Wednesday, November 19, 2008

Pettit - States of IT Governance

By Ross Pettit - 19 November 2008

As we head into a period of economic uncertainty, one thing we can count on is that IT effectiveness will be called into question. This isn’t so much because IT has grown excessively large in recent years, but because of results: industry surveys still show that as many as 60% of IT projects fail outright or disappoint their sponsors. As we head into a downturn, executives may look to IT to create business efficiency and innovation, but they won’t do that until they have scrutinised spend, practices and controls of IT.

This makes the need for good IT governance more urgent.

Governance is a curious concept. Governance doesn’t create value, it reduces the likelihood of self-inflicted wounds. It’s taken for granted, and there isn’t a consistent means to show that it actually exists. It is conspicuous only when it is absent, as it is easier to identify lapses in governance than disasters averted. And we tend not to think of an organisation as having “great” governance, but of having “good” or “bad” governance.

This strongly suggests that “good” is the best that governance gets. It also suggests, as the nursery rhyme goes, that when it is bad, it is horrid.

Any critical examination of our governance practices will focus on what we do poorly (or not at all) more than on what we do well. But rather than cataloging shortcomings, it is better to start by characterising how we’re governing. This will give us an opportunity to not only assess our current state, but forecast the likely outcome of our governance initiatives.

To characterise how we govern, we need some definition of the different types or states of governance. To do that, we can categorize governance into one state of “good” and multiple states of "bad."

We'll start with the bad. The most benign case of “bad” governance is unaligned behaviour. There may be guiding principles, but they're not fully imbued in day-to-day decisions. Individual actions aren't necessarily malicious as much as they are uninformed, although they may be intentionally uninformed. Consider an engineer in a Formula1 team who makes a change to the car, but fails to take the steps necessary to certify that the change is within regulation. This omission may be negligent at best, or a "don't ask / don't tell" mentality at worst. This first category of “bad governance” is a breakdown of participation.

The next category is naivety. Consider the board of directors of a bank staffed by people with no banking background. They enjoyed outsized returns for many years but failed to challenge the underlying nature of those returns.1 By not adequately questioning – in fact, by not knowing the questions that need to be asked in the first place – the bank has unknowingly acquired tremendous exposure. This lapse in rigor ultimately leads to a destruction of value when markets turn. We see the same phenomenon in IT: hardware, software and services are subjected to a battery of well-intended but often lightweight and misguided selection criteria. Do we know that we're sourcing highly-capable professionals and not just bodies at keyboards? How will we know that the solution delivered will not be laden with high-cost-to-maintain technical debt? Naïve governance is a failure of leadership.

Worse than being naïve is placing complete faith in models. We have all kinds of elaborate models in business for everything from financial instruments to IT project plans. We also have extensive rule-based regulation that attempts to define and mandate behaviour. As a result, there is a tendency to place too much confidence in models. Consider the Airbus A380. No doubt the construction plan appeared to be very thorough when Airbus committed $12b to the program. During construction, a team in Germany and another team in France each completed sections of the aircraft. Unfortunately, while those sections of the aircraft were "done", the electrical systems couldn’t be connected. This created a rather large, expensive and completely unanticipated system integration project to rewire the aircraft in the middle of the A380 program.2 We see these same phenomenon in IT. We have detailed project plans that are surrogates for on-the-spot leadership, and we organise people in work silos. While initial project status reports are encouraging, system integration or quality problems seemingly appear out of nowhere late in development. Faith in models is an abrogation of leadership, as we look to models instead of competent leaders to guide behaviour toward results.

Finally, there is wanton neglect, or the absence of governance. It is not uncommon for organisations to make optimistic assumptions and follow through with little (if any) validation of performance. Especially at the high end of IT, managers may assume that because they pay top dollar, they must have the best talent, and therefore don’t need oversight. People will soon recognise the lack of accountability, and work devolves into a free-for-all. In the worst case, we end up with a corporate version of the United Nation’s oil for food program: there's lots of money going around, but only marginal results to show for it. Where there is wanton neglect of governance, there is a complete absence of leadership.

This brings us to a definition of good governance. The key characteristics in question are, of course, trust and competent leadership. Effective governance is a function of leadership that is engaged and competent to perform its duties, and trustworthy participation that reconciles actions with organisational expectation. Supporting this, governance must also be transparent: compliance can only be built-in when facts are visible, verifiable, easily collected and readily accessible to everybody. This means that even in a highly regulated environment, reaction can be swift because decisions can be effectively distributed. In IT this is especially important, because an IT professional – be it a developer, business analyst, QA analyst or project manager – constantly makes decisions, hundreds of times over the life of a project. Distributed responsibility enables rapid response, and it poses less of a compliance risk when there is a foundation of trust, competent leadership, and transparency.

This happy state isn’t a magical fantasy-land. This is achievable today by adhering to best practices, integrating metrics with continuous integration, using an Agile-oriented application lifecycle management process that enables localised decision-making, and applying a balanced scorecard. Good IT governance is in the realm of the possible, and there are examples of it today. It simply needs vision, discipline, and the will to execute.

In the coming months, we are likely to see new national and international regulatory agencies created. This, it is hoped, will provide greater stability and predictability of markets. But urgency for better governance doesn't guarantee that there will be effective governance, and regulation offers no solution if it is poorly implemented. The launch of new regulatory bodies - and the actions of the people who take on new regulatory roles - will offer IT a window into effective and ineffective characteristics of governance. By paying close attention to this, IT can get its house so that it can better withstand the fury of the coming economic storm. It will also allow IT leaders to emerge as business leaders who deliver operating efficiency, scalability and innovation at a time when it's needed the most.

1 See Hahn, Peter. “Blame the Bank Boards.” The Wall Street Journal, 26 November 2007.

2 See Michaels, Daniel. “Airbus, Amid Turmoil, Revives Troubled Plane” The Wall Street Journal, 15 October 2007.




About Ross Pettit: Ross has over 15 years' experience as a developer, project manager, and program manager working on enterprise applications. A former COO, Managing Director, and CTO, he also brings extensive experience managing distributed development operations and global consulting companies. His industry background includes investment and retail banking, insurance, manufacturing, distribution, media, utilities, market research and government. He has most recently consulted to global financial services and media companies on transformation programs, with an emphasis on metrics and measurement. Ross is a frequent speaker and active blogger on topics of IT management, governance and innovation. He is also the editor of alphaITjournal.com.

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