The following general issues are of relevance to a board of directors: first, those that have the potential to yield great benefit; second, those that demand very large funding; and third, issues that are very risky, maybe involving compliance matters.
Information technology has often claimed the first of these but has been less successful in terms of the latter two issues. The cost of IT tends to range from 2 per cent to 4 per cent of turnover, demanding some but limited attention. Managing risk is usually more of a driving force in today’s regulated world. Sarbanes-Oxley and the Basel II accord will encourage boards to be increasingly thoughtful and thorough concerning IT governance.
As the commercial deployment of IT has progressed in the past 40 years, a number of models have been utilised to govern it. The old chestnut of reporting through the finance director and having the IT manager “called in as required” remains popular, although IT professionals are constantly lobbying for a more permanent position on the board.
In information-intense organisations, such as banks and oil exploration businesses, the creation of the chief information officer (CIO) has become much more the norm than in the past. In order to secure a balanced, business-focused view, it is common for an information steering group, often chaired by the CIO, to be formed to prioritise projects.
In 2003, Cranfield School of Management undertook a survey of the effectiveness of the IT investment appraisal process (see figure 1). The results revealed a broad feeling that the quality of IT appraisal was poor, overly bureaucratic, inconsistent and greatly influenced by personal or political aspirations. Worryingly, the assessment of costs and benefits in business cases was regarded as poor – a significant issue for those approving the investment.
The majority thought that the implications of business change on the organisation were not adequately considered. Some argued that IT investment appraisal was regarded as unimportant by business unit management. The good news was that 88 per cent believed that their organisations were trying to improve the situation, about half to a significant extent.
The programme office
Recently, there has been a growing recognition that IT-led change is merely a subset of organisational change and that all initiatives should be prioritised in a consistent way across the company. The IT component of an organisational change programme should not be assessed separately from the other elements of a project, and it should not secure funding above a non-IT based counterpart offering a higher return. Thus, we see organisations creating programme offices to manage all change initiatives. Once approved, the IT project components of these are allocated to the IT group for development and implementation. Such management is applicable whether or not the IT group is in-house or outsourced.
Programme offices are key to IT and change governance, and focus on defining and supporting the delivery of the benefits of the change and co-ordinating all the component projects. Its members need enhanced skills, competencies and even attitudes.
Boards consisting of the head of the programme office, senior representatives of the customers of the office and other interested parties (for example, the finance director) should meet to discuss and prioritise projected business change initiatives.
In recent years the extent of business change has been enormous, and yet there is often no single individual or group in the organisation with a clear vision of the whole picture. With the downsizing of the past decade or so, it is difficult for operational departments to become involved in such change as resources are often severely restricted. As result, it is not unusual for numerous initiatives to be improving the operating practices and procedures of a single department or work group. For example, in the health sector in Northern Ireland, precisely the same patient record form was redesigned by three separate change groups without reference to each other.
The programme office has to co-ordinate and balance the initiatives such that particular departments can cope with the degree of change being implemented. To achieve this, the programme office has to be aware of all active initiatives in the organisation even if some of these only involve particular departments. This co-ordination of programmes is often called portfolio management.
Programme offices require enhanced ways of receiving, analysing and presenting investment proposals, which should include properly evaluated benefits and clear statements of internal resource requirements.
An understanding of the definitions of benefits needs to be developed to stop multiple counting, just as statements as to which costs to include and which to exclude require clarification. Recently, one organisation justified a change programme having excluded all the significant IT infrastructure upgrades as these were “not to be paid for by the programme”. Fancy accounting practices help no one.
Proposals going to the board need to be complete yet succinct, but not all programmes require the same level of detail. Thus, very risky mission critical programmes may require board attention rather than just the large expenditure proposals.
However, board responsibility does not end once a proposal has been authorised. Progress reports need to be developed in a form that is consistent with the original authorisation and reported regularly for the most significant programmes. These governance issues are being addressed by organisations today with varying degrees of success. One large property business devotes each alternate management group meeting exclusively to programme change issues.
The message is simple. Focus on the governance of business change. Recognise that IT is one component of such change. The evolving role of the programme office to act on behalf of the board in co-ordinating organisational change is vital.
At Cranfield, we have been working towards understanding and articulating best practice in this area. Some of the insight we have gained astounded us. For example, a large international organisation suggested that bringing transparency, process and order to change governance would not work in their organisation as it was “anti-cultural”. Would you want to invest in such an organisation?
IT investment appraisal – the facts
37 per cent believe that the quality of IT investment appraisal in the UK is either “poor” or “very poor”; this figure was 32 per cent when they considered their own organisation
43 per cent thought the whole IT investment process was too bureaucratic; 47 per cent thought it was inconsistently applied and 85 per cent agreed it was often influenced by personal or political aspirations
47 per cent believe that the assessment of business benefits was “poor” or even worse. The assessment of costs was rated slightly better at 37 per cent believing it to be poor
65 per cent indicate a “poor” or worse assessment of the implications of business change upon the organisation
56 per cent of the respondents believe the approval group is ineffective or only slightly effective
30 per cent of the respondents believe that IT investment appraisal was regarded as unimportant by business unit management. Even worse 40 per cent believe that there is little “real” involvement of business managers
88 per cent believe that their organisations are trying to improve the situation; 49 per cent to a significant extent
Chris Edwards is professor of management information systems at Cranfield School of Management
