Using the Balanced Scorecard to bring IT Governance to

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         Using the Balanced Scorecard to
         bring IT Governance to Light
          Effective measurement of IT governance maturity to enhance busi-
          ness and IT alignment.

          n today’s organisations, where          takes account of all the key considera-      external communications, and moni-
          such strategic reliance is placed       tions (see Figure 1).                        toring organisation performance
          on the IT function developing                                                        against strategic goals. Ideally, the
     and delivering complex systems to            How does the balanced score-                 balanced scorecard should therefore be
     support both corporate policy and            card relate to the challenges of             a pragmatic tool for easily identifying
     external regulations, IT governance          effective IT governance?                     how well the IT governance process is
     has a major impact on business               The IT Governance Framework, when            going and how it can be improved. The
     strategy. The successful alignment           implemented, will include supporting         scorecard:
     of IT and the business is more criti-        structure, processes and mechanisms.         G Balances both financial and non-
     cal than ever and mature IT gover-           In this context, the processes include         financial measures
     nance practices enhance the ability          strategic decision making and monitor-       G balances performance drivers (lead)
     of IT to deliver strategic initiatives       ing through methods such as the bal-           with outcome measures (lag)
     based on efficiency, control and val-        anced scorecard. The importance of the       G balances short and long term objec-
     ue. But how is the realisation of            IT function justifies the use of the bal-      tives/measures
     business value delivery through IT           anced scorecard to further assess the
     measured? How can assurance be               effectiveness of IT governance changes       What perspectives are consi-
     provided that the IT organisation is         introduced.                                  dered by the business balanced
     not investing in bad projects? And                                                        scorecard?
     are there adequate control mecha-                                                         The business balanced scorecard
     nisms in place?                              The successful                               tracks performance and progress
                                                                                               against strategic goals which are divid-
     What are the challenges faced                alignment of IT                              ed into a four-perspective view of an
     by IT functions today?                       and the business                             organisation performance:
     The IT function continues to see ever                                                     G Customer: Focuses on the measure-
     increasing challenges from the business      is more critical                               ment of performance as perceived
     in the delivery of products, services and
     systems. The context of this delivery
                                                  than ever                                      by the customer
                                                                                               G Financial: Measures the fiscal health
     and the environment in which the IT                                                         associated with organisational per-
     function operates is also continuously       The balanced scorecard can be an               formance
     changing. New regulatory require-            effective strategic planning and man-        G Internal Business Processes Per-
     ments, increased competition, complex        agement tool for aligning activities to        spective: Measures internal business
     supply chains and a diverse group of key     the vision and strategy of the organisa-       practices and system processes for
     stakeholders whose expectations need         tion, improving both the internal and          efficiency and effectiveness
     to be managed all conspire to increase
     the challenge.

     Where does governance fit into
     this complex picture?                                                               Strategic
     In the face of these significant chal-                                              Alignment
     lenges, IT governance can bring clarity
     around the responsibility, authority and
     communication and reporting flows
     which enhance decision making. Accom-
     panying policies, processes, standards
     and control mechanisms enable people
                                                               Resource                                         Performance
     to carry out their roles and responsibili-
                                                              Management                                        Measurement
     ties. Effective IT governance is therefore
     a key strategic enabler for growth and                                                 IT
     prosperity and helps to achieve the                                                Governance
     fusion of IT and the business. However,
     to achieve these ambitions it must be
     addressed in the context of the wider
     business governance and be strategical-
     ly aligned through the value chain.

     Designing an effective IT governance
     structure, around the organisation’s val-                              Value                         Risk
     ue chain, objectives and performance                                  Delivery                    Management
     goals, is therefore a significant chal-
     lenge and one which needs to be
     approached in stages through a sup-
     porting governance framework which
                                                  Figure 1: IT Governance Framework - Considerations

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                                                                                                      IT scorecard effectiveness therefore
       Mission: To be a well respected, outcomes-based supplier of consultancy services
                                                                                                      depends on:
                                                                                                      G Alignment with the corporate strat-
                                                                      Customer Perspective:
          Vision:                       Goals:                        • Improve Client Satisfaction   G Clear integration with the business
    To provide the best                                                                                 scorecard (based on common val-
    value for our clients
                                                                      Financial Perspective:            ues) – Goals and strategy cascading
                               • Achieve autcomes and                                                   down through the business and its
                                                                      • Increase Net Income
                                 exceed client expectations                                             functions
    • Outcomes-focused,                                               • Reduce Cost to Client
      pragmatic approach                                                                              G Group involvement (across func-

                                                                      Internal Perspective:
                               • Build long-term account              • Customer Relationship
                                                                                                      These considerations can help to
                                                                        Management                    ensure that the IT scorecard approach
    • Work as a trusted,
      collaborative partner                                                                           becomes an enabler for the business
                                                                      Growth & Learning Per-          as the IT governance changes meas-
                               • Provide training and                 spective:                       ured make the IT function an improved
                                 development opportunities            • Teach Employees New           enabler of business value.
    • Be an employer of        • Provide career                         Approaches
      choice                     development options                  • Enhance Employee              In conjunction with an aligned
                                                                        Competence                    approach to scorecard development,
                                                                                                      the introduction of critical success fac-
                                                                                                      tors can help to further ensure that the
Figure 2: Objectives linked to goals, vision and mission statements                                   IT balanced scorecard approach is
                                                                                                      applied in context. Critical success fac-
                                                                                                      tors might, for example, focus on
G   Innovation, Growth and Learning:               The IT scorecard enables focused meas-             strong leadership and alignment, clear
    Measures progress towards achiev-              urement of IT-related change, such as              and measurable goals and clearly
    ing the attraction, development and            IT governance changes, only if seen in             defined roles and responsibilities.
    retention of staff                             the context of the broader group-wide
                                                   picture, therefore considering the                 How can the scorecards be
Each of these perspectives contains                impact to other key business functions.            effectively tracked?
objectives (see Figure 2) which are the            The corporate strategy, mission and                In order to effectively track progress
means through which to achieve the                 vision, filtered through the business              against the objectives stated in the IT
strategic goals and, ultimately, compa-                                                               balanced scorecard, a further
ny vision and mission statements. The                                                                 enhancement to the approach uses a
scorecard is a living method which can              The scorecard is a                                Strategy Articulation Map (SAM) for
be continuously monitored and revised                                                                 each balanced scorecard developed.
based on identified priorities.                     living method which                               The SAM introduces the concept of

What is the relationship
                                                    can be continuously                               Strategic Themes around the key
                                                                                                      strategic objectives. These strategic
between the business and IT                         monitored based on                                themes correspond to the scorecard
balanced scorecards?                                                                                  perspectives. It is possible to have
The IT balanced scorecard focuses on dif-           identified priorities                             more than one strategic theme for
ferent but inter-related perspectives from                                                            each perspective. The Vision, Mission
the business scorecard, focusing on:                                                                  and Strategic Themes from the Corpo-
G User Orientation: How users view the             scorecard should then flow through and             rate (or Level 1) Scorecard are then
   IT function                                     be aligned with the IT strategy, mission           cascaded down to all subsequent
G Operational Excellence: Measures the             and vision.                                        scorecard levels.
   effectiveness and efficiency of the IT
G Business Contribution: Reflecting
   management’s view of the IT function                Business Balanced Sorecard                            IT Balanced Scorecard
G Future Orientation/Innovation: Mea-
   sures how well IT is positioned to
                                                       Customer Perspective:                             User Perspective:
   meet future needs
                                                       • Improve Client Satisfaction                     • Internal Users
The relationships between the IT bal-                                                                    • External Users (consumers/business)
anced scorecard and business balanced                  Financial Perspective:
scorecard perspectives is shown in Fig-                                                                  Business Contribution Perspective:
                                                       • Increase Net Income
ure 3.
                                                       • Reduce Cost to Client                           • Higher Business Value

The importance of business                                                                               Operational/Intrnal Perspective:
and IT balanced scorecard                              Intrnal Perspective:
                                                                                                         • Business Intelligence Technology
                                                       • Customer Relationship Management
To ensure the effectiveness of the IT                                                                    • Web Site Technology
balanced scorecard for measuring suc-
cess of IT governance changes intro-                   Growth & Learning Perspective:                    Future/Innovation Perspective:
duced, the scorecard must be fully                     • Teach Employees New Approaches                  • Teach IT Staff New Approaches
aligned to the business balanced score-
                                                       • Enhance Employee Competence                     • Research Into Emerging Technologies
cards. To achieve this alignment and to
ensure communication and agreement
of the IT scorecard with key business
stakeholders, the IT scorecard must not            Figure 3: Relationship between Business Balanced Scorecard and the IT Balanced
be developed in isolation.                         Scorecard

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                                  STRATEGIC THEME                STRATEGIC THEME             STRATEGIC THEME                 STRATEGIC THEME


                                      STRATEGIC                       STRATEGIC                     STRATEGIC
                                      OBJECTIVE                       OBJECTIVE                     OBJECTIVE
                                       KPI     KPI                           KPI
     Cause and
     Effect                                                                                         STRATEGIC                    STRATEGIC
     Diagram                                                     STRATEGIC THEME                    OBJECTIVE                    OBJECTIVE

                                      STRATEGIC                       STRATEGIC                     STRATEGIC
                                      OBJECTIVE                       OBJECTIVE                     OBJECTIVE
                                               KPI                    KPI    KPI                             KPI

                                                                                                    STRATEGIC                    STRATEGIC
                                                                                                    OBJECTIVE                    OBJECTIVE
                                                                                                    KPI      KPI                     KPI

     Figure 4: Strategy Articulation Map (SAM) incorporating Scorecard’s Cause and Effect (SC&E) Diagram

     Key Performance Indicators (KPIs) can           S u m m a ry : H o w c a n it b e                    mechanism for measurement of gover-
     be used to measure the achievement              applied to bring IT governance                       nance effectiveness. Ultimately, the use
     of Strategic Objectives. A Strategic            to light?                                            of a scorecard approach which is based on
     Objective may be measured by one or             The delivery of value from the IT function           strategic objectives and goals supporting
     more KPIs. A number of Strategic                is dependent on aligning IT with business            clearly articulated vision and mission
     Objectives may be grouped and meas-             strategy. Establishing mature IT gover-              statements will therefore help to bring IT
     ured by one KPI. The key to successful          nance practices enhances the ability of IT           governance to light and act as an IT strat-
     tracking is then to apply the SMART             to deliver strategic IT initiatives based on         egy enabler.
     approach to choose appropriate KPI’s:           efficiency, control and value. However,
                                                     good governance requires measurement                 For more information, please contact:
       S - simple: uncomplicated, mean-              to ensure its effectiveness. The IT bal-             Edward Miles-Kingston
       ingful, unambiguous                           anced scorecard approach is an effective   
       M - measureable: can be quanti-
       fied, data is available
       A - achievable: users have the
       ability to achieve                              Project Kick-Off
                                                                                                                                  Defining the
       R - realistic: users have the ability                 and                        Background Data
       to influence or control                         Communication                       Collection
       T - timely: short-term, monthly or                                                                                      Strategic Themes
       quarterly timeframe

     The SAM incorporates the Scorecard’s
     Cause and Effect (SC&E) Diagram. The
     SC&E illustrates the linkages between
     the Strategic Objectives within the
     Scorecard. A Strategic Objective may                                                 Completing the                        Completing the
                                                      Development of
     be linked to one or more Strategic                                                    KPI Definition                           Strategy
                                                      the Scorecards
     Objectives.                                                                              Sheets                           Articulation Maps

     Figure 4 shows an example of the SAM
     approach for the IT balanced scorecard

     What would be a typical project
     lifecycle for the development of                Writing the Policies
                                                                                          Training of the
     the balanced scorecard?                          and Procedures                                                              Post Go-Live
                                                                                        Scorecard Owners
     The typical stages of a Balanced                 Manual and User                                                               Support
                                                                                        and Administrator
     Scorecard project, incorporating the                  Guide
     development of SAM’s (including
     accompanying KPI’s) are shown in
     Figure 5.                                       Figure 5: The stages of balanced scorecard and SAM development

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