Q

How to get IT and finance to agree on governance models

Rob Livingstone explains why understanding tensions among IT, finance and the rest of the organization is critical to agreeing on governance models.

How can IT and finance agree to the right governance model for the business?

Rob LivingstoneRob Livingstone

Understanding the context and intrinsic value of governance models is core to paving the way for finance and IT (as well as the rest of the organization, for that matter) to agree on the optimal enterprise governance policies, settings and frameworks.

Just mentioning the word "governance" at a management meeting in a fast-moving, adaptable start-up business has the potential to kill any conversation. The same topic in a mature, large business subject to a wide range of punitive statutory and regulatory mandates, would elicit a very different response.

These examples illustrate the fact that enterprise governance is context-specific.

Governance policies and processes may need to adapt over the lifecycle of the organization due to factors such as a shift in customer base, product or services mix, new legislation, or a change in the board of directors' risk tolerance.

Also consider the volatility and speed of change wrought on industries and organizations by the uptake of new digital technologies. The half-life of technologies is typically measured in years, and by the time the next "big thing" has passed through the organization, the governance processes may have barely had time to stabilize. Most importantly, time is being compressed, as the pace of change is rapidly increasing.

Finance and enterprise IT share a common accountability for enterprise governance and risk, but from differing perspectives.

When it comes to reaching a consensus on a governance model, finance and IT are not the only two parties that should be considered. Differing perspectives on the relevance and degree of governance are a source of contention among the various factions and functions in many organizations.

Understanding the tensions among IT, finance and other functions across the enterprise arising from governance considerations is a prerequisite to both IT and finance being able to agree on the governance model that is appropriate for the entire organization.

The tensions of maturity

The governance and risk models associated with finance are, for the most part, well understood and mature. However, IT governance models are still maturing and may never fully stabilize because of the high rate of innovation and change inherent in digital technologies.

Takeaway: IT and finance must be able to communicate their approach and rationale to governance in a common language of nontechnical business terms and come to an agreement on their modus-operandi.

The tension of cost minimization

If IT is seen purely as a cost, then IT governance is simply an overhead to be minimized. If IT is a critical business operation which adds measurable value, then IT governance is a value-add.

Knowing the difference is critical. Recognize that an effective, trusted and engaged IT function is the key to ensuring that your organization thrives and survives in our competitive, volatile environment.

Takeaway: If IT is seen as a cost, finance and IT should collaborate to ensure that IT's intrinsic value is clearly articulated to all business stakeholders in a language that they understand.

The tension of opportunity cost

When staff members have to devote time to governance activities while the apparent opportunity cost of working on something else is higher, such as meeting a new customer or renegotiating a supply contract, they can become frustrated, leading to suboptimal outcomes.

Takeaway: Ensure that the rationale behind the need for specific governance activities is clearly articulated to and tied back to business strategies, as are the accountabilities that all play into assuring the integrity of these activities.

The tension of agility

In our volatile, fast-moving, globally interconnected world, the long-term viability of inflexible, inertial organizations is likely to be threatened. Organizations that operate with adaptive enterprise strategies, supported by adaptive governance strategies models will continue to thrive in a volatile world without compromising effective and efficient governance.

Takeaway: Ensure your enterprise and governance strategies are routinely reviewed for relevance and are not shelfware.

The tension of incentive schemes

When it comes to implementing and maintaining major new IT or enterprise governance models, management incentive schemes for those outside of IT and finance should be adjusted to reflect their accountability in ensuring that the initiatives are effectively implemented. Most incentive schemes focus on the short-term, whereas governance models are focused on the medium- to long-term.

Takeaway: If governance is important for the medium- to long-term viability of the organization, its maintenance and operation as well as the individual's specific accountabilities in working within the governance model should be reflected in individuals' incentives.  

It is imperative that IT and finance arrive at a unified approach to governance. They should also ensure that the costs, risks and value associated with a customized, commercially sensible governance model are well articulated throughout the organization. Managing risk is not someone else's job.

About the author:
Rob Livingstone is a former CIO with over three decades of experience in the corporate world. In addition to running his IT advisory practice, he is an author and commentator, providing authoritative, independent insights on a range of IT topics including emerging technologies, governance and IT security. Rob is the author of the book Navigating through the Cloud, and is also a Fellow at the University of Technology Sydney, Australia, where he teaches leadership, strategy and innovation in the school's flagship MBITM program. Visit Rob at www.rob-livingstone.com or e-mail him at rob@rob-livingstone.com.

This was first published in April 2014

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