Free Why We Need It Governance? Term Paper Example
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Over the years, the business environment experienced various major financial scandals as a result of poor corporate governance. Consequently, this has raised concerns about the importance of IT governance to counter the bottleneck facing the business world. The IT management is important because of several reasons. (1) IT governance has a significant role to play in enhancing corporate governance in a business environment. (2) The business world is lacking accountability and is unable to reflect the responsibilities for the IT services. (3) There is a potential widening gap between what business think about the IT and how the IT department perceives as the scope of the business. (4) There is a need to understand how the management can integrate the business strategy and the IT in order to meet the business requirement and forecast the anticipated future. (5) The managers also need to identify how to utilize the existing IT infrastructures to identify and manage critical risks. In overall, the management has recognized the need to apply effective management disciplines in the IT governance to help in improving the performance of the business. Therefore, the need for the sound IT governance is essential to not only large business but also small and medium businesses.
Information Technology (IT) governance is becoming a fundamental requirement in the business environment to enhance the IT performance, and hence corporate governance and optimum values in the firms. The IT governance is the responsibility of the executive management and board of directors. “It is an integral part of the enterprise governance and consists of the leadership and organizational structure and the processes that ensure that the organization’s IT sustains and extends the organization’s strategies and objectives,” (Karim et al. n.d. p.3). Many organizations have embraced the use of IT infrastructure and IT application, but the strategy bear minimum outcomes. Therefore, the firms need effective governance on the IT so that they can feel the real impact of the IT functions. There are other concerns that are driving forces towards the achievement of the IT management. For instance, the management is aware of the increasing related risks and cost effectiveness of IT implementation in all organizations. As a result, there is an emerging realization the IT functions requires a more management commitment to enhancing the control and management of IT activities. After achieving this, the businesses irrespective of their sizes will enjoy many benefits that relate to the IT governance. The paper provides an insight of the significant of IT governance through comparison of IT characteristics across the different size enterprise.
II. Significant of the IT governance
a. Improving corporate governance
IT governance has a significant role to play in enhancing corporate governance in a business environment. Over the years, the business environment had experienced various major financial scandals as a result of poor corporate governance. Among the companies that have suffered from this failure is the Enron Company based in the North America. The failure of the corporate governances occurred due to hitches in processes, policies, customs, institutions and laws. Such bottlenecks in the corporate governance lead to increasing unemployment, financial losses attributed to the shareholders’ wealth, and in some cases bankruptcy. As a result, the demand for the integrating information technology in all organization has escalated to help the organizations improve their corporate governance and support organizational goals. However, similar to corporate governance, lack of effective IT governance has adverse effects on the business environment. According to Karim et al. (p.2), “IT-enabled business transformations have caused several disappointments for chief executives.” Therefore, effective IT governance is needed to enhance the corporate governance. It shows how the IT governance is a paramount need to improve business operations.
In order to avoid failure of the corporate governance, sound IT governance enhances the role of decision-making in the organization. The IT architecture contains an incorporated set of technical choices that guide the organization to achieve its business needs. The IT decision also affects the decision-making process at different levels of the government, such as functional level, and business unit or corporate level. With this structure, the senior manager can hold accountable the managers in different levels. The first step in the IT governance aims at determining who it can hold accountable for every decision made in each level.
The decision-making in IT monarchy ranges from highly decentralized to highly centralized Most of the company utilizes various IT decision making by applying various approaches to different decisions. For instance, in the Business monarchy, the senior business executives including chief executive officers make most of the IT related decisions. However, where the IT governance is employed “those decisions are made by an individual IT executive or a group of IT executive” (Weill and Ross, 2005, p.27). According to Robinson (2007), “A decision-making model helps ensure that IT decisions are coherent and consistent with the corporate direction and aligned with the overall business strategies.” Such is because the responsible people are held accountable for every decision they make and hence takes responsibilities for improving architecture standards to improve corporate governance.
Legal global firms seek to implement the hybrid IT governance model “to achieve both the synergies emphasized in more centralized models and the autonomy allowed by more decentralized models” (Weill and Ross, 2005, p.27). Such companies anticipate reaping the benefits of the IT governance such as improving corporate governance among others. Companies such as Carlson, DuPont, ING DIRECT, Johnson & Johnson, and J.P. Morgan Chase have achieved this benefit by embracing the IT governance at three levels. These business levels include a group of business or regional level, business unit, and the enterprise level. A company such as J.P. Morgan Chase have emphasized on autonomy in order to foster innovation and identify every business requirement, ranging from investment banking to credit cards (Weill and Ross, 2005).
b. External and internal compliance
In all levels of the business, the IT governance is required to incorporate approaches that can help an organization meet the External and Internal legal and regulatory requirements. The world has faced financial misdeeds and subsequent scandals in not only small businesses, but also high-profile organizations. Due to this, concerns over the investors’ confidence arose and led to the emergence of new regulations including the Sarbanes-Oxley Act. This regulation focuses on promoting corporate governance through strategies that will enhance internal balances and checks, and subsequently promote corporate accountability. Therefore, the IT governance plays a significant role complying with such regulation by developing a foundation that enhances the internal control environment. Damianides (2005) claims that “Given the significance of these directives, and the important role IT has in financial systems, many organizations have proactively enhanced design, documentation, and consistency of IT controls” (78). For instance, Dell Corporation has introduced the IT governance to foster security and compliance by satisfying requirements with the preventative controls and forensic controls. The Dell software helps the small and large organization to adhere to the internal security policies, comply with the external regulations and undertake migration and consolidation. The software provides the organization with vital information that can help them minimize external and internal breaches. One does it by “determining who has access to what; detect security violations, such as identifying users with inappropriate access, and provide access to a need to Know basis” (Dell, 2014).
c. Enhancing strategic management
In the contemporary business world, the new era of competition has emerged requiring the participating companies to be more turbulent, faster, and increasingly global through a digital platform. Therefore, the demand for a cost-effective and efficient information technology management that can help organizations to be flexible, innovative and create values arises. It involves re-engineering IT to add the value of the products through upstream, managing IT investments and downstream such as deploying IT applications and managing customer relations. For instance, in 1989, British Petroleum (BP) transformed its IT function to support its mission “become the best in class in its support of BP’s goal to be the best upstream company in the world” (Peterson, 2004, p.55). After few years, the IT function was seen as ‘infrastructural planner’ that enhanced value creation and technical integrity through information sharing. The IT governance was able to provide an insight of the global strategies through the IT infrastructure planning.
In the modern days, IT has taken a new and advanced transformational route. The organization IT governance is enhancing the transformation of the core-peripheral organization design that incorporates corporate IT management (Patel, 2004). However, the local business applications are managed by the IT management or by businesses. In the organizational structure, “the IT infrastructure decisions are centralized and allocated to the Corporate Unit.” On the other hand, the IT application decisions are decentralized and assigned to the different operational business units in the organization ‘peripheral” (Peterson, 2004, p.55). As a result, this decision helps the organizations to focus on the strategic needs of the business and corporation with the external environment. Therefore, this illustrates how the IT governance helps the complying organizations to embrace the principles dynamic stability and strategic flexibility.
d. Performance Improvement
Different size of enterprises focuses entirely on the development of governance space by donating technology and tools solutions designed to increase the performance and productivity of the business. Small and Medium-sized Enterprises (SME) are known to be constituent and vibrant representation of the economic engine. Therefore, the enterprises have significant potential to drive employment and economic growth since contributing to poverty alleviation. The IT governance affects business performance, and ideally aids in outperforming business competitors (Milne, & Bowles, 2009). The paper extends this further to emphasize that IT governance outlines business performance when complied with business’s strategic objectives. Better IT governance leads directly to improved productivity, improved financial result, and high-quality products. On the contrary, poor IT governance leads to bureaucracy, diminished overall financial performance, programmatic waste, and lower morale in the small and medium-sized enterprises (SME).
Relatively large enterprises and small and medium-sized enterprises governance structure tends to be centralized and informal this is because financial limits constrain investing in the IT. However, to underscore the significance of the IT governance practices, SME consider their production of good and services for their customers. One of the aspects of business performance is to be efficiency and coordination in the internal business processes to comprise end-to-end customer experience (Milne, & Bowles, 2009). For the positive effects of business, IT governance process must focus of visibility on the overall business process in which customers interact. In business enterprises, IT helps in increasing sight of the customers in favor of satisfying standards, regulations and policies. Finally, good IT governance addresses whole end-to-end business processes hence coordinating the activities of the enterprise over time and across organizational boundaries. IT governance improves performance management and hence improves process improvement, service level management, customer satisfaction and business value measurement (Milne, & Bowles, 2009).
IT governance improves productivity and performance in various ways. In small and large enterprises, web and desktop are tools that a firm can use to communicate and organize its operations efficiently. Business IT governance can be useful to multiple aspects of the processes within commercial and corporate organizations, with tangible outcomes in relations to performance. Customer reach has been made possible for the different size of enterprises by information technology. Therefore, to reach customers calls for web services such as websites and email that are affordable even for small businesses (Milne, & Bowles, 2009). The key factor of the IT governance is to reach potential customers on a global scale. IT governance enhances communication in the organization to be effective that minimizes the cost as it maximizes efficiency. IT governance has improved the organizations within the small and large enterprises. For instance, development and project management systems can incorporate projects and task processes even in cases where the employees involved are located at remote locations (Milne, & Bowles, 2009).
IT governance has also improved the organization of SME and large business since it has incorporated database technology. In every organization, the database provides a central hub for the data that preserves efficiency within the organization. Having shared internal resources makes a united system for teams of employees working under same roof towards the same objectives. IT governance has made performance measurement achievable by different sizes of enterprises. SME are capable of acquiring IT governance, therefore, involving database and spreadsheet-powered systems. These allow the business to manipulate and store data that it can use in times of analysis and model system for future decision-making. Models become useful in the organizations since they help the managers to create plans that increase the productivity of the business in the long-term. Having a precise analysis of the past performance of the business can be a critical step in making effective plans of the enterprises.
e. Transparency and Accountability
The personality profile influence factors within the organization since it define the manner that the clients define it. Therefore, the organizations’ staffs should portray good characters to represent the future image of the companies. IT governance encompasses the responsibilities and accountability that enhance desired behaviors that support the organization’s goals and objectives. Effective IT governance promotes a proper internal environment that ensures a good culture and operating climates are conducive. Culture displays accountability in leadership that represented in the value statements. Good IT governance improves the transparency of the IT process, portfolio, and costs. These create cost effectiveness in enterprises hence increasing the growth of the business. Responsibility, transparency and accountability are key essentials in decision-making. Allocation of the central framework to IT governance is the concept of improving accountability and authority.
An accountability framework guarantees accountability, clarity, and desired outcomes. Therefore, value statements should be well-defined with the clear obligation of roles and responsibilities. Decision authorities are individuals or bodies, for instance, boards, committees that are authorized to make and approve decisions regarding the use of IT. Additionally, the outline should include organizational concepts, structures and functional interrelationships. For the IT Government to be transparency, the communication between customers and workers has to be based on joint accountability for IT initiatives and improved. The information technology has become a critical business resource because its absence could result in poor decisions and ultimately, business failure. Therefore, decision-making must ensure that IT choices are consistent and coherent with the corporate direction, and there is a connection to the overall business strategies. The necessity for IT governance strategy alignment helps to understand and accept the management. A baseline set of progressions is well-defined, integrated and documented into strategic and operational planning.
f. Risk Management
IT risks are expressed in business to enable effective governance. Business risks arise from the business environments such as management style; industry sector; culture, and risk appetite; industry sector factors involve reputation and competition. For effective IT governance, the top manager must be able to distinguish IT risks. Such ensures that the elimination of significant risks or managing them. The firm can identify the risks that may arise. Due to the complexity and fast evolution nature of IT, awareness and education are important to ensure risks identification. Such will help not only the top managers, but also all the levels of the organization. There is a reason for a dedicated risk management functions that will help in establishing ways to cope with risks. Additionally, external advice is essential for monitoring the risks. Preservation of a risk catalog and register can be useful in ensuring that a systematic review of all IT associated risks takes place on a periodic basis.
As expounded above, it is evident that the IT governance is an essential factor in the contemporary world where organizations strive to embrace the principles dynamic stability and strategic flexibility. Using either decentralized or centralized models of the IT governance can solve the problems that the business world is experiencing concerning sound management at all levels of business. IT governance improves the corporate governance in the business environment, enables a company to have a strategic management, and external and internal compliance. It also enhances risk management, accountability and transparency, and overall performance improvement.
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