The emergence of IT Governance
The cases of Enron, Worldcom and other corporate and financial scandals in the early years of the century have raised the significance of corporate governance and control. Regulatory environments have been formed with quite distinctive characteristics, depending on the needs of each country, and the needs of specific industries. The implementation of the controls required by regulations such as Sarbanes – Oxley for the publicly listed organisations in the U.S. and Basel II for European banks relies heavily on IT. That dependency, combined to the required controls on IT itself, have forced top-level executives to have a look towards the proper management and governance of the information and communication technologies that power their organisations.
At the same time, the high percentage of failed IT projects, ranging between 60% and 90% depending on the definition of failure, has alarmed many executives who see their resources to be wasted on failed projects, to be followed by more failed projects. Clear decision processes and proper project management aiming at efficiency and effectiveness, are the obvious answers to the problem; both of which point directly to IT Governance.
The high cost of IT investments, which is more than half of the annual CAPEX for most organisations, calls for control, accountability and risk management, not to mention cost reduction. Information security, industrial espionage, regulations for the confidentiality of the data and the privacy of employees and customers, are all gracefully handled by a proper IT Governance structure.
These are only some of the reasons that have led quite a few organisations worldwide to add IT Governance in their board agenda.
The status in Greece
Greece has control regulations for specific industries only, such as telecommunications, an industry largely affected by the Hellenic authority for communication security and privacy. Other industries are affected by pan-European control regulations, such as banking industry that needs to comply with MIFID and Basel-II alongside the directives issued by the Bank of Greece. Finally, just a few companies are listed in foreign stock exchanges such as NYSE – listed PTT, subsequently affected by the SOX act.
Nevertheless, although the environment in Greece is complex, and the IT infrastructure is no simpler than any other country’s, there is no published empirical academic research on the status of IT Governance in Greece. Even surveys that are conducted in wider geographical areas and not to a specific country do not usually include Greece; probably because it is a small market. The only data that has been found are some papers mentioning the benefits of IT Governance, as taken from the international practice; the data though is not adapted to local needs and circumstances.
This research, titled “IT Governance in Greece: Status, Drivers and Barriers” aims to evaluate and present the IT Governance related practices in Greece. What percentage of Greek companies are using IT Governance frameworks and best practices, which is the preferred framework between the two prevalent (ITIL and CobIT), and which is the decision model selected by the companies that employ IT Governance. An attempt will be made to find any relationships between these results, and the size of the organisation or the size of the IT department. The reasons for which Greek organisations select to implement or not an IT Governance framework will also be linked to that data and outsourcing strategies which are known to require careful governance will be evaluated. For the organisations that choose to not implement a formal governance framework, the barriers to implementation will be analysed, as well as the potential good practices which do not constitute a framework, nevertheless help to the prudent governance of an organisation’s IT assets and resources.
The research questions that are expected to shed some light to the main areas of the status of IT Governance in Greece are formulated as follows:
- The penetration of ITIL and CobIT in Greece as IT Governance frameworks
- Which are the most common factors that prevent or delay the acceptance and deployment of an IT Governance framework (barriers)?
- Which are the most common reasons that led organisations to deploy, or plan the future deployment of an IT Governance framework (drivers)?
- Which (if any) are the management methods used if a full IT Governance framework is not deployed?
The author has followed a career path in Information Technology for the last 15 years, acquiring positions of raising responsibilities. In alignment to that career path, the MBA was considered a good choice, providing a broader view on all areas of management such as organisational behaviour and culture, human relationships, finance and marketing, strategy and implementation. The subject of this dissertation combines the two worlds, that of management and of information technology, giving a more thorough and business – oriented view to the author’s subject of work. Beyond the obvious curiosity that is created by the lack of data in the Greek market in which the author lives and works, there has always been an interest in IT Governance, IT management and risk management, and this dissertation comes to cover at least some of these areas.
Structure of the dissertation
The rest of the dissertation has a typical structure – the introduction that was just provided constitutes the chapter one.
Chapter two provides a review of the existing literature and previous studies on IT Governance; that should form the basis for the research that was necessary for this dissertation.
Chapter three analyses and justifies the methodology that was used for the sampling, the data collection and data analysis methods that were selected. This chapter also presents and analyses some limitations related to the methodology, and presents the ways in which these limitations may affect the data analysis and the conclusions.
Chapter four is the data analysis, in which all data that were collected are analysed and presented, relations are drawn and comparisons to findings from previous research are performed in order to fully answer the research questions set in this dissertation.
Chapter five draws on the conclusions of the previous chapter. It summarizes the research objectives, the findings and the implications of the results. Generalization issues and data validity is further discussed. This chapter provides also recommendations for future studies, identifying details that were not included in this survey and questions that have emerged from the results of the current dissertation. Finally, this chapter reflects on the dissertation, assessing the weaknesses of the work performed and the obstacles faced; it also identifies the areas in which the author has gained knowledge and experience.
A literature review is vital to any research project, in order to collect, present and critically analyse, what is already known in the subject under research. The evaluation of previous research leads to a better understanding of the subject, of the areas of consensus between academics and practitioners, and the points of conflict and potential gaps.
Towards the answer of the status of IT Governance in Greece, an attempt will be made to explain the term “IT Governance” and clarify any misconceptions regarding IT Governance and IT Management. The different types of IT Governance models that have been developed in the past, along with the key roles in IT Governance, will be identified, presented and compared.
The necessity for IT Governance as suggested in the literature will be evaluated, and the most commonly mentioned benefits and implementation barriers will be presented, in order to serve as potential answers to the questionnaire of the research. Previous reports on management methods that may be used instead of a full framework implementation will also be evaluated for the same reasons.
The definition of IT Governance
IT Governance is a subject that has gained significant focus during the last years. As a term, IT Governance, has too many definitions in the literature (Buckby, Best and Stewart, 2009; Lee and Lee, 2009; Lee, Lee and Lee, 2009). Simonsson and Ekstedt (2006) tried to find a common definition on 60 different relative articles; and came up with yet another definition, which includes many of the previous ones.
The definitions used by researchers, depend on their view on what IT Governance can offer to an organisation. IT Governance is sometimes perceived as a framework or a process for auditing the use of the IT infrastructure and operations. Some other times sometimes it is perceived as an IT decision making tool which allocates the decision rights in order to encourage a predictable behaviour in the use of IT, while for others IT Governance is a branch of corporate governance focusing on the control and the strategic view of IT (Musson, 2009). Not few have used definitions that mix and match more than one of these views, such as Peterson (2004), Higgins and Sinclair (2008) and Simonsson and Johnson (2007).
A definition that is, in the author’s opinion, quite clear and inclusive, is the following:
“IT Governance is a framework for the leadership, organizational structures and business processes, standards and compliance to these standards, which ensures that the organization’s IT supports and enables the achievement of its strategies and objectives.” (Calder, 2007)
Lee and Lee (2009) make the link of IT Governance with Corporate Governance. They suggest that IT Governance is a mix of Corporate Governance and IT Management; meaning that IT Governance addresses the transparency and control that corporate governance focuses upon, and the efficiency and effectiveness that IT management aims at. IT Governance as part of the corporate governance is also suggested by Peterson (2004), Bhatttacharjya and Chang (2009), O’Donohue, Pye and Warren (2009).
Several researchers have pointed out that IT Governance is not the same as IT Management. The former refers to the definition of who has the rights for major decision making, while the later refers to the actual making of the decisions and the implementation itself (Broadbend, cited in Buckby et al., 2009; Calder, 2009; Sambamurthy and Zmud, 1999; Toomey, 2009; Van Grembergen and De Haes, 2009).
Regarding the subject and scope of IT Governance, the IT Governance Institute suggests five distinct but interacting domains: The Strategic Alignment, Value Delivery, Risk Management, Resource Management and Performance Management.
The need for IT Governance
The need for IT Governance has not been extensively debated; almost everybody agree that the proper governance of IT is necessary. The reasons though provided to support this argument vary, and the organisations do not seem to have been persuaded by that position.
A quite common reason provided to support the necessity of IT Governance, is the increased complexity of the IT infrastructure that is caused by the amount of data that an organisation holds, and the role of this information (Laplante and Costello, 2006). IT is not only complex, but it also has its own fast changing and unique conditions, as such the need to apply sound management disciplines and controls is even greater (NCC, 2005).
Risk management is one more reason for IT Governance. Risk is caused by the growing dependency of organisations on IT resources which should not be neglected; the percentage of companies that are vitally dependent on IT for their continuing operation, was over 75% in 2004 (KPMG, cited at Musson, 2009). That dependency makes the potential unavailability of IT – based services a significant problem for organisations such as banks and hospitals. The lack of availability is not the only danger caused by that dependency; cyber crime, fraud, information inaccuracy are just a few more issues that need proper identification and management (Van Grembergen and De Haes 2009).
Instead of implementing IT solutions, the focus now has shifted to changing the business processes, to be enabled by IT. The solutions implemented are generally more complex due to this shift, and subsequently there is a greater risk with the implementation of IT-enabled business processes (Higgins and Sinclair, 2008). From the management perspective, that dependency means that management needs to be more aware of the critical IT risks, and to be assured that they are adequately managed (NCC, 2005).
High organisational performance is another reason found in the literature, although that one is debatable. Liew believes that IT Governance can ensure proper measurement and preservation of an achieved performance (cited at Bhattacharjya and Chang, 2009), nevertheless Young has pointed out through a literature review that there is no convincing evidence that superior business performance is a result of any of IT Governance guidelines (Young, 2006).
Typically, IT investments are significantly high. They account for over 50% of the average organisation’s annual total capital investment (Baschab and Piot, 2007; Carr, 2003; Weill and Woodham, 2002), as such their management in a responsive, effective and efficient way is usually a requirement that should be set by the management board. On the monetary field, cost optimisation of the IT projects and service delivery, are also considered important issues by several researchers (Bhattacharjya and Chang, 2009; Fairchild et al, 2009; Menken, 2009; Peterson, 2004).
The amount of money spent is important, but the need that the enterprise’s investment in IT is in harmony with its objectives is usually considered more significant (Buckby et al, 2009). This is called Business – IT Alignment, which is a quite old issue; several studies from mid-80s have focused on the alignment of the IT operations with the business objectives (Brown and Magill, 1994). Some researchers do not agree with the need for the Business – IT alignment at all (Sillince and Frost, 1995). Koh and Maguire (2009) also suggest that Business – IT alignment maybe the wrong strategy for smaller businesses, which may be agile enough to change course quickly following the new ICT arrivals in the business. They also mention that Venkatraman questions the logic behind alignment; nevertheless, this is a false interpretation of Venkatraman’s study, who clearly states that IT needs to support the business logic. Carr (2003) has written one of the most controversial articles on the issue, stating that IT is not able to provide the competitive advantage that organisations need. Laplante and Costello (2006) make clear that they do not agree with that view, while Harris, Herron and Iwanicki (2008) get the opportunity to provide metrics on the value that IT can provide, instead of just dismissing Carr’s argument.
According to a different should of thought, Business – IT alignment has been identified as a significant management concern (Brown and Magill, 1994; Cameron, 2007; Kashanchi and Toland, 2006; Silvius, 2007) and effort is put in order to identify the potential benefits of Business – IT alignment. In fact, a recent study by Nash (2009) proves a positive correlation between firm level sales and the so-called Strategic Alignment Maturity; i.e. the maturity level of the business – IT alignment.
By considering Business – IT alignment as something that organisations want to achieve, it is yet another reason to exercise governance of the IT. The relationship between IT governance and Business – IT alignment has been proven (BMC Software, 2007; Musson and Jordan, 2006). Additionally, IT governance is strongly suggested by researchers as the best option for the maintenance of the alignment of IT to the continuously evolving organisational needs (Cameron, 2007; Harris et al, 2008; Pultorak, 2006; Sambamurthy and Zmud, 1999).
Although Business – IT Alignment is a common issue, it puts IT in a passive role; it makes it a follower. Proper governance can transform IT from a follower to a leader; IT is able to set the business agenda and partially affect the organisation’s strategic objectives (Addy, 2007; Baschab and Piot, 2007; Weill and Woodham, 2002).
A research by NCC (2005) has identified a potentially widening gap between what IT departments think the business requires, and what the business thinks the IT department is able to deliver. This can be addressed by IT Governance, through which an organisation – wide view of IT may be generated and promoted (Laplante and Costello, 2006; Weill and Woodham, 2002). That means that IT should have a thorough understanding and a participation in the improvement of business processes and their interdependencies. The other way round is also important, i.e. organisations need to obtain a better understanding of the value delivered by IT, both internally and from external suppliers. Measures are required in business (the customer’s) terms to achieve this. Key elements for that understanding include the enterprise – wide view of IT budget (Addy, 2007; Weill and Woodham, 2002).
One more reason found in the literature to promote IT Governance, is the compliance to regulatory requirements. Specific legislation and regulatory requirements, such as Sarbanes – Oxley Act (SOX) almost dictate the use of an IT governance framework (Buckby et al., 2009; Higgins and Sinclair, 2008). Others, such as HIPAA (Health Insurance Portability and Accountability Act) and Basel-II do not dictate, but certainly describe an IT Governance framework through their requirements for accountability on investments, information security and assurance, risk management and decision processes (Harris et al, 2008; Higgins and Sinclair, 2008; Pultorak, 2006; Network Frontiers, 2008; NCC, 2005; van Grembergen and De Haes, 2009).
Yet another commonly stated key benefit of proper IT Governance is clear and transparent decision making regarding IT resources (Baschab and Piot, 2007; Brown and Grand, 2005; Lee and Lee, 2009; Tshinu, Botha and Herselman, 2008). The lack of clarity and transparency for the decision – making process, can lead to reluctance to take risks, and subsequently failure to seize technology opportunities (NCC, 2005) Separate decision processes followed by the IT and business, may mean that there is not enough shared ownership and clarity of resources, which also means that there may be a lack of accountability.
IT Governance models
Although IT Governance sets the decision – making process, it does not define who decides. IT Governance decision authorities may be structured in different models, depending on the organisation. The three prevailing ones are the centralized, decentralized and federal (hybrid) according to their modes of distributing authorities and responsibilities for decision-making (Brown and Magill, 1994; Fairchild et al, 2009; Peterson, 2004; Sambamurthy and Zmud, 1999), while the pair of centralized / decentralized may also be found as the only choices (Laplante and Costello, 2006; Robb and Parent, 2009).
Ross and Weill (2002) and Cameron (2007) expressed their quite strong preference on centralized IT Governance model, i.e. decisions being made centrally, but Ross and Weill revisited that view in 2004; they suggested that there are six (6) archetypes / models of IT Governance, on 5 different IT domains. From more centralised to less centralised, they identified Business monarchy, IT monarchy, Federal, IT Duopoly, Feudal and Anarchy. The two monarchies are quite clear, meaning that Business or IT respectively has the major responsibility for decisions. Anarchy is quite clear as well, meaning that there is no standardization. Federal and IT duopoly involve business executives and IT executives in the decision making process, with federal to give more power to the business than IT duopoly. Finally, feudal archetype brings the decision level down to business units or processes. The IT domains on which decisions need to be made, are IT principles such as funding and role of the IT in the business, IT Architecture which refers to the identification and development of the core business processes of the enterprise and relative information, IT infrastructure, business application needs such as the owner of the outcome of each project and IT investment and prioritization. That model classification from Ross and Weill is unique; as stated earlier, most other researchers have selected a simpler classification scheme.
Ein-Dor and Segev (cited at Tavakolian, 1989) found that the revenue of the organisation is positively related to centralized IT Governance – but there is no relation between the governance model and the size of the organisation. There is empirical proof that a link between the IT structure with the organisational competitive strategy exists; conservative organisations are more centralised than aggressive ones (Tavakolian, 1989). These results are supported by more recent research with consistent findings; Weill and Woodham (2002) and Weill and Ross (2004) found that top performing firms on profit were mostly centralized, while top performers on growth were mostly decentralized. A link between the organisation’s industry type and level of de-centralization of IT Governance has not been found (Ahituv et al, cited at Brown and Grant, 2005).
It has to be noted that the model of IT Governance in an organisation may also be “dictated” by external factors, such as SOX which promotes a centralized IT Governance model, while Australian governance frameworks (mainly, AS 8015) drive the organisations towards a de-centralized IT Governance model (Robb and Parent, 2009).
IT Governance Frameworks
Information Technology Infrastructure Library
The Information Technology Infrastructure Library (ITIL) is a framework of best practices for IT Service Management. It is comprised of five books which focus on five different aspects of IT Service Management and Service Lifecycle:
- Service Strategy
- Service Design
- Service Transition
- Service Operation
- Continual Service Improvement
Each one of the books, defines a set of processes such as IT Financial Management, Supplier Management, Change Management, Incident Management and Service Measurement and Reporting; a total of 23 processes are defined with a set of actions and roles required for each process.
The definition of several of the processes and the subsequent roles is consistent with the IT Governance definition we used earlier; nevertheless a big amount of the defined processes such as event management and validation and testing, are much more focused on the management part than to that of the governance. ITIL is considered to be the framework that is closer to service management than control, from the other two frameworks, CobIT and ISO/IEC 38500:2008 and has a more narrow scope than CobIT (Van Grembergen and De Haes, 2009; Simonsson and Ekstedt, 2006; Simonsson, Johnson and Wijkström, 2007; Sallé, 2004; McBride, 2009).
That focus of ITIL to service delivery and management was more obvious in version 2, which did not address issues such as Risk Management, Performance Monitoring and IT Governance (generic strategic direction and alignment) at all. As such it was mostly perceived as a framework for service desk management. Although the effectiveness of ITIL version 2 to the alignment of IT with business objectives has been repeatedly pointed out (BMC Software, 2007; Harris et al, 2008; Pultorak, 2006) and even experimentally proven (Kashanchi and Toland, 2006), it was never the primary driver for ITIL adaptation. A survey conducted by Bruton Consultancy for the Helpdesk Institute Europe (now renamed as Service Desk Institute) for the value that ITIL has brought in companies that have implemented it, indicated that the contribution of ITIL to the business strategy was not even considered as an issue by the majority of the correspondents (70%). The same holds for the perception of the participants on the competitive advantage that may be provided by proper IT management through ITIL. More than half (66%) responded that this was not considered in the decision for ITIL implementation (Bruton, 2005).
With version 3, ITIL gained a broader scope than version 2 and added significant emphasis on business strategy. That change, led some IT management consultants to declare ITIL version 3 as inappropriate for helpdesk and service management processes (Bruton, 2007), not strange since version 2 focused on processes while version 3 focuses on Business Value (Harris et al, 2008).
Beyond the “not strategic enough” type of criticism, ITIL has also been criticised as a flawed and uneven framework. Dean Meyer identifies pitfalls in its implementation; nevertheless, he also states that it is an implementation issue and not a framework issue (Meyer, 2009 – web site). ITIL has also been characterized as a too generic framework, which is not able to provide value if used off-the-shelf without significant adaptations (Baschab and Piot, 2007), an unfair criticism as ITIL is promoted as a set of best practices, not as a complete, fits-all framework. This concession should invalidate yet another criticism raised by Simonsson (2008), the lack of a maturity model. Another criticism of ITIL is that the documentation is not free (Bhattacharjya and Chang, 2009). That is a valid point, nevertheless the cost of the books is quite low for companies (less than £400 for the whole set). Other criticisms include the stifling of the creativity of those who implement it, and that it becomes a goal by itself having a heavy administrative burden (Addy, 2007). All these points are valid, but they can be attributed to the extension of ITIL.
Control Objectives for Information and related Technology
Control Objectives for information and related Technology (CobIT) is a control framework developed by the IT Governance Institute. CobIT defines processes and controls, and uses the grouping of activities in four domains:
- Plan and Organise
- Acquire and Implement
- Deliver and Support
- Monitor and Evaluate
Each domain contains a set of processes, 34 at total, and each process defines specific controls, which sum up to 210 for all processes. CobIT defines inputs and outputs, as well as a maturity model for each process, making the control of compliance a very easy task. RACI (responsible, accountable, consulted and informed) charts are also provided, drawing a clear guideline on who should be involved in every process step. Goals and metrics, in the form of outcome measures (key goal indicators – KGIs) and performance indicators (key performance indicators – KPIs) respectively are also provided, mapping business goals to IT goals, which can be achieved by one, or the interaction of several processes.
CobIT is generally used where there is a need for auditing functions, in comparison with ITIL, which is better suited to operational process improvement (O’Donohue et al, 2009). In contrast to ITIL, CobIT has extensive documentation available free of charge, including the framework itself and several case studies. Several implementation documents though are only available for purchase, such as CobIT Quickstart, while others are available free for ISACA members or for purchase for non-members such as Security Baseline and User Guide for Service Managers.
Several consultants and practitioners criticise CobIT that it only states the obvious, that it is very high level, is only a generic framework and does not provide specific and repeatable implementation steps (Culmsee, 2009; Toigo, 2005). This is not a common view, as others find CobIT to be quite prescriptive (Pultorak, 2006; Robb and Parent, 2009). That may be explained by the fact that although CobIT framework itself is indeed high – level, a different publication is provided by ISACA, named “CobIT Control Practices” which is quite prescriptive. Academics criticise CobIT as providing little support for improved decision making, although many metrics are defined (Simonsson and Johnson, 2006). Others state that CobIT is expressed almost entirely in terms of process, focusing on how to govern but not what to govern (Lee et al, 2009). Another criticism states that CobIT is significantly more focused on auditing, largely ignoring other aspects of governance such as software development and service delivery (NetFrontiers, 2005). CobIT is also characterized as a framework that needs significant knowledge and know how for a successful implementation (Simonsson et al, 2007), and that it takes time to introduce solid IT Governance through it (Rogers, 2009); although the opposite would be strange, given the wide area of processes and functions that CobIT addresses.
Finally, while ITIL is known as the framework that guides you on how to get where you want to be, CobIT merely focuses on where you should be; that may be good or bad, depending on one’s point of view and needs.
ISO / IEC 38500:2008
The “International Organization for Standardization” (ISO) attempted to solve the confusion between IT Management and IT Governance, and at the same time provide guiding principles on IT Governance, in the recently published ISO/IEC 38500:2008.
Because ISO/IEC 38500 establishes principles to guide the behaviour of organisations, it complements frameworks that focus on process, such as ITIL and COBIT. Thus, with the right frameworks or processes, complemented by the right behaviours, organisations are more likely to establish highly effective systems of governance. After all, it has been stated that ITIL and CobIT are not mutually exclusive; they are rather complementary and organisations will probably benefit from a mixed approach, adopting what is more applicable in every case, from the two frameworks (Chickowsky, cited at Bhattacharjya and Chang, 2009). ISO/IEC 38500 can also be combined with these two and ITGI has even issued a specific document demonstrating how and which specific CobIT and ValIT controls support the adoption of the standard’s principles and implementation approach. Nevertheless, ISO/IEC 38500:2008 is very recent to be evaluated. As of the time of conducting this research, there is not enough information on the implementation, benefits or drawbacks of ISO 38500:2008.
Common drivers for IT Governance implementation
While the need for IT Governance has well been described, the benefits sought, i.e. the reasons for the implementation of an IT Governance framework vary, sometimes depending on the point of view of the observer.
As drivers, we consider the motivator factors, which may lead an organisation to the implementation of an IT Governance framework.
For IT Managers, IT Governance is a mechanism for the alignment of the IT with business on the projects that are going to be pursuit. For IT Auditors, it is mainly a control mechanism that can help them achieve compliance with regulations, and to manage the risks that are related to IT projects better. For IT Service management professionals, IT Governance ensures that not only the IT services offered are aligned to the current and future business needs, but they are also managed for efficiency, effectiveness and specific quality objectives (Pultorak, 2006).
Recent surveys have indicated that the most important benefits expected from the implementation of an IT Governance framework are proper risk management, the resource management of IT, the performance measurement of IT and the business – IT alignment. Along these, cost reduction, productivity improvements and organisation wide view of IT are commonly mentioned. (ITGI, 2008; BMC Software, 2007; Milne and Bowles, 2009; Yanosky and McCredie