developing effective it governance to unleash business value · developing effective ... should the...
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© Accenture Copyright © 2012 - All Rights Reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.
Is IT Governance just a buzz word and
fashion theme ?
Why does IT Governance remain an on-going issue?
Why is it so difficult to implement effective IT Governance?
How do I get started implementing effective IT Governance?
How much should senior leadership of the business be involved in IT
Governance?
What do IT Governance committees need to be effective?
Should the CIO lead IT Governance?
How do I determine the effectiveness of IT Governance?
Most frequently asked questions about IT Governance…
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IT Governance is all about direction, leadership
and decision making to deliver business value
The ability to make sponsor and enforce the right IT decisions
• How are decisions
made?
• Who plays what role
in the decision
making?
• What processes are
used?
• How are investments
authorized?
• How does leadership
work for IT?
• Who is the
“evangelist” for IT?
• How is joint
ownership secured?
• What is measured
and by whom?
• What incentive
system is used?
• What accountabilities
and authorities exist?
• How are investments
managed?
• What knowledge is
required?
• How is a fresh view
injected?
• How do we learn
continuously?
= Foundation for Business Value from IT investments
Tool enabled end-to-end processes providing transparency and control
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Most top executives have realised that IT-Governance is
essential to realise the business value from IT
- Example of IT-Governance
elements typically in place -
Common processes and standards published
Annual plans & processes in place
Business-side active part in IT prioritization
IT strategy is in place
Business case is established for all projects
IT balanced scorecard / metrics implemented
Roles and responsibilities established for the
entire organization
Reward system in place
Value Creation Reduce
Cost
Increase Revenue
Improve Capital
Efficiency
Business Value Levers
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• Do I get value from my IT?
• Is IT a help or a hindrance?
• How can I get more control over my IT spend?
• Why are we spending our IT money in this area?
• How can I get this key initiative prioritised?
• What should be the development spend this year?
• How much should we be spending on IT maintenance?
• When are we going to stop investing in this old system?
• Who owns this IT asset?
• How do I get funding for this new project?
• Who needs to approve this project?
• Who is accountable for this service outage?
• What happens when my IT budget runs out?
• Why buy globally when I can buy it cheaper here?
• What do l want IT to focus on?
• What service levels should I expect from IT?
• What areas of IT governance should I approve?
But “typically in place” very rarely means that IT
Governance practices are effectively used…
Questions that should (..will inevitably) be asked by CFOs and CXOs…
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Many fail in implementing IT Governance, leading to a
substantial shortfall of business value from IT investments
• Poor alignment of the IT strategy with
business objectives
• IT investment and delivery not driven by
corporate priorities
• Business not part of or accountable
for IT prioritization
• KPI's and balanced scorecard are defined,
but performance is not measured and there
is a lack of follow-up
• Architecture is defined, but redundant
projects are allowed
• Standards are in place, but are not followed
- What do we typically find -
Shortfall of business
value from IT investments
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7
The shortfall is even wider if compared to IT ‘s true business
value generation (ITBVA)
Overview of Accenture’s IT Business Value Added (ITBVA) :
Business value of IT
IT Internal Efficiency
IT Services
Strategic Change Agility
1
2
3
Business value produced by IT can be structured and measured consistently –
and managed with effective IT Governance
Value of IT Services: Value of key IT outputs.
1. The IT based end-products and services
2. Business processes that are supported and automated by IT.
3. Personal efficiency of each corporate employee with the use of IT and communications technology.
Value of Strategic Change Agility: Value created when IT is responsive in enabling and actively driving
strategic corporate change.
Value of IT Internal Efficiency: Value created by effective and cost efficient IT operations.
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• Do I get value from my IT?
• Is IT a help or a hindrance?
• How can I get more control over my IT spend?
• Why are we spending our IT money in this area?
• How can I get this key initiative prioritised?
• What should be the development spend this year?
• How much should we be spending on IT maintenance?
• When are we going to stop investing in this old system?
• Who owns this IT asset?
• How do I get funding for this new project?
• Who needs to approve this project?
• Who is accountable for this service outage?
• What happens when my IT budget runs out?
• Why buy globally when I can buy it cheaper here?
• What do l want IT to focus on?
• What service levels should I expect from IT?
• What areas of IT governance should I approve?
Often the challenge is to recognize IT Governance issues
and how to solve them effectively.
Questions to be asked… … relate directly to IT Governance
How is IT aligned to the business?
How should IT decisions be made?
How do we manage IT investments?
What controls do we need in place?
How do we measure and reward?
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• Do I get value from my IT?
• Is IT a help or a hindrance?
• How can I get more control over my IT spend?
• Why are we spending our IT money in this area?
• How can I get this key initiative prioritised?
• What should be the development spend this year?
• How much should we be spending on IT maintenance?
• When are we going to stop investing in this old system?
• Who owns this IT asset?
• How do I get funding for this new project?
• Who needs to approve this project?
• Who is accountable for this service outage?
• What happens when my IT budget runs out?
• Why buy globally when I can buy it cheaper here?
• What do l want IT to focus on?
• What service levels should I expect from IT?
• What areas of IT governance should I approve?
IT Governance need effective mechanisms that need to
implemented to address the issues
Questions…. relate directly to IT Governance… and mechanisms
• IT Governance Principles and Enablers
• IT Governance Process Model
• IT Governance Maturity
Model
• IT Responsibility Matrix
• IT Performance Metrics
• IT Balanced Score Card
How is IT aligned to the
business?
How should IT decisions be
made?
How do we manage IT
investments?
What controls do we need in
place?
How do we measure and
reward?
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The Truth about IT Governance Practices…
… as many companies are struggling to adopt the right IT Governance
practices.
0% 100%
28% Tie IT investments to business strategy and goals
12% Accurately measure business impact of IT
investments
Proper governance structures to deliver IT value 20%
21% Prioritize and manage technology investments
60% Actively and regularly collect and use IT metrics
IT Governance Practices for
IT Value Creation
Adoption Rate by Companies
Source: Mainstay Partners, Standish Group 2005 and Accenture survey 9/2011
78%
38%
21%
28%
2005 2011
43%
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So what should CIOs actually do to guard their IT
investments and optimize the return?
Getting the right governance
model in place?
Contradiction?
OR
Focus on governance processes & execution?
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The answer is simple … focus on both!
High-performing businesses are successful in both - adoption of the right
governance structure and rigorous execution of good IT value practices
1 – Establish an overarching IT Governance framework Focus on
Structure
2 – Focus on tight business & IT alignment
3 – Make IT a business driven activity
4 – Plan IT demand professionally
5 – Bridge the skill gap between business & IT
6 – Run IT as a business
Focus on
Process &
Execution
Source: Accenture Analysis
Simple Success Factors for IT Governance
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Feedback Loop
Monitoring of projects
Benchmark against external
Benchmark against internal
Feedback-Loop to Alignment
Project Definition
Business Case Development
Investment Prioritization
Portfolio Decision
Business/IT Capabilities Assessment
Objectives Alignment
Investment Alignment
1 - Establish an overarching IT Governance
framework
Simple IT Governance & Demand Management Framework
Business
IT
Source: Accenture IT Governance & Demand Management Framework
Business/ IT
Alignment
IT Value
Review
IT Governance
IT Demand
Planning
IT Supply
Control
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Lack of IT alignment with business objectives impedes value return
of IT investments
2 - Focus on tight business & IT alignment
Top 3 Business Unit
objectives received only 24%
of that business line‘s IT
investment spending
Objective Category Priority % I/T
Exp.
% Top
Three
Improve Customer Service 1 17% 17%
Innovation in Products 2 0% 0%
Improve sales force 2 7% 7%
Improved work capital use 3 0% 0%
Increase employee output 4 31%
Improve Product Delivery 5 7%
Develop human resources 5 0%
Dev. External Knowledge 6%
Increase use of asset 17%
Increase asset capacity 7%
Improve admin effective 8%
TOTAL ALIGNED IT Spend 100% 24%
L M H
Focus on Business Objectives
Client Case
•Download a Comp
Business Unit A Business Unit B
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Business Process Owner/ Sponsor
IT Project Mgr.
BU
SIN
ES
S
DE
MA
ND
IT
SU
PP
LY
Business Unit
Information Manager
(IM)
IT
DE
MA
ND
3 - Make IT a business driven activity
Overall responsibilities for driving IT investments have to be
clearly anchored on the business side
IT support either through
(a) Shared Service Provider
or
(b) External SP, sub-contracted under BU management
ILLUSTRATIVE
Functional IT
specification
IT Business Case
Request for Proposal
Project Prioritization
Capital Request
Objective
Description
Approach
Benefit calculation
Functional Bus.
Requirements to IT
Responsibilities Key Tasks
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Applic.&
Systems
Investment
Benefits
Maintenance
Benefits & Costs
Project Definition
By Internal Customer
Project Cost/Benefit
Assessment via
Business Case
Portfolio Decision
Approval
Investment
Prioritization
4 - Plan IT demand professionally
Urgency
Economic Contribution
Strategy & Operation
Business Case
Development
Risk Assessment
Budget Planning
Capital Investment
Request
Only end-to-end process model, tightly managed and supported by adequate methods and tools ensures consistent outcomes
Master Plan
Project Description
Functional
Requirements
Definition
Risks
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‚Missing Link‘ – Skill and
organizational gap
between business and IT
Business skills
Skill Ranges
IT skills
The typical skill and organizational gap between a company’s business units and the IT
provider hamper real success of IT value delivery
5 - Bridge the skill gap between business & IT and
break the traditional cultural boundaries
ILLUSTRATIVE
IT Provider Business Units
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Avg. in the
Industry
Trend
4
5,1%
4,4%
4,1%
4,5%
5,4%5,0%
4,8%
3,9%
4,6%4,8%
11,5bn
12,4bn
9,5bn
10,4bn
10,8bn
11,8bn
13,0bn
4%
5%
6%
7%
end of
FY 95
end of
FY 96
end of
FY 97
end of
FY 98
end of
FY 99
end of
FY 00
end of
FY 01
7
9
11
13
IT costs (w /o savings) as % of revenue
IT costs (w / savings) as % of revenue
Industry average IT cost / revenue ratio
KLM revenue
IT s
pend
ing
in p
ropo
rtion
to c
ompa
ny re
venu
e
FY 98 FY 99 FY 00 FY 01 FY 02 FY 03
projectedretrospective
Industry average IT cost / revenue ratio
ABC revenue
IT costs (w/ savings % of revenue)
IT costs (w/o savings % of revenue)
Cur
rent
Sta
tus
Avg. in the
Industry
Trend
4
5,1%
4,4%
4,1%
4,5%
5,4%5,0%
4,8%
3,9%
4,6%4,8%
11,5bn
12,4bn
9,5bn
10,4bn
10,8bn
11,8bn
13,0bn
4%
5%
6%
7%
end of
FY 95
end of
FY 96
end of
FY 97
end of
FY 98
end of
FY 99
end of
FY 00
end of
FY 01
7
9
11
13
IT costs (w /o savings) as % of revenue
IT costs (w / savings) as % of revenue
Industry average IT cost / revenue ratio
KLM revenue
IT s
pend
ing
in p
ropo
rtion
to c
ompa
ny re
venu
e
FY 98 FY 99 FY 00 FY 01 FY 02 FY 03
projectedretrospective
Industry average IT cost / revenue ratio
ABC revenue
IT costs (w/ savings % of revenue)
IT costs (w/o savings % of revenue)
Avg. in the
Industry
Trend
4
5,1%
4,4%
4,1%
4,5%
5,4%5,0%
4,8%
3,9%
4,6%4,8%
11,5bn
12,4bn
9,5bn
10,4bn
10,8bn
11,8bn
13,0bn
4%
5%
6%
7%
end of
FY 95
end of
FY 96
end of
FY 97
end of
FY 98
end of
FY 99
end of
FY 00
end of
FY 01
7
9
11
13
IT costs (w /o savings) as % of revenue
IT costs (w / savings) as % of revenue
Industry average IT cost / revenue ratio
KLM revenue
IT s
pend
ing
in p
ropo
rtion
to c
ompa
ny re
venu
e
FY 98 FY 99 FY 00 FY 01 FY 02 FY 03
projectedretrospective
Industry average IT cost / revenue ratio
ABC revenue
IT costs (w/ savings % of revenue)
IT costs (w/o savings % of revenue)
Cur
rent
Sta
tus
6 - Run IT as a Business !
Total IT Spending
New Capability Development
Operations Support
100%
0%
80%
60%
40%
20%
IT Spending in Percentage of a Company’s Revenue
Tight monitoring of IT initiatives and measuring outcomes against pre-
set targets is an important success factor in IT value creation CLIENT EXAMPLE
FY08 FY09 FY10 FY11 FY12 FY13
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OPERATIONAL CHANGE PROGRAM MANAGEMENT OFFICE
Business Needs Applications, Services, Products
DEMAND MGMT
Enhancements • Upgrades • Defects • Industrialized IT
• Change and Configuration Management • Quality • Performance
Provisioning • Security Projects • Resources • Budgets • Risk
Strategic Initiatives & Projects
APPLICATION CHANGE
OPTIMIZE BUSINESS OUTCOMES - (ITBVA)
OPERATIONS
SLAs • Business
Availability • ITBVA
• Deploy and Monitor
Change
Operational Demand
PORTFOLIO MANAGEMENT
Ideas • Proposals • Projects • Assets
Excellent tools exist for automating and integrating key IT
processes to gain visibility, control and efficiency
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In tool-enabled IT Governance, CIOs get real-time visibility
of IT operations with drill down metrics capabilities
Overall IT Visibility Portfolio Risk/Value
IT Driven Business Innovation
Service Management
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IT Governance creates value through
improved business performance.
IT Governance Value Promise
• Firms with superior IT governance have more than 25% higher profits than
firms with poor governance given the same strategic objectives.*
• Firms with above average governance had average ROAs more than twice the
size of the firms with poorer IT Governance.*
• Accenture research shows that high-performance organizations, with mature
IT governance, attain better business returns for IT dollars spent. .**
• Selective, value creating IT spending makes a greater contribution to the
bottom line and has a positive impact on shareholder value.
Sources: * MIT Sloan School of Management, Center for Information Systems Research, Research Briefing “How Top Performers Govern IT”
** Accenture High Performance IT Survey; 2009, 2011
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Accenture experience has also demonstrated the business
value of IT Governance.
• An Accenture CIO client stated publicly that improved IT Governance had
reduced IT costs by 8%, resulting from pooling investments across
business units
• At an Accenture client, improved IT demand management, including
investment prioritization and portfolio optimization resulted in cost
savings of 18% within IT and an additional 11% EBITA increase as
business value generation
• IT Governance focus on Application Portfolio Management has been
demonstrated to identify IT non-discretionary costs reduction by 30 - 40%,
freeing up IT budget for value-creating investments
IT Governance Value – Client Example…
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For more information feel free to contact ...
Thank you for your participation!
Jouni Hakanen Executive Partner
Greater China Lead
Technology Consulting
[email protected] Mobile:(852) 9662 0380