Develop an IT innovation strategy for your organization (or an organization you are familiar with). Describe the organizations situation and how a specific innovation approach (disruptive,

BETTER DECISION RIGHTS

F or better or worse, the IT spending boom has ground to a halt, replaced by a more sober era where IT decisions are made with far greater scrutiny. Once bit- ten, twice shy is the name of the game, as CEOs take

more control of IT initiatives and tighten the purse strings by demanding greater justification for new initiatives. This cautious, less trusting environment has resulted in a credibility gap between management and IT, with IT staff in the vulnerable position of feeling expend-

able as long as the outsourcing bug is in the air. And IT staff frustration is often compounded as staff members are blamed for IT decisions made by top management! The irony of this scenario is that there

has never been a more important role for IT in the e-business environment of today. Integration of IT in internal processes and external markets is grow- ing at a furious pace. The stakes for good communication are high. On one hand there is an adversarial relationship due to the credibility gap and the starkly differ- ent language spoken at the business and

“The perils of screwing up (with technology) are greater every year, making the stakes for effective communication even higher.”

—STAN LEPEAK, VP OF TECHNOLOGY RESEARCH SERVICES AT METAGROUP.

FIX IT-BUSINESS RELATIONSHIPS THROUGH

80 December 2007/Vol. 50, No. 12 COMMUNICATIONS OF THE ACM

By Varun Grover, Raymond M. Henry, and Jason B. Thatcher

IT ends. On the other, there is the need for executive management and the top IT brass to come together to synchronize organizational IT with business needs [1]. A sour relationship between these groups is not good in an environment where the downside risks of IT failure are catastrophic and the upside potential is often dictated by competitors. Just how bad is it? We surveyed senior

IT managers in a variety of industries and focused on some very simple questions:

• Who makes major IT decisions? Who is held accountable for them?

• Does this affect the relationship of your group with top management?

In this article, we discuss the concepts of decision rights and accountability, and the gap that might sour the relationship between IT management and top man- agement.

DECISION RIGHTS AND ACCOUNTABILITY IT decisions in organizations are made in a wide variety of areas. Major decision areas range from those involving IT strat- egy, or the role of technology in trans- forming business, to more technical decisions concerning IT infrastructure. An appropriate decision-making frame- work is critical for organizations that want to effectively manage IT and information assets. These include not only the hard- ware and software assets, but the increas- ingly important data on customers, suppliers, and business processes. Without an effective framework that allocates deci- sion rights to the appropriate people, deci- sions regarding IT assets will be conducted in a piecemeal, incomplete, or sub-optimal manner. Such non-integrated thinking does not bode well, considering that IT assets are a collective resource that leverages the business. Any decision-making framework must

COMMUNICATIONS OF THE ACM December 2007/Vol. 50, No. 12 81

82 December 2007/Vol. 50, No. 12 COMMUNICATIONS OF THE ACM

also define accountability for IT decisions. Who is held responsible for decision failure and who gets credit for success? An IT governance system that cre- ates a balance between decision rights and account- ability can promote desirable decision making with respect to IT assets [4, 12]. A mismatch between the two can erode relationships and promote ineffective or inefficient decision making. The decision rights and accountability framework

for a firm is usually implemented through its struc- ture, processes, committees, procedures, and incen- tives. For instance, some firms may treat IS as a centralized cost center with a fixed budget and processes that allow IS to only react to user requests. Such an environment does not promote “out of the box” thinking for the IT group. In this environ- ment, if IT leadership is held accountable for a lack of strategic direction or the inability to respond nimbly to competitor moves due to restrictive legacy systems, there will be dissonance in the IT group. Ultimately this dis- sonance will result in poor relationships between the IT group and top manage- ment. On the other hand, an aggressive IT group that is allowed to retain deci- sion rights for major IT decisions and has control processes in place to measure outcomes promotes innovative solutions for the business. If the account- ability systems become overly stifling, however, this can again create a mismatch. Figure 1 illustrates the decision rights and account-

ability gaps of IT executives. The top-left-hand cor- ner is referred to as a technocentric gap, where IT executives make major decisions but the accountabil- ity systems are weak. Such environments often result in overspending on IT that may not yield commen- surate business benefits. In some cases this could result in frustration for business groups, ultimately resulting in a transformation of structures, processes, or incentives to foster greater accountability [9]. In other cases business groups are just not motivated to think through IT decisions. As one CEO com- mented, “Because the business people are uninter- ested in information systems, the information systems people have the power” [7]. The business gap (bottom-right corner of Figure 1)

occurs when major IT decisions are not made by IT executivs, but business groups are not held account-

able for executive decisions. Business leaders might ignore potentially valuable technology projects or suddenly cancel them when they run into difficulties [6]. Often cost considerations dominate decision making, and the resulting IT assets are not aligned with existing competencies. In the case of a large elec- tronics manufacturer, an executive committee denied IT’s request for a new scalable platform based upon an external vendor’s aggressive proposal for cutting costs through outsourcing. In such situations IT groups may feel frustrated because they believe their skills are underutilized and opportunities are being lost. Frustration could also result from the lack of control over their asset base, and in some cases their future viability. Moreover, the blame often falls on IT

when projects run into difficulties. The off diagonal boxes

in Figure 1 reflect align- ment between rights and accountability. In cases where both are low, IT groups are usually not strategic to the business and are viewed as admin- istrative units that service the information needs of

the firm. The high-high box reflects a strategic norm, where IT is given the power to make major decisions, but it is kept in check through control systems that monitor decision outcomes.

IT EXECUTIVE PERCEPTIONS OF THE GAP Various organizational forms are used to implement decision rights and accountability. Some of these are tacit or cultural, such as the historical notoriety of the IT group, while others are explicit, such as incentives, procedures, or committees. However, in many cases such forms do not keep up with enter- prise changes and their original intent gets diluted. Therefore, rather than examining these organiza- tional forms, we argue that how these forms are “perceived” by IT executives is what matters. Execu- tives can best assess whether they feel they have a balance (no gap), technocentric gap, or business gap between rights and accountability. Our focus is to empirically assess these perceptions, and their impli- cations for the relationship of IT management with top management. We surveyed 89 senior IT executives (CIOs or VPs

of IS) across a diverse set of industries (see the side- bar). After soliciting participation in an ongoing proj- ect, we requested that they respond to a series of questions on their perception of decision rights and

High

Low

Low High

Technocentric Gap • Danger of overspending on IT • IT assets may not be utilized for business purposes • Business group frustration with IT group

Strategic Norm Works where IT is viewed as competent and strategic to the business

Administrative Norm Works for organizations where IT is viewed as a support function.

Business Gap • Cost considerations dominate IT decisions

• IT assets may not utilize internal competencies • IT group frustration with business groups

Decision Rights

Accountability

Figure 1. IS decision rights-accountability gap

framework.

accountability as pertaining to major IT decisions in their organization.

Major IT decisions. A number of typologies have been proposed to categorize major IT decisions [11]. In this study we use six categories that represent major IT decisions. These are:

• IT strategic vision. The strategic role of IS in the organization.

• IT architecture. How technical capabilities are organized for business needs.

• IT investments. The amount, type, and pri- ority of IT investments.

• IT infrastructure. How IT services are shared.

• Application develop- ment. Management of development and implementation.

• Outsourcing. IT out- sourcing policy and management.

We requested that the respondents assess the decision rights and accountability for these decisions across five distinct groups. The “groups” include IT management (the respondent’s group), top management, business units, IT units, and ven- dors. Decision rights were defined as the extent to which groups make or have final “say so” over deci- sions, while accountability for outcomes was defined as the extent to which groups are held responsible for the outcome of decisions. Responses were captured for each group’s role in each decision (in percentage terms). For instance, decision rights for decisions of IT strategic vision could be distributed across the five groups, with the total equaling 100. A respon- dent could indicate that top management has 50% of the rights, and IT management has 50% (that is,

decision rights are shared). A similar percentage response was solicited for accountability of out- comes.

Quality of relationship. Our particular interest was in assessing the quality of the relationship between IT management and top management. This was done through a series of seven internally consistent ques-

tions that required responses ranging from strongly agree to strongly disagree. Each question describes an aspect of IT management’s relationship with top management such as effectiveness, level of cooperation, quality of decisions, level of conflict, feeling of partnership, and satisfaction. After check- ing statistically for the internal consistency and validity of the scale, these items were aggregated to form a “quality of relation- ship” measure.

INTRIGUING PATTERNS EMERGE FROM FINDINGS The results on levels of decision rights and accountability are illus- trated in Figures 2 and 3 respectively. The bars rep-

resent the average for the 89 executives surveyed. As can be seen, major decision rights and accountabil- ity for IT infrastructure and architecture, arguably the more technical areas, reside primarily with IT management or other IT units. Top management, IT management, and business units tend to share significant decision rights for IT investment and strategic vision decisions. IT management and top management are responsible for outsourcing deci- sions, while application development is primarily shared by IT management and the business units. However, more interesting patterns emerge when

COMMUNICATIONS OF THE ACM December 2007/Vol. 50, No. 12 83

Strategic Vision

Architecture

IT Investment

Infrastructure

Application Development

Outsourcing

0% 20% 40% 60% 80% 100%

VendorsIT UnitsBusiness UnitsTop ManagementIT Management

VendorsIT UnitsBusiness UnitsTop ManagementIT Management

Strategic Vision

Architecture

IT Investment

Infrastructure

Application Development

Outsourcing

0% 20% 40% 60% 80% 100%

Figure 2. Decision rights.

Figure 3. Accountability.

There are a number of solutions to BRIDGE THE BUSINESS GAP, but a precursor is to recognize that gaps exist.

one looks at the gaps between decision rights and accountability. Table 1 illustrates these gaps (average differences), with the negative numbers indicating where accountability exceeds decision rights. As can be seen in the column under IT management, all numbers are negative indicating that IT man- agement perceives a busi- ness gap, where accountability for major IT decisions exceeds deci- sion rights. Table 2 describes this gap as per- ceived by IT management and its correlation with the measure on relation- ship quality. Significant correlations indicate where IT management is most sensitive to the per- ceived gaps, and where these gaps affect the quality of the relationship with top management. The last col- umn of the table describes the correlation of top man- agement’s perceived level of accountability with relationship quality. Significant correlations here indi- cate where relationship quality is stronger if top man- agement takes on greater accountability for decision out- comes. As can be seen from the tables,

some interesting patterns emerge with respect to the various cate- gories of major IT decisions. Good IT governance promotes desired behavior with respect to IT deployment. By parceling out decisions to the right people and holding them accountable, gover- nance can promote both empow- erment and control [11]. However, in addition, we find that for some decisions, poor governance can adversely affect the instrumental relationship between IT and top management. We make four observations from these results. First, the higher level strategic vision and IT invest-

ment decisions follow similar patterns. Strategic vision decisions set the role of IT in the firm, while invest- ment decisions establish resource commitment, prior- itization, and the IT portfolio. In both types of decisions there are large rights-accountability gaps perceived by IT management, which adversely affect relationship quality. For these decisions, top manage- ment might be making unpalatable IT investment decisions, while leaving IT management accountable for the success or failure of these decisions. The results

suggest that governance mechanisms that can pro- mote greater accountability on the part of top man- agement are particularly useful here. It is not sufficient to have executive committees with both top and IT management representation if they are pro-

viding only decision inputs. The assessment of decisions should also be brought within the charter of such committees or other governance struc- tures. One company fol- lowing an approach of clearly specifying business- oriented progress objec-

tives as a part of IT investment decisions was able to enhance coordination, reduce cost, and improve capacity [3]. Secondly, we find that more technical IT architec-

ture and infrastructure decisions follow slightly different patterns. Architecture decisions concern issues of mapping technical choices to business processes, while infrastructure decisions involve explicit techni- cal choices on shared network, Web, and data services throughout the firm. While the gap is moderate for

both these decisions, its affect on relationship quality is inconsequential for architecture decisions but important for infrastructure decisions. Holding top management more accountable does not help rela- tionship quality in either case. This indicates that IT feels that these decisions are outside top manage- ment’s experience or expertise. IT management would rather increase its own authority over technical decisions that have enterprisewide implications. Increased control over technical infrastructural deci- sions, where IT management has an integral stake, will facilitate better relationships with top manage- ment. Of course, while architecture and infrastruc- ture boards can be found in companies across a variety of industries (including Dow Jones, Verizon, and Hartford), it is critical that they not be comprised of pure technologists, but have people grounded in IT, but fluent in business [5]. Thirdly, we observe that IT infrastructure and out-

84 December 2007/Vol. 50, No. 12 COMMUNICATIONS OF THE ACM

Strategic Vision

Architecture

IT Investment

Infrastructure

Application Development

Outsourcing

-23

-10

-21

-10

-12

-6

1

3

0

2

0

-1

IT Management

13

2

19

1

7

7

Top Management

8

5

4

3

8

2

Business Units

1

0

-2

4

-3

-2

IT Units Vendors

Strategic Vision

Architecture

IT Investment

Infrastructure

Application Development

Outsourcing

High (-23)

Medium (-10)

High (-21)

Medium (-10)

Medium (-12)

Low (-6)

Significant

Not Significant

Significant

Significant

Not Significant

Significant

Significant

Not Significant

Significant

Not Significant

Significant

Not Significant

Business Gap Correlation of Gap with

Relationship Quality Correlation of Top Management

Accountability with Relationship Quality

Table 1. Decision rights- accountability gap.

Table 2. Correlations with relationship

quality.

sourcing decisions follow similar patterns too. In general, the results suggest lower business gaps, which would suggest no major governance problem. However, the gap perceived by IT management has a significant influence on relationship quality. Situations where top management makes outsourcing decisions for which IT groups are held responsible will adversely affect relationship quality. IT groups are certainly sensitive concerning decisions regarding infrastructure man- agement and outsourcing policies because of their centrality in the provision of IT services. These deci- sions directly reflect IT’s effectiveness, professional- ism, and future viability. Rather than top management taking on more accountability, IT man-

agement would prefer to be a central mediator of these decisions and take on greater decision rights. However, it is important that control systems are in place to monitor IT-centric decisions. For instance, at Xerox, outsourcing decisions are made by the top IT manager, with the CEO and CFO providing an infor- mal network for guidance, support, and counsel [10]. Finally, application development decisions are differ-

ent. These decisions involve development and imple- mentation of applications. Usually, IT groups and business units are involved in the development in con- cert. IT management perceives moderate gaps in deci- sion rights and accountability that surprisingly have little adverse effect on the relationship with top man- agement. However, governance that increases the accountability of top management helps the relation- ship. We suspect that development decisions require coordinating authority in dealing with users of busi- ness units. Without top management taking on accountability, IT management is vulnerable to blame for failures. More complex tripartite governance struc- tures are necessary. For instance, a large financial ser-

vices firm uses steering committees involving IT man- agement at the local and enterprise levels and business unit managers to oversee IT development. Top man- agement is involved in all major committee decisions.

GOVERNANCE APPROACHES This study alerts firms to the importance of estab- lishing a decision rights-accountability framework for the firm. We focused on one such outcome, the quality of the relationship between IT management and top management. While these results focused on the “biased” view of an IT executive in determining gaps, we would argue that it is these perceptions that are the ultimate manifestations of organizational

structures, processes, and incen- tives. How these are perceived will directly affect organizational outcomes. There are a number of solutions

to bridge the business gap, but a precursor is to recognize that gaps exist. After that there are structural, process, and relationship capabili- ties that can be implemented [8]. Structural capabilities including formal positions, committees, and task forces can be used to design the appropriate governance frame- work. Processes (like chargeback, SLAs, and balanced scorecard) also offer useful accountability mecha- nisms. However, most important are the relationship capabilities that allow effective joint working rela- tionships between IT and business groups.

Some firms set up IT as a cost center, usually reflecting a utility orientation toward IT. In these sit- uations major IT decisions are made outside the IT domain and IT “reacts” to business needs. At the other extreme, the IT group can be set up as a profit center with the ability to provide services to the inter- nal firm or external firms. In the former case, the cou- pling between the IT group and the firm is tight; in the latter the relationship is loose, and served by mar- ket mechanisms. The gap between decision rights and accountability could be low in both cases as top man- agement either retains or relinquishes most rights and accountability for the IT budget. Most firms, however, operate in some form of a

partnership mode, where various groups work together through governance mechanisms like struc- tures and processes. Top management and IT man- agement can jointly determine the parameters of these

COMMUNICATIONS OF THE ACM December 2007/Vol. 50, No. 12 85

Decision Types

Gap Level

Relationship Quality

For strategic vision decisions and IT investment decisions

For IT architecture decisions

For IT infrastructure and IT outsourcing decisions

For application development decisions

high

moderate

moderate to low

moderate

adversely affected by the gap

not affected by the gap

adversely affected by the gap

not affected by the gap

Governance Consideration

having top management take on greater accountability

giving IT management greater decision rights

giving IT management greater decision rights

having top management take on greater accountability

Governance Examples

through executive committees that also assess the decision outcomes

through architecture boards that have technologists with business acumen

with support and counsel of top management

through tripartite structures that involve top management to manage user and business unit issues

and governance considerations include

the perceived business gap is

and the relationship between IT and top management is

Table 3. Summary of results and guidelines.

partnerships, but they need to pay attention to possi- ble discrepancies between authority and accountabil- ity [2]. The results here suggest that different arrangements can be made for different types of IT decisions. For strategic and major IT investment deci- sions, the interaction and relationship between IT and top management need to be carefully formulated so that this important working relationship allows the firm to be effective in deploying new IT initiatives that are important to business performance. More than half the firms identified as the CIO 100 used an executive council, consisting of IT and business exec- utives, to vet ideas for new projects [3]. For architec- ture and infrastructural decisions, where IT management has superior expertise, they can take the greater role in terms of decision-making capacity and accountability. Outsourcing decisions also seem to fall here, since IT groups have a vested interest (and per- haps expertise). Application development, however, may require more complex tripartite governance involving IT management, business units, and top management. Table 3 summarizes the major results and guidelines from the study.

CONCLUSION With the greater scrutiny on IT decisions, it is criti- cal that the sometimes-adversarial relationship between IT managers and top management be made more effective. This is an imperative in today’s envi- ronment, where IT is ubiquitous, and is the source of many innovative ideas that can help generate rev- enue. If the feasibility set from IT is closed to busi- ness due to poor relationship quality between the IT and business sides, the business will flounder. Our study strongly indicates that IT managers perceive a gap between their decision rights and accountability for major IT decisions. For most decisions the mag- nitude of this gap affects their relationship with top management. However, different IT decisions might not require the same rights-accountability frame- work. More technical decisions are better handled by the IT groups, while others require shared

responsibility. Planning an effective governance structure that recognizes these differences is essential for business leaders to be better managers of the technology they deploy.

REFERENCES 1. Craig, D., Kankamedala, K., and Tinaikar, R. The next frontier in IT strategy: A McKinsey survey. McKinsey Quarterly (Spring 2007).

2. Cramm, S. Share power to gain control. CIO Magazine (Mar. 1, 2005). 3. Dragoon, A. More governance best practices. CIO Magazine (Aug. 15, 2003).

4. Gurbaxani, V. and Whang, S. The impact of information systems on organizations and markets. Commun. ACM 34, 1 (1991), 59–73.

5. Koch, C. A new blueprint for the enterprise. CIO Magazine (Mar. 1, 2005).

6. Lohmeyer, D., Pogreb, S. and Robinson, S. Who’s accountable for IT? The McKinsey Quarterly (2002); www.mckinseyquarterly.com/article_page.aspx?ar=1251&L2=18&L3 =30

7. Monnoyer, E. What CEOs really think about IT. The McKinsey Quarterly (2003); www.mckinseyquarterly.com/article_page.aspx?ar= 1337&L2=13&L3=13

8. Peterson, R. Crafting information technology governance. Information Systems Management (Fall 2004), 7–22.

9. Ross, J.W. and Weill, P. Six IT decisions your IT people shouldn’t make. Harvard Business Review 80, 3 (2002).

10. Wallington, P. Time to create a CXO coalition. CIO Magazine (Aug.1, 2001).

11. Weill, P. Don’t just lead, govern: How top-performing firms govern IT. MIS Quarterly Executive, 3, 1 (2004), 1–18.

12. Weill, P. and Ross, J.W. IT Governance: How Top Performers Manage Decision Rights for Superior Results. Harvard Business School Press, Boston, MA, 2004.

Varun Grover ([email protected]) is the William S. Lee Distinguished Professor of Information Systems in the Department of Management at Clemson University in Clemson, South Carolina. Raymond M. Henry ([email protected]) is an assistant profes- sor in the Department of Management at Clemson University. Jason B. Thatcher ([email protected]) is an assistant professor in the Department of Management at Clemson University.

Permission to make digital or hard copies of all or part of this work for personal or class- room use is granted without fee provided that copies are not made or distributed for profit or commercial advantage and that copies bear this notice and the full citation on the first page. To copy otherwise, to republish, to post on servers or to redistribute to lists, requires prior specific permission and/or a fee.

86 December 2007/Vol. 50, No. 12 COMMUNICATIONS OF THE ACM

HHOOWW WWEE CCOOLLLLEECCTTEEDD TTHHEE DDAATTAA

We surveyed 89 executives listed in the Directory of Top Computer Executives were surveyed. These executives were selected from U.S. companies with over 50 IT employees or over 1,000 PCs or listed on the Fortune 1000 or Forbes 500 lists. Respondents were given a choice of responding to a paper-based version or a Web version of the instrument. Approximately half the executives are from manufacturing, service, or governmental organizations and approximately one-third are from financial, retail, or health care sectors. The average number of employees per organization is approxi- mately 31,000 and there is no bias toward any geographic area.

MIS Quarterly Executive Vol. 10 No. 4 / Dec 2011 157© 2011 University of Minnesota

CIO and Business Executive Leadership Approaches to Establishing Company-Wide Information Orientation

CIO and BusIness exeCutIve LeadershIp apprOaChes tO estaBLIshIng COmpany-wIde InfOrmatIOn OrIentatIOn1,2

William J. Kettinger University of Memphis (U.S.)

Chen Zhang University of Memphis (U.S.)

Donald A. Marchand IMD (Switzerland)

MISQUarterly Executive

Executive Summary12

In the digital world, business executives have a heightened awareness of the strategic importance of information and information management to their companies’ value creation. This presents both leadership opportunities and challenges for CIOs. To prevent the CIO position from being marginalized and to enhance CIOs’ contribution to business value creation, they must move beyond being competent IT utility managers and play an active role in helping their companies build a strong information usage culture. The purpose of this article is to provide a better understanding of the leadership approaches that CIOs and business executives can adopt to improve their companies’ information orientation. Based on our findings from four case studies, we have created a four-quadrant leadership-positioning framework. This framework is constructed from the CIO’s perspective and indicates that a CIO may act as a leader, a follower or a non- player in developing the company’s information orientation to achieve its strategic focus. The article concludes with guidelines that CIOs can use to help position their leadership challenges in introducing or sustaining their companies’ information orientation initiatives and recommends specific leadership approaches depending on CIOs’ particular situations.

THE GROWING IMPORTANCE OF INFORMATION AS A BUSINESS RESOURCE In today’s digital world, enabled by social media, cloud computing, sensor networks, online service offerings and big data applications, the volume, velocity and variety of data are growing at unprecedented rates as individuals are constantly producing, gathering and sharing information. Consumers, including the growing number of digital “natives,” demand information competence in their network-based communication. From a business perspective, IT and information are increasingly embedded in products, services

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