The Evolution of IT Governance
Tuesday, August 21, 2018
Vol. 14, No. 2
The Evolution of IT Governance
by Rachel Mendelovich
In the past few years, the managerial area of demand
management, and IT governance have become more and
Organizations are adopting these processes to better
manage their expenses,
reduce cost, and formalize an often chaotic
relationship between IT and the
business. This Executive Report suggests an approach,
based on business
technology management, to manage this relationship
effectively. Mastering the
relationship between IT and the business is crucial
for organizational success.
Business Technology Management:
The Evolution of IT Governance
THIS MONTH'S AUTHOR
- What and Who Exactly Is "the Business"?
- So What Does IT Think About the Business?
2 And How Does the Business Feel About IT?
3 . So What Is IT Governance and What Is Project
6. How Can the CIO Lose By Implementing IT
6 . How Can the Business Lose By Implementing IT
7 Is IT Governance Really a Lose-Lose
8 Enter Business Technology Management
13 About the Author
Lately, the voices calling for the CIO to be "closer
to the business," "understand the business" and "provide the
business with value-added services" are becoming increasingly
louder. The future, they say, belongs to the CIO who will be smart
enough to navigate between technology constraints and business
needs. This "new era" CIO should be first and foremost a
businessperson. No longer do we expect the CIO to be only a
technology-oriented, infrastructure expert, or even a brilliant
manager. Today, it's all about understanding business processes and
being able to respond to them. CIOs must convert IT into a true
revenue generator and influence the way the organization realizes
However, the challenge of being able to do so does not
- unfortunately for the business units (BUs) - lay on the CIO's
doorstep alone. The ability to harness technology against the
ever-changing business needs is a joint responsibility, involving
both IT and the business. While IT should indeed have a full grasp
of the organization's strategy, needs, processes, and limitations,
the business should be deeply involved in the investment choices
made by IT and ensure those investments collaborate with
organizational goals. Unfortunately, in today's typical business
environment, it seems that neither IT nor the business really has
an incentive to jump head first into each other's world.
But before we dive into that challenge, lets first
define "the business."
WHAT AND WHO EXACTLY IS "THE BUSINESS"?
It is common to think of the business as one big
entity with defined goals, needs, processes, and practices led by
one CEO who outlines the strategy to be heeded by all. Well, an
organization's life is hardly ever that simple. The fact of the
matter is that the business consists of many people and many
opinions (sometimes more opinions than people) as well as various
agendas, needs, fears, and, of course, organizational politics.
These elements combine into what we often like to call "the
culture" of the organization. This culture can be thought of as the
playground in the business technology game. It sets the basic
rules, the choice of weapon, and the tactic to be selected. But, if
the culture is the playground, then who, aside from IT, are the
The answer that jumps to mind is naturally senior
management. After all, senior management consists of the CEO, CFO,
CTO, and a whole bunch of CxOs. Win their approval, and you can
claim victory - yet still be dead wrong. Whatever process you're
trying to implement, it is important to ensure that you have
support from senior management; however, focusing attention solely
on these players would prove to be a grave mistake. Decision
making, in general, and IT-related decision making, in particular,
are made among various levels of management. Therefore, midlevel
management along with senior management are all players, and each
should be recognized and well understood.
IT is overwhelmed with numerous changes and
frequent demands by the business, often coming
by way of a flood, with the business requesting a
"this minute" solution to an entirely new need.
Now that we have accounted for all the
interorganization players, let's examine the outer ones. All
organizations are subject to external influences. Be that the board
of directors, investors, suppliers, or an elusive entity called
"the market" (aka Michael Porter's Five Forces1). All of these are
part of the business and can play a vital role. More often than
not, these outer forces influence choices made by the business,
directly influencing IT as a result. For example, let's say a new
competitor has joined the arena and has created a "blue ocean"2 in
order to survive and be relevant. Consequently, an existing
organization may need to make some drastic changes to its own
strategy to remain competitive. Those changes will affect everyone
and everything in the company, including information systems and
the processes they automate.
SO WHAT DOES IT THINK ABOUT THE BUSINESS?
"Frantic," "indecisive," "technology-disabled,"
"fantasy-driven," "doesn't know what it wants" - these are only
some of the statements provided by IT people when asked to describe
their customers (i.e., BUs). And this is hardly a surprise. In
general, IT processes are characterized by long durations and
time-consuming efforts. Once assigned to a task, the IT project
manager (PM) is first asked to "understand the need" (aka
requirements management). Only when the PM feels the requirements
have been fully defined will he or she move to the next phase,
drafting the functional design (i.e., high-level design) and
technical design (i.e., low-level design). Just completing these
two documents requires the PM to pull together a whole bunch of
people and listen to their perspectives. This can include GUI
designers, security specialists, architecture designers,
development teams, QA teams, the CTO, database administrators, and
systems administrators. Of course, the more involved, the longer
(and more frustrating) the task becomes. Add to that the need to
comply with bureaucratic standards (e.g., ISO, ITIL, COBIT, CMMI)
as well as imposed technology (due to consolidation
considerations), and you wind up with a long, tiresome task with a
low success rate.
By the time the PM concludes with the designs, months
may have passed, and the business needs - which rarely sit and wait
- have likely changed, resulting in a tired, frustrated PM. But
even if the changes are minor and the coding phase is able to
commence, by the time IT is ready to deliver the system to the
business, the system may no longer be relevant and either massive
changes are required or the system will die quietly, leaving IT
personnel worn out and confused and the business needs
While the above description may sound a bit
overdramatic, one needs only to look at project failure statistics,
particularly IT projects rates, to see that there is merit to this
claim. There are many ways IT has tried (and continues to try) to
cope with what it deems a "violation of the initial agreement"
between the business (represented by referents) and its own people.
Business referents are kindly asked to sign the requirements
document with the hope that they will not change their minds later,
while a business PM is assigned to collaborate with the IT PM in
the hopes that this joint effort will bring about less surprise.
Furthermore, efforts are underway to define methodologies for
change management, and lean/agile methods are being adopted to
embrace change. But despite this growing trend, IT is still
overwhelmed with numerous changes and frequent demands by the
business, often coming by way of a flood, with the business
requesting a "this minute" solution to an entirely new need.
AND HOW DOES THE BUSINESS FEEL ABOUT IT?
So now we have a snapshot of the requirements IT is
trying to meet. But for every requirement IT deals with, there are
myriad others it simply can't. Due to limited budget and resources,
the CIO will likely choose to neglect those requirements that he or
she feels are either too risky, too expensive, or simply not worth
it. So while those BUs are lucky enough to have IT agreeing to meet
their needs, they are often left dissatisfied due to long duration
and/or a partial solution, while the rest are forced to look
elsewhere entirely for solutions and left to believe that IT is
merely a black hole sucking the money from the organization and
providing nothing solid in return.
One might claim that with BUs being labeled
"customers," low satisfaction is merely expected. Nowadays,
customers, in nearly all areas of life, expect an instantaneous
response time, high quality, cheap solutions, and zero tolerance to
breaches. Attempts to moderate these expectations in the form of
service-level agreements (SLAs) have helped over the years but have
not provided the desired effect. More often than not, IT is still
perceived as inefficient, separate from business, and
In any case, having the CIO choose which initiatives
to respond to and which to neglect - for valid reasons or not - is
a source of countless complaints, escalations, and dissatisfaction.
The most frequent claim is that IT simply doesn't have the tools to
judge which initiatives are truly business imperative and which are
merely whims. Therefore, any decision made by the CIO rarely stands
a chance for approval. To complicate things, recall the playground
scenario described earlier. For instance, consider two managers of
the same seniority applying for a desired role (one involving a
promotion). Both are trying their hardest to display results and
achievements. Let's assume one manager's IT initiative is being
addressed, while the other is being neglected. It's not hard to
predict the battle zone that will emerge, including claims that the
CIO is politically motivated or infected.
In this scenario, one would expect the CEO (or someone
from senior management) to pick up this "hot potato" and decide
which initiative to pursue and which to leave be. And there are
certainly cases in which the decision-making process is done this
way, mostly for highly expensive and cross-organizational
initiatives such as enterprise resource planning (ERP) and customer
relationship management (CRM), but those are usually initiated by
IT to begin with. However, senior
management simply can't vote for every single demand
-nor should it. A mechanism allowing for decision making should be
put in place, and we call this project portfolio management (PPM),
which is a vital part of what is known as IT governance.
SO WHAT IS IT GOVERNANCE AND WHAT IS
PROJECT PORTFOLIO MANAGEMENT?
IT governance is defined as a discipline, originally
from regulation compliance needs, intended to monitor and govern IT
performance and risk management; that is, every service provided by
IT must be monitored and measured, and its achievements must be
transparent to all stakeholders.
However, a substantial part of this discipline is
devoted to ensuring that the use of IT resources is allocated
toward the best interest of business stakeholders and that any
decision making regarding the use of IT resources is effective. All
parties under this doctrine are accountable to investment
decisions; nobody can make independent decisions without
responsibility attached to them. This process is known as project
portfolio management. The term "portfolio" is used in the economic
domain to describe various securities (e.g., shares and bonds) and
assets (e.g., real estate) meant to meet specific investments
PPM in the IT arena is a relatively new concept,
borrowed from the economic world, describing the various
investments made by IT (both capital and labor) to achieve business
goals. In other words, PPM is meant to bridge the two worlds of IT
and the business by creating a common understanding and language
regarding business goals on the one handand IT constraints on the
other, thus formalizing an interaction between the two in order to
achieve various goals under given constraints.
The PPM process goes through four major stages
(see Figure 1):
of Initiatives with
Figure 1 - Four stages of project portfolio management
1. Define and prioritize business drivers.
2. Recognize initiatives and cost.
3. Define alignment of initiatives with business
Define and Prioritize Business Drivers
The first step to create a solid portfolio must be the
clear and measurable definition of business drivers. Business
drivers are the building blocks of strategy. They reflect the goals
and accomplishments the organization is after. These drivers define
the desired future and point out the direction the company will
Business drivers are the building blocks of
strategy. They reflect the goals and
the organization is after.
A good business driver will be defined as a reflection
of the goals the organization would like to accomplish. These
drivers will be achievable, measurable, and valid for at least a
year. Any individual (be that an employee, a customer, or vendor)
looking at these drivers will have a full understanding of the
future state the firm is aspiring to be in. A bad business driver
will be vague and will not have any operational aspects that are
required in order to be able to realize or even measure it. In
other words, a business driver should be SMART:
Simple - should be focused and clear.
Measurable - should be able to state whether it has
been met, and by how much.
Achievable - should be relevant.
Result-oriented - should provoke actions and
Time-bound - should be realistically achievable within
a given time frame, known to all involved parties.
In most organizations, high-level business drivers are
vastly defined. Drilling down to different departments can reveal
how high-level goals are not being broken down to local,
department-oriented goals. Let's look at an organization defining
its major goal as "increase profit by 20%." This goal can be
translated in different divisions in different ways; for
Marketing - penetrate the Asia and Pacific market,
which holds huge market potential.
Sales - increase sales by 20% in Europe, Middle East,
Operations - reduce operational cost by 20%.
HR - reduce HR cost by 20%.
IT governance (and PPM) requires divisional drivers to
be as clear, and as measurable, as organizational drivers, if not
more. Divisional drivers will allow for an understanding of whether
or not an initiative is aligned to business goals and thus allow
drivers to be prioritized accordingly. Once defined, business
drivers should be prioritized so that the end result, for each
division, is a set of drivers listed from most important to least.
The method by which the drivers are to be prioritized is less
important (there are many) as long as the method is commonly used
by all divisions. In some cases, this method is integrated into the
PPM tool (PPM enables prioritizing drivers through pair
comparison); other times, it is a matter of subjective decision
making made by the head of the division. All methods are acceptable
as long as they are commonly used by all.
Note: There are many organizations in which the
business drivers are hierarchal, meaning a BU inherits the higher
unit's drivers and then adds up its local drivers. In these cases,
initiatives will need to align with both the higher BU's business
drivers as well as the local ones.
Recognize Initiatives and Cost
Initiative is merely any requirement made to IT that
calls for resources being invested to reach realization.
Initiatives vary from the smallest change request to the most
complex system. To cope with such a large spectrum, there's a need
to define what is "under the radar." For example, one may define
that initiatives below US $50,000in cost and/or two months'
development in duration will be considered a change request (not
even an initiative) and these types of change requests could be
added up into one initiative called "CR Repository" with one
"price" tag. Same goes with defects or small initiatives such as
business performance management (BPM) capabilities or team sites.
The price tag for each initiative should hold both capital expenses
(e.g., consultation, hardware, software) and labor (e.g.,
person-months) deferred by skill sets (e.g., QA, R&D,
In some organizations, the process of recognizing
initiatives also promotes the recognition of risks, constraints,
dependencies, and other metadata that can later be used to define
priorities. In this stage, it is important to differentiate between
capital expenses (CAPEX) and operational expenses (OPEX). While
OPEX is a forced-in expense required to "keep the lights on," CAPEX
are true investments that will be prioritized against business
Define Alignment of Initiatives with Business
OK, so now we have the well-defined, prioritized
business drivers and all the initiatives outlined, along with their
cost. At this stage, we can start defining alignment of each
initiative with the business drivers. Again, there are many ways to
define alignment. One effective methods is by "confronting" each
initiative with every driver. In this method, the business
representative (preferably a senior executive) of each division is
asked to grade alignment per driver for each initiative (see Figure
In the example in Figure 2, the HR division has five
initiatives. Each is confronted against each of the four drivers of
the HR division. The result is a decision regarding whether the
initiative aligns with the driver at the levels of (1) extreme, (2)
significant, (3) medium, ((4low, or (5) none. The next step would
be to translate the description of alignment into a numerical value
that is easier to deal with when prioritizing. One may choose any
method for translating alignment into a numerical value. Most PPM
tools will provide this functionality, but it is fairly easy even
with Excel. (Note: Figure 2 also shows values of cost and labor)
Once the first three PPM stages are performed per
division, the PPM process owner will have a reasonable
understanding of the cost-benefit ratio for each initiative and
will thus be able to demonstrate the most beneficial initiatives,
given a certain budget, per each division. Benefit Let's return to
our HR example from the previous section to examine the
cost-benefit ratio (see Figure 3). Figure 3 - Sample cost-benefit
Section D in Figure 3 represents the section holding
the initiatives with the most positive cost-benefit ratio, while
sections C and A represent the initiatives with the worst
cost-benefit ratio. In this example, the HR division will do well
to invest its IT budget in initiatives 1, 2,and 3, which promise
the greatest value per dollar, and neglect investing money in the
expensive initiative 4,which promises medium-to-low added value.
The decision of how many initiatives to bring forth to realization
depends, of course, on budget constraints. Many PPM tools today,
such as Microsoft PPM and CA Clarity PPM, provide solid what-if
solutions to facilitate decision making.
So Why Doesn't IT Governance Work?
Well, all this seems easy enough and makes sense. Both
IT and the business profit from a logical process that enables
logical decisions. No longer does IT have to tolerate the
capricious business, nor does business have to tolerate the
arrogant IT. So it would be fair to assume that IT governance, in
general, and the PPM process, in particular, have spread around and
are now implemented in all organizations, at least small to
medium-sized businesses, right? Wrong!
Initiative Drivers Cost (Capital) Labor
Driver A Driver B Driver C Driver D Hardware Software
Consultant R&D QA Training
Interface to ERP Extreme Significant Medium Low $100K
5 2 1
Statistical app Low Low Medium Significant 10 12 5
Org scorecard Significant Extreme Extreme Medium $50K
Implement DMS None Medium Low Low $500K $30K 30
Org portal Medium Extreme Low None $300K 1 1 1
©2011 Cutter Consortium Vol. 14, No. 2 BUSINESS-IT
What is the problem, then? Why do IT governance
departments fail to be established in the first place, or even when
they are, why do we not hear of major successful PPM
implementations every other day? In fact, how many organizations
actually go through one version or another of a PPM process? The
answer is: not too many, and certainly not enough.
One can claim that success in this area is only in a
matter of time, or that portfolio management hasn't yet proven its
value, but the unyielding truth is that it's on nobody's agenda. In
fact, PPM goes against both the CIO and the business's agendas in
what seems to be, at first glance, a contradiction to common sense.
To examine this claim, let's try to figure out what is it the
business and the CIO stand to lose by implementing PPM.
By creating an atmosphere of separation (and
confusion regarding IT), the CIO can create his or
her own kingdom, where the CIO is the sole ruler.
HOW CAN THE CIO LOSE BY IMPLEMENTING IT
Actually, the real question is "How can the CIO not
lose?" To better understand the recoiling from adopting IT
governance, let's try to portray two - and for the benefit of our
little exercise - radical images of the CIO and why IT governance
is as alien a concept as Star Trek to both types.
The Autocratic CIO
If the CIO is the king of the castle and given full
mandate over IT resources and budget, then IT governance is merely
a washed term to describe a reality in which decisions regarding
how and when to allocate resources are made by others (namely,
business managers), and the way the CIO realizes those decisions is
monitored and measured constantly - might as well strip away all
authority and be done with it.
You may wonder, where's the drama here? Where's the
big leap in understanding? After all, it's not like IT is not
managed, and IT performance is not evaluated in much the same way
as any other department. Why would the CIO feel adopting IT
governance is one step away from losing his or her autonomy and
The answer is very simple. Since it is much more
difficult for senior management to manage when there's hardly any
real transparency, adopting IT governance can be perceived, at the
very least, as a leash by which to monitor (govern) the CIO's
When talking about IT, one should keep in mind that
CEOs are normally not ex-CIOs, and, in most cases, have a financial
or marketing background, not a technical background (though this
trend will be less applicable in years to come). Thus, it's not
difficult to the average CIO to be evasive or fire back at a
business representative whenever criticism comes along. By creating
an atmosphere of separation (and confusion regarding IT), the CIO
can create his or her own kingdom, where the CIO is the sole ruler.
Why would this CIO want to mess this up?
Even in the world of vast technological change over
the past few years, where business and management have changed
dramatically, IT is still, in many organizations, a frightening and
confusing domain, better handled by experts. Thus, it is a world
where the autocratic CIO can still prosper.
The Savior CIO
Unlike the autocratic CIO, the savior CIO is all for
transparency and joining forces with the business. However, this
CIO views the business as if it's just a little kid, wanting "this
and that" without ever knowing the consequences of requests, and
someone - meaning the CIO - must save the business from itself. For
this type of CIO, handing the keys to IT investment decision making
over to the business will lead to chaos, and although asking
business representatives to handle such decisions is a nice idea,
it simply isn't realistic, more so for nonprofit or government
organizations. The BU simply can't (or won't) think in the same
manner as the CIO.
HOW CAN THE BUSINESS LOSE BY IMPLEMENTING IT
Unlike IT, in which a single person runs the show, the
business consists of many individuals, each motivated by different
agendas, so it's harder to portray a specific persona. However, we
can describe a typical business culture and dissect how IT
governance adoption would come about in such an environment. Again,
let's consider two extremes.
The Wild West
The Wild West organization allocates IT resources to
the CIO. As alluded to earlier, giving the resources to the CIO to
decide what to do with this can be equated to letting the "cat
manage the cream"; here, the business representatives are left
indifferent to IT expenses and constraints. When the IT budget is
the CIO's problem and the technology constraints are a foreign
language, the business is free to demand whatever comes to mind
without giving second thought to cost or benefit. In this land,
business representatives would just as well not hear about IT
hardships, and why should they? One business manager is as free as
the next to ask for automation of nearly everything and anything,
and if the CIO declines … well, that's what escalations are
The Charge-Back Organization
In this type of organization, each department has a
different P&L and a charge-back model is implemented. Here, IT
is in competition with any external vendor providing IT services.
So if a BU is after a particular IT solution and is being refused
by the internal IT department, then all that unit needs to do is go
out to the IT market and purchase the required solution, whether or
not it serves organizational strategy.
In some cases, the charge-back model is the catalyst
for a defeated IT, with no mandate to stop whims or unrealistic
adventures because the business departments are free to roam the IT
service provider market for IT solutions should internal IT fail to
satisfy business needs, imaginary or real. In the charge-back
model, the business "owns" the IT budget and, as long as the
desired outcome is delivered, the department manager can spend
IT-allocated money however he or she sees fit.
Needless to say, internal IT is asked, after the fact,
to take the solution provided by the external IT provider and house
it on its servers, provide maintenance, and support and fix
defects. So, if you were a business department manager in such an
organization, would you care about "this or that" IT governance
IS IT GOVERNANCE REALLY A LOSE-LOSE SITUATION?
When either the business or the CIO holds the keys to
the IT budget and resources, and the business doesn't have to
concern itself with questions of "Do we have enough resources?" or
"Is it important enough?" or even "What was done in other
departments, and can we just reuse existing solutions?" and the CIO
doesn't have to reveal the way he or she allocates resources or
give up any control over them, then nobody is accountable. A good
governance process is bound to change this type of environment, so
why adopt it? In other words, when no one really wants IT
governance, what chances does it have?
Regulation Compliance as an Incentive
Regulations such as SOX have made the above question
irrelevant in many organizations, as compliance is mandatory, and
the organization must heed or pay heavy fines; these organizations
are bound to establish governance processes sooner rather than
later. I've often heard CFOs say that if they have to choose
between investments that will create a profit of $20 million or
investments of the same sum that will enable regulation compliance,
they'll choose compliance investments without a second thought.
Indeed, regulation is a powerful incentive to adopt
governance processes, and it is fairly easy to see that
organizations subjected to regulations (the financial sector as an
extreme example) are far ahead of other organizations in this area.
In fact, one can dichotomously divide organizations into two
groups: one bound to regulation (e.g., early and heavy adopters)
and the other not bound (e.g., late and lean adopters).
When the IT budget is the CIO's problem, the
is free to demand whatever comes to mind
without giving second thought to cost or benefit.
What Problems Do Governance Adopters Face?
Organizations trying to implement any governance
process, and PPM in particular, face problems, and things are
hardly rosy. As described earlier, the implementation of IT
governance goes through several steps in an effort to create an
understanding of the organization's goals and how IT can serve
those goals. Whatever the ultimate goal, be that profit, or public
service, or even world peace, there are various ways to accomplish
that goal, and each BU will contribute a different angle. But who's
to say which department serves the goal better, or more importantly
Answering this question is at the very heart of a
successful governance process. Let's say the IT has a budget of $20
million. And let's assume each department outlines its subgoals
(driven by organizational goals), and initiative alignment to those
goals are determined (see Table 1).
At first glance, it appears that HR initiative A is
the most cost-beneficial ($36,000 with 63% alignment to business
goals). But who's to say that 63% alignment to HR business goals is
better than the 19% alignment at a cost of $71,000 for marketing's
initiative B, or the 44%
Table 1 - Sample Alignment Rates per Departmental
Initiatives Along with Cost
Department Initiative Alignment Rate Total Cost
HR A 63% $36K
B 55% $419K
C 21% $100K
Operations A 13% $200K
B 59% $590K
C 49% $85K
Marketing A 71% $150K
B 19% $71K
C 32% $300K
Sales A 50% $900K
B 44% $22K
C 8% $190K
alignment at only $22,000 for sales initiative B. In
other words, when it comes to allocating resources based on
business goals, how can we determine whether achieving the goals of
the HR department is more or less important than achieving those of
sales or operations?
Now we're back to square one: if IT is the one to
determine which department will get more of the IT budget, then
it's just "same old, same old." To sum it up: you're doomed if you
don't adopt governance, and you're doomed if you do.
Another reason some business managers aren't
enthusiastic (to say the least) about this process is that without
it they can gain more. Let's assume we have a very vocal operations
manager. Let's also assume that the politics is such that this
manager has very strong relations with the right people in the
right places, and the IT manager would just as well not go to war
with him. It is not hard to guess what will happen. This manager
will get almost everything he asks for, whether or not his requests
are aligned with the business strategy and goals. Adopting a
logical process eliminates emotional and politically based
What Can Be Done Differently?
A hint to the reason that IT governance is in this
catch-22 cycles lies in the terminology: IT governance suggests
that it's IT's agenda to solve the puzzle, where IT holds the
resources and IT needs to figure out how to allocate them. IT
governance also suggests that it's better to involve the business
and have a formal process in order to increase accountability, but
it places responsibility over the entire process, from beginning to
end, on IT's shoulders.
Indeed, when an IT governance unit exists (whether
it's an individual or a group), it reports to the CIO; this is
hardly a surprise. IT governance is taught in CIO courses and
presented at IT conferences. Tools are suggested to CIOs and IT
managers. Articles in the subject are published in IT magazines,
and discussions are led by IT personnel. Consequently, IT
governance ignores the business in the most vital decision -
whether or not to adopt it. As unlikely as it sounds, the decision
of whether to implement IT governance, which holds the potential to
gravely influence the business, is made and controlled by the CIO
with the business having little to no say in the matter. Here's
where business technology management (BTM) steps in.
ENTER BUSINESS TECHNOLOGY MANAGEMENT
At its very heart, business technology management
seeks to unify business and technology decision making at every
level in the organization. BTM is an evolved IT governance concept,
where business and IT are in tune in an effort to realize the
organization's strategy.3 In fact, BTM practice seeks to improve
the governance process so that IT is doing the right things, doing
the right things efficiently, and doing the right things well
- see Figure 4.
Effectiveness Strategic AlignmmentEfficiency
Doing the right things effectively
Doing the right things efficiently
Doing the right things
Effectiveness Strategic AlignmmentEfficiency
effectively Doing the
efficiently Doing the
Figure 4 - Business technology management (BTM).
BTM is achieved through the following eight
1. Organization. This refers to the establishment of
appropriate organizational structures; essentially, establishing a
structure in which every staff member understands the scope and
responsibilities of his or her role and understands the structure
of which they are a part.
2. Information. This emphasizes the value timely
information has in enabling effective decision making and puts in
place a structure of data and metrics to allow for the best use of
3. Technology. Appropriate use of technology can
enable timely information sharing, improve coordination between
members of an organization, and make processes easier to
4. BTM capabilities. A capability is defined as a
competency achieved as a result of combining each of the above
dimensions and creating repeatable management processes. BTM
defines 17 such capabilities, grouped into four functional
5. Governance and organization. These capabilities
ensure that business technology decisions are effectively
identified and executed; essentially, by developing an
organizational structure that meets the needs of the business,
gives consideration to regulation, and manages risk
6. Managing technology investments. These capabilities
ensure that the enterprise understands its current IT capabilities,
what is currently available, and what is being worked on for the
future. They also ensure that executives select the best technology
initiatives to advance the objectives of the business.
7. Strategy and planning. These capabilities ensure
that CIOs make the most appropriate moves to synchronize technology
and business, both reducing complexity and planning for future
8. Strategic enterprise architecture. These
capabilities ensure that appropriate information exists that can
describe current and future business environments and enable
executives to make plans and implement strategies that will
simplify the business technology environment within the
If we don't address the issue that those running
and those running various business departments
perceive governance as a threat to be eliminated,
then the concept doesn't stand a chance.
How Is BTM Any Different From IT Governance?
For starters, regarding terminology, BTM manifests a
holistic view, grouping together the business and technology into
one term. But the fact is, conflict between IT and the business
still stands whether we call it IT governance or business
technology management. Regardless of terminology, if we don't
address the issue that those running IT and those running various
business departments perceive governance as a threat to be
eliminated, then the concept doesn't stand a chance.
One way to manage the risk of "power of people over
processes" (in this case, people can kill any process, regardless
of its value) is to come up with a publicity campaign to explain
the value. According to this way of thinking, if you can convince
the population that the suggested process is for the greater good -
and come up with plausible "what's in it for me" angles -
everything will be just fine. The problem is such campaigns are
very costly, and generally ineffective in our cynical world. Those
who feel the process is a waste of time will probably continue to
think that way, and those who feel the process is a threat to their
position, job security, or prestige will proactively poison others
and actively oppose it. So what can the organization do?
It's All About the Money
The main goal is to create a mechanism by which the IT
budget per BU (probably above a certain size; small units will be
associated with larger ones) will be defined for each year (or, in
some cases, for multiple years at a time) in accordance to its
perceived contribution to the realization of the organizational
goals or based on size (depends on business strategy). For
instance, let's assume the organization is willing to invest $200
million in IT during 2011. And let's also assume the business goal
is to increase profit (for simplicity, we'll consider only one
goal, though it's obvious organizations have more). Now, in our
imaginary organization, the CEO allocates the IT budget in the way
Table 2 Illustrates.
There are, of course, other ways to allocate the IT
budget; for instance, allocating a certain percentage from the
total budget of every BU to IT. But in the end, what we want to end
up with is each BU devoting a certain sum to IT expenses and
investments. The decision should be made by the CEO, not the CIO or
the BU, and it should reflect BU size (i.e., the number of people
in the BU that should benefit from IT services) and the priority
level, in terms of IT, toward the realization of organizational
goals. Following the same example,
Table 3 is a good visualization.
Table 2 - Sample IT Budget
Business Unit IT Budget
Table 3 - Sample IT Budget vs. Business Unit Size
and Priority Level to Organizational Goals
Business Unit Size Effect on
HR/Admin 100 IPs Low $10M
Operations 400 IPs Medium $35M
Marketing 200 IPs Critical $85M
Sales 180 IPs Very High $70M
Once the budget is allocated, some ground rules should
- The IT budget is managed by the BU through a BTM
referent answering to both the BU and the BTM
- The IT budget can only be spent internally (so that no
mandate to seek solutions with external IT
will be granted).
- Investment making is subjected to IT policy and can
be vetoed by IT. The veto decision can be revoked
only by a defined senior-level manager accepted by
all (preferably the CEO or CFO).
- Out of the BU budget, a certain percentage
(normally decided according to BU size) is
to IT for OPEX. There is no place for BU
judgment in the matter.
- Decisions regarding IT CAPEX investments are
made by the CIO and are not subjected to the same
priority-setting process as BU investments.
Placing such a mechanism, with the above ground rules
serving as key elements, is a surefire way to ensure true BTM in
which business and IT are in sync far more than the common IT
governance process discussed earlier. Let's consider why.
The IT Budget Is Managed by the BU Manager
The motivation behind this key element is that the
organization needs to create accountability for the spending of the
IT budget among BU managers. There can't be a process in which
someone is allowed to ask for whatever he or she wishes without
taking under account the cost and implications. To better
understand this key element, think about children and how we
educate them about money and spending. If you want your children to
appreciate the value of money, you don't simply satisfy them with
every little whim or provide them with all the toys on their wish
lists. On the contrary, many parents set up allowances so their
children can make decisions about how to spend their allowance,
knowing full well that if all is spent, nothing will be left for
their next whim. The business technology playground is much the
same. Once responsible for their own IT budgets, BU managers will
make better decisions as to how to spend the allocated money.
In other words, each BU will have to allocate an
individual to be responsible for that unit's spending (be that
purchasing or development spending; internal or external). This
person must ensure the BU's IT budget is spent in a balanced way
(so that the BU will not find itself without any budget left at
midyear). The following will need to be considered when making IT
- Balancing OPEX and CAPEX
- Balancing purchasing and internal investments
- Earned value over time
- Compliance to IT policy
- Alignment to BU and organizational strategy
- ROI (according to IT policy)
While reporting to the BU manager, this role will have
to also report to a cross-BU authority; namely, the BTM
What exactly is the BTM department? It is a unit,
reporting to the CEO, with deep roots in both IT and the CFO
office. This unit is responsible for the implementation of
governance processes across the board. Each BU should allocate
someone (doesn't have to be full time) to work with this unit. This
unit should have the authority to bridge business and technology
needs and be given the responsibility to realize the BTM concept.
We will discuss specific roles and responsibilities of the BTM
department later in this report.
The core value of BTM emphasizes the transfer of
authority from the CIO to the business and the BTM unit. However,
this transfer does not mean the CIO will be any less important, as
the following sections illustrate.
The IT Budget Can Only Be Spent Internally
IT is the only unit in the organization that has the
full understanding of cross-organizational needs, existing
solutions, and redundant needs and implementations. Moreover, IT is
the unit that will ultimately have to take responsibility over the
solutions provided to the business and provide ongoing maintenance
and support. Hence, limiting a BU's "purchase" to the internal IT
department is the only logical path. Let us imagine a situation
where each BU shops for solutions elsewhere. It is not unlikely to
assume that this will lead to multiple technologies, approaches,
and applications that will eventually need to interact with each
other. It doesn't take an IT expert to understand the inefficiency
of such a platform.
But this is only half the story. If IT is to improve
its performance, it needs to know that the business is counting on
it. Having the option to U-turn to another provider, regardless of
how effective IT is, only creates an atmosphere that IT is not
gravely important since BUs can always go elsewhere. In business,
as in life, the key to improvement lies in the level of support and
the sense of value and appreciation you receive.
The core value of BTM emphasizes the transfer
of authority from the CIO to the business and the
BTM unit. However, this transfer does not mean
the CIO will be any less important.
Investment Making Is Subjected to IT Policy
As said earlier, IT should have a say in what is
developed, not only in the how. The question is, however, what is
the depth and level of this input. While input should always be
strong and effective, it should also be incorporated into a
well-understood, agreed-upon policy. This policy can include
various statements, such as:
- Specificity regarding duration. For example, projects
more than eight months in duration will have a
manager allocated from the BU and a steering
committee with a senior decision maker allocated
- Level of aggregative risk in which IT is willing to
be exposed. In other words, if IT commits to
projects for which the accumulative risk level is
then IT is entitled to reject any further risky
in a given year.
The above are, of course, just examples to items that
can appear in the IT policy. But policy should be determined per
each organization, based on culture and involved parties.
Maintaining IT policy will achieve two things. First,
IT will not be considered (by BUs or IT) a rubber stamp, forced to
approve and commit to any initiative. This is a prestige issue that
is important for morale and the CIO's sense of control over his or
her unit. But far more important, without a policy, the
organization will be left with a castrated IT with little to no
impact, deprived of any ability to be gatekeeper. Thus, IT policy
can incorporate the understanding of the value IT has in seeing the
bigger picture and can set the foundation for the business and
technology relationship. This relationship can be characterized by
the following statement:
The BU is responsible and accountable for the IT
in its unit; at the same time, IT is responsible and
to maintain a policy that will allow the BU to
its responsibility in a manner that benefits the
A Certain Percentage Is Transferred to IT OPEX
and Organizational Foundations In today's
organizations, whether or not they implement IT governance
processes, IT is typically given a budget to deliver new systems
and services while maintaining existing ones. The IT budget manager
is authorized to pay OPEX and allocate the remaining budget to the
business or technical initiatives to be pursued. OPEX are expenses
the CIO has no choice but to pay(e.g., SLAs). On top of these
expenses, IT is responsible to provide fundamental capabilities to
the entire organization (e.g., exchange services, document
management, task management, ERP, CRM). These capabilities are
provided by organizational applications. All beneficiaries should
pay the cost of these capabilities based on a load model. An
important understanding should be that while BUs are asked to pay
the cost of these functions, they have no judgment call regarding
Keep control over technical issues (which are the
CIO's domain, after all) in the hands of the CIO
and undermine any political-driven decisions.
What is the load model? The expenses described above
should be allocated to the BU's IT budget based on some method
defining the distribution of expenses over the organization (which
can be part of IT policy). The expense distribution policy can be
viewed as a tax, paid by each BU to cover OPEX. The most trivial
load model is based on size. More sophisticated models will take
into account the number of service requests or the number of
existing applications per BU. Whatever the model, IT should be its
owner, and the BUs should be agreeable parties.
A relevant question regards how the load model will
work in the cloud computing environment? In cloud computing, most
services can be priced in a far more
simpler way. In fact, the load model can be eliminated
all together, and a per-person cost can be established. In an
organization employing cloud solutions, almost all services in the
service catalog can be mapped to state who is using which service
and how much he or she consumes.
Decisions Regarding IT CAPEX Investments
Are Made by the CIO Alone
While business investment decisions are made in a
formal process, the initiatives that are cross-organizational are
determined by the CIO and his or her staff. These investments will
affect the entire organization and are technical in nature. The
ultimate reasoning here is to keep control over technical issues
(which are the CIO's domain, after all) in the hands of the CIO and
undermine any political-driven decisions in that arena. That means,
a BU cannot simply refuse to take part of "this or that"
cross-organizational initiative. For instance, let's imagine that
IT decides to upgrade its Oracle ERP version. Let's also imagine
that this upgrade is a project that will take five months to
achieve and will cost $300,000. In theory, the organization's
delivery department (or any other customer-facing group) can claim
that there's no benefit for such a system and, therefore, refuse to
pay its share for the upgrade. Such a "democracy" will kill almost
every organizational initiative. Therefore, the mandate for
organizational investments should be in the hands of the CIO with
the supervision of the BTM unit.
The BTM Unit
The BTM unit can be diverse in size (ranging from a
one-person show to a group of people) as long as some key elements
- Its place in organizational hierarchy provides closeness to
senior management. (Most of its authority will come from this
- It has extensive budget for implementing governance processes.
The budget is an indication to BUs, as well as to IT, of the value
management places on this unit.
- It is deeply rooted in the CIO arena, as well as the CFO's, and
can bridge technology with finance.
Roles and Responsibilities
The following checklist describes the roles and
responsibilities of the BTM unit:
- Takes responsibility for the implementation of
the governance process.
- Acts as gatekeeper in business technology decisions.
- Acts as a mediator in conflicts regarding BTM.
- Sets load model and ensures buy-in from all BUs.
- Monitors BU expenses.
- Defines ROI/EVP targets.
- Assists in defining IT policy and ensures compliance.
- Takes responsibility for regulation compliance
and quality assurance.
- Takes responsibility to ensure a tangible business
- Sets capacity and resource-allocation model.
- Provides tools and management dashboards for monitoring and
controlling expenses, resources, and strategy alignment.
- Takes responsibility for organizational risk analysis and
- Takes over planning and control processes to provide yearly and
multiyear plans and realizations.
The BTM unit should be politically strong, well
budgeted (to provide "carrots" when needed), and within proximity
to the CEO (to use the "stick" if needed). A weak BTM unit is not
equivalent to no BTM unit - it's even worse!
Governance solutions are synonymous to accountability,
transparency, audibility, and traceability. These are the building
blocks of a stable, success-driven, and growing organization. At
the same time, these are the attributes people tend to fear and
reject for they go directly to our insecurities and ego. To bind an
organization to governance processes - and ultimately business
technology management - is not an easy task, but it's a must. It is
the very thing that differentiates a successful firm from a
stay-in-place one. In this report, we examined the complex
relationship between business and IT in realizing strategy, but the
fact of the matter is, we can also apply induction of this process
to the relationships between product marketing and customers (where
customers are initiating demands and the business decides what and
when to perform), or any other delivery organization. At the end of
the day, any demand-to-supply process that combines business and
technology needs a BTM framework.
3The principles behind BTM have been developed and
refined by BTM experts working with such think tanks as the BTM
Institute (www.btminstitute.org) and IIBT - International Institute
of Business Technologies (www.iibt.org).
ABOUT THE AUTHOR
Rachel Mendelovich has 17 years' experience in IT,
with more than seven in top managerial roles. During her career,
she has held positions in various companies, including large global
organizations, small startups, product companies, and retail
companies. Recently, Ms. Mendelovich led the implementation of IT
governance processes in the Israeli government and is a known
lecturer in the field. She holds a BA in computer science and an
MBA from Hebrew University (Israel). She can be reached at
©2011 Cutter Consortium
Vol. 14, No. 2 BUSINESS-IT STRATEGIES