IT Governance Archetypes: a practical case study on Governance Principles in a mid-sized organization
Analysis of the strategic role of Information Technology (IT) departments
This article marks the beginning of a series dedicated to analyzing the key reasons behind the failure of companies in their Digital Transformation initiatives. In this first installment, we explore the strategic importance and potential impact of the IT department within the broader business context.
Historically, the role of IT in organizations has evolved from supporting business operations to becoming one of the largest investment focuses and a potential asset for business leverage. Today, however, we still see different types of strategic approaches to this topic coexisting in the market.
When an IT department primarily acts to keep business processes running, generating efficiency, standardization, and stability, we classify it as a "Responsive IT". It´s mission is to sustain processes and respond to requests from corporate areas.
Evolving to an IT department with more active leadership that engages with other business areas, collaboratively thinking of solutions to generate growth and improve operations, we have an engaging IT. In this role, IT and other area leaders share a common understanding that IT serves the organization’s strategy and that technological services can continually improve the company.
The final stage occurs when IT acts as a driving force for the company’s strategy. In this case, IT’s role is seen as central to the conception and execution of the strategy, considering digital channels and products as the core of value capture and generation. IT leadership not only engages but is respected and seen as an important source of market, customer, and product insights.
Many wonder why a company would have a responsive IT when much of the world is talking about topics like Digital Transformation and the 4th Industrial Revolution, for example. There are some characteristics of organizations that have responsive IT departments. Here are a few:
Sector/Industry: some sectors operate with narrow margins and have production processes focused on basic products, carrying little or no embedded technology. In these cases, technological competencies do not directly influence the product, being more restricted to monitoring production processes, performance management, and managing the administrative-financial environment. In such companies, ERP and production systems are the main focus of IT department's investment and time.
Hierarchical positioning of IT: organizations with a responsive IT department generally have IT leadership at the middle management level. This means there is no executive position for the technological portfolio. IT managers report to financial, administrative, or internal service executives. This hierarchical positioning creates pressure for IT to be cost-efficient and to execute its role as designated by the executive body, without influencing or participating in the strategy conception process.
IT leadership profile: another common characteristic of organizations with responsive IT departments is the leadership profile. These are professionals who have advanced in their technical careers to a managerial level, sometimes due to their tenure and knowledge of internal processes, but not necessarily due to management aptitude and knowledge of strategy, governance tools, etc. In these cases, the leader's own profile contributes to maintaining a responsive and support-oriented mentality for the department.
Therefore, it is possible to establish a relationship between the failure of Digital Transformation initiatives and the strategic role of IT. However, before moving forward, it is important to align on what we mean by Digital Transformation.
Since it is not a term with a single definition, we use the Gartner Group® approach, as it is a recognized reference in the IT context:
What do we mean by Digital Transformation?
If Digital Transformation is a business journey in search of new revenue streams, new products and services, and new business models, it becomes easy to relate the type of strategic positioning of IT with the probability of success of this journey. Companies with responsive IT departments are more likely to fail during transformation initiatives. On the other hand, companies with a directing IT department can capture value from these initiatives more quickly and in alignment with the business strategy.
Leaders of responsive IT departments are very distant from the company's strategic core. Thus, they do not participate in discussions on how the business will transform digitally. In many cases, these discussions are conducted by non-technical executives with the support of external consultants, generating a transformation strategy that IT leadership will have to support in execution.
When the above scenario occurs, several potential consequences arise:
How to minimize the risk of disruption in Digital Transformation initiatives
In these cases, it is common to see projects that cannot be delivered or are delivered far from the initial strategic targets, failing to capture the predicted value. The company expends a lot of energy trying to coordinate internal digital agendas, paying little attention to the customer and changes in the consumption journey. In extreme cases where the sequence of problems has a significant impact, entire transformation programs are canceled or postponed, with eventual closure of operations or dismantling of entire areas.
To prevent a company with a responsive IT department and that is familiarizing itself with this context from reaching this drastic end, here are some thoughts on what can be done to avoid the worst:
Conclusion
The strategies outlined above represent approaches commonly adopted by companies to mitigate the risk of disruption in Digital Transformation initiatives within agile IT departments. When effectively structured, these measures can help balance power dynamics and reduce the challenges associated with technological integration.
Source:
2017 CEO Survey: CIOs Must Scale Up Digital Business", Gartner ®, 2017.