Explain Important components of IT Governance
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... and achieving competitive advantage 1 . This should undoubtedly be achieved by putting in place a management of IT that is service oriented (ITSM) and by establishing an IT Governance capable of aligning IT with the Enterprise Governance objectives. In order to understand the concept of IT governance a detailed insight into the principles of corporate governance and its constituents is needed. In their publications on measuring the performance of corporate boards, M.J. Epstein and M.J. Roy state that “governance concerns relate to practices of both corporate boards and senior managers” and “the question being asked is whether the decision-making process and the decisions themselves are made in the interest of shareholders, employees, and other stakeholders or whether they are primarily in the interests of the executives 2 . ” The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society 3 . IT governance concerns relate to IT practices of boards and senior managers. The question is whether IT structures, processes, relational mechanisms and IT decisions are made in the interest of shareholders and other stakeholders, or prima rily in the executives’ interests. IT governance closely relates to corporate governance, the structure of the IT organization and its objectives and alignment to the business objectives. ITGI defines IT Governance as the responsibility of the board of directors and executive management [4]. It is an integral part of enterprise governance and consists of the leadership and organizational structures and processes that ensure that the organization’s IT sustains and extends the organization’s strategies and o bjectives. Van Grembergen [9] stands on that point and defined IT Governance as the organizational capacity exercised by the Board, executive management and IT management to control the formulation and implementation of IT strategy and in this way ensure the fusion of business and IT. The primary focus of IT governance is on the responsibility of the board and executive management to control formulation and the implementation of IT strategy, to ensure the alignment of IT and business, to identify metrics for measuring business value of IT and to manage IT risks in an effective way. Nolan and McFarlan [5] recently pointed out that ‘a lack of board oversight for IT activities is dangerous; it puts the firm at risk in the same way that failing to audit its book s would’. IT Governance is partly driven by the external regulatory demands like Sarbanes-Oxley act, Basel II, the European 8th Directive and MiFID. Besides that, an increasing number of companies acknowledge that a well defined structure and high level of guidance truly can contribute to the overall cost efficiency and performance of IT. According to Van Grembergen [8], one of the key focuses of IT governance is to align IT to business objectives. As an explanation it could be said that IT governance is the mix between Corporate Governance and IT management. There are several ways of looking at the similarities between corporate governance and IT governance, as described in literature ([8],[9],[10]). Van Grembergen et al. use Shleifer and Vishny’s work ([6]) and stress three key questions that the management should address to display the connectivity between corporate governance and IT governance. As we previously introduced, one of the IT Governance goals is to align IT initiatives with the business objectives defined by the Corporate Governance. These high-level organizational goals and objectives are used as input to derive goals, objectives and performance metrics needed to manage IT effectively. At the same time, the IT auditing processes are put in place in order to measure and analyze the performance of the organization. Conceptually, the process can be seen as an IT results flow depicted below 4 . Having defined IT Governance, it is necessary to understand its most important elements. The IT Governance Institute suggests that fundamentally, IT Governance is concerned about two things [4]: - IT should deliver value to the business and - IT risks need to be mitigated. This leads to the four main focus areas of the IT Governance, all driven by stakeholder value. Two of them are outcomes: value delivery and risk mitigation.
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