakeholders in the organization, and the rules and procedures for making and monitoring decisions on strategic IT concerns (comprehensive definition).