Firms achieving above industry average returns from IT investments must be making consistently better IT-related decisions. Effective IT governance is one of the ways these firms achieve superior returns. Many firms are creating IT governance structures that encourage the behavior leading to achieving the firm's business performance goals. We define IT governance as specifying the decision rights and accountability framework to encourage desirable behavior in the use of IT. Effective IT governance requires careful analysis about who makes decisions and how decisions are made in at least four critical domains of IT: principles, infrastructure, architecture, and investment and prioritization. We studied the use of IT in large multi-business unit firms in the USA and Europe and found that the typical firm governs IT by following generally accepted guidelines with broad-based inputs and tightly controlled decision rights. However, top-performing firms governed IT differently with governance structures linked to the performance measure on which they excelled (e.g., growth). Designing an effective IT governance structure requires understanding the competing forces in a large organization and creating harmony among business objectives, governance archetype and business performance goals. An effective IT governance structure is the single most important predictor of getting value from IT. To help understand and design more effective governance, we propose an IT governance framework that specifies how decisions are made in the key IT domains. The framework harmonizes desired governance archetypes (i.e., monarchy, feudal, federal and anarchy) and a series of governance mechanisms (e.g., committees, approval processes and organizational forms). The framework is illustrated with effective IT governance at State Street Corporation. Effective IT governance encourages and leverages the ingenuity of all the firm's people in using IT, not just the leaders, while still ensuring compliance with the firm's overall vision and principles. In short, don't just lead, govern
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Paper provided by Massachusetts Institute of Technology (MIT), Sloan School of Management in its series Working papers with number
4237-02.
Length: Date of creation: 28 Mar 2003 Date of revision: Handle: RePEc:mit:sloanp:1846
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