Computerworld - Boards of directors are growing increasingly nervous about their companies' dependence on IT, and with good reason. IT accounts for more than 50% of capital spending in some companies. But there are no standards for IT governance as there are for areas such as accounting and compensation (see "Business in the Driver's Seat," QuickLink 57257). In a comprehensive article in this month's Harvard Business Review, Richard Nolan and F. Warren McFarlan lay out an IT governance plan. McFarlan, professor emeritus at Harvard Business School, told Kathleen Melymuka how boards can get a grip on IT.
So the first step toward IT governance is to determine whether the company's reliance on IT is defensive or offensive. Can you explain? In offensive mode, you're doing things that will give you a significant increase in market share, measurable improvement in service and significant reductions in cost to allow you to better position yourself vis-a-vis the competition. There's a certain amount of risk: Pioneers get arrows in their backs, then the settlers come in behind.
In defensive mode, you see a trend in the industry, and you move quickly to close the gap.
Tell me about the strategic impact grid. This formulation has been the framework for all my corporate information systems strategies. At the core is a contingency approach to IT management: There is no right way to plan, organize, take risks; it depends on who you are.
There are two critical dimensions. On the vertical: How important is it that your operations run in a bulletproof, reliable, secure, 24/7 [environment with a] subsecond response time? The higher you go, the more you need to spend on backup and security. The horizontal dimension is the strategic impact of what you have under development. Is it really important in transforming the organization offensively? Or is it nice, useful, solid but not really transforming the organization?
The grid has four quadrants. Tell me about those. The support quadrant is where what's under development is not a huge deal, and if your networks go down, it's not the end of the world. About 5% to 8% of the IT world is in that quadrant.
The factory quadrant is almost 40%. There it's a huge deal if things go down, but if you're late on ERP or other innovations, that's irritating but not the end of the world.
The strategic quadrant is where what's under development is unbelievably important and there is huge reliance on systems day in and day out.
In the turnaround quadrant, what's under development is important, but if your networks go down, it's not the end of the world. Research firms are in this [area]. They may have an eight- or nine-year lead time, so they can take more roughness in the back network than the bank that's running ATMs.
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