5 areas of group level IT and business governance harmonization
The Business and IT governance harmonization is an essential activity and a key success factor to lead large multinational organizations. Many of us work, worked or will work in large, multinational organizations. Sometimes on the group level, sometimes on a member entity level that is governed by the group. Moreover, sometimes you are in between in a three- or even more layer structures. In many cases, you are a member of a higher level group and a leader of a sub-group.
One of the most important learning is that you should harmonize the group IT governance with group business governance.
If IT wants to implement strong governance without strong business governance, it is hard to achieve meaningful results. The member entities protect their independence. As a result, they are not motivated in group level optimum, and would claim that they know it better – and they may know it better.
On the other side, if the business aims at strong governance, but the IT is not able or willing to do the same, the business initiatives may fail. The member entities explain that it is not possible to implement the group level initiative because the IT is not ready for that. And they are probably right.
What are the most relevant areas to harmonize IT and business governance?
1. Strategy harmonization
In multi-layer organizations, the group business strategy defines the desired future state of the entire group, lists the gaps, and defines the actions to eliminate them. The strategy of the member entities should contribute to the group strategy. As an example, if the group aims at providing standard services in several countries for multinational companies, the member business strategies include service and product strategy accordingly.
The same applies to the IT strategy. The group IT strategy formulates the future state of application, data, technology, and skills on the group level, and the member entity level IT strategies fit it. With the previous example, the group strategy sets the target to build a centralized electronic channel to the large corporate customers, and the member IT strategies include the connection to the central solution. The governance harmonization starts with consistent business and IT strategies.
2. Business and IT architecture alignment
The group business architecture consists of organizational capabilities, governance, structure, business processes, information, and their relations. The group IT architecture covers the application, data and technical components. In some areas, the centralization and control are active, on other areas the member entities are highly independent.
The organizations should align the group level business and IT architectures.
When business governance wants to implement the same business processes, market products, and services, the IT should unify the supporting systems. In many cases, the best solution is to implement a central solution. If the interfaces to the local systems are too complicated, additional centralization may be needed to the extent of complete consolidation.
As an example, if there is a strong information management governance on the business side, IT should develop and operate robust technical data governance. The supporting IT solutions should include controls, quality checks, reports that enable the expected information management.
The group level organizations should have control over the member level results. It is a must to ensure the group level consolidated results.
One extreme is that the group controls almost every spending. It ensures a good understanding of the details but consumes many resources. Besides, the heads of the member entities lose power and the related responsibility, since everything the HQ decides on everything.
The other extreme is that the heads of the member entities are entirely empowered and there is no control on any details. The HQ requires only a high-level business plan that commits to the expected results. The member entities do whatever they want during the year, assuming the delivery of the final results.
The actual approach is in most cases in between. Influencing factors are the strategy, the personality and core values of the top managers, the specifics of the industry and the market, the internal politics and the power games.
The harmonization of the IT and the overall budgeting governance is inevitable. It the group CFO implements robust controls, the CIO must support with IT analysis and proposals. It the group doesn’t exercise full power, the CIO efforts for complete IT control will be easily and quickly declined by the entities, referring to the group approach.
4. Project harmonization
When the projects deliver systems and solutions that support the business users and business processes, active cooperation is required between the IT and the business users. Most projects are in this category, the number of purely technology projects, like data center move, infrastructure upgrade or migration to the cloud, is limited.
If a project runs on the group level, the strong IT and business, and also PMO governance are essential. The business and IT on the group level should ensure that the business and IT on the member level execute well to deliver the group level projects successfully.
If a project runs on a member entity level, the group governance is less relevant. There are several options from substantial control over almost all local project to only a high level reporting on the key projects. Probably the best is to let the member entities to run their projects and intervene only in case they ask for it, or when the level of problems makes it necessary.
5. Service centers
Many organizations centralize activities to gain benefits from synergy. Some of these are technical tasks like data center operation, but mostly business process activities with substantial IT support. Some examples are HR, Call center, Accounting, Card and other payment processing.
If a business activity or business process is centralized to a group level service center, the IT has to build the central support systems and interfaces. Without group level solutions, business service centers are doomed to fail.
However, when the IT performs pure infrastructure centralization and develops group IT service centers, the involvement of the majority of the business department is not needed. CIOs should take care of exceptional cases. As an example, if the IT migrates the data to another country, the group legal department may have to lead the harmonization of the customer contract updates in the member entities.
The pricing methodology and charging mechanism are also relevant components of the service centers. It should motivate efficiency, meet the national and international tax and other regulations, and be as simple as possible. You can read about internal IT service price problems and mitigations in this article.
Besides the cost and efficiency benefits, the group level Service centers also motivate the governance harmonization. The better the organization aligns the strategy and services, the more synergy benefits it can capture.
Your next steps in governance alignment
- Review the IT and business governance on these five areas
- Identify the misalignments
- Discuss with your peers the target state
- Implement step by step
Final remark for IT leaders
You have an excellent opportunity because you have a comprehensive overview of all departments. You know the entire organization. No other departments are in the same position. Use this knowledge and propose ways how to improve the overall governance on the group level.