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Effective information technology (IT) governance mechanisms: An IT outsourcing perspective

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Abstract

Effective IT governance will ensure alignment between IT and business goals. Organizations with ineffective IT governance will suffer due to poor performance of IT resources such as inaccurate information quality, inefficient operating costs, runaway IT project and even the demise of its IT department. This study seeks to examine empirically the individual IT governance mechanisms that influence the overall effectiveness of IT governance. Furthermore, this study examines the relationship of effective IT governance, the extent of IT outsourcing decisions within the organizations, and the level of IT Intensity in the organizations. We used structural equation modeling analysis to examine 110 responses from members of ISACA (Information Systems and Audit Control Association) Australia in which their organizations have outsourced their IT functions. Results suggest significant positive relationships between the overall level of effective IT governance and the following mechanisms: the involvement of senior management in IT, the existence of ethic or culture of compliance in IT, and corporate communication systems.

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Notes

  1. There are several other definitions of IT governance similar in effect to the study definition. Weill (2004, p.2) defined IT governance as “specifying the framework for decision rights and accountabilities to encourage desirable behavior in the use of IT.” Van Grembergen et al (2004, p.5) defined IT governance as the “organizational capacity exercised by the Board, executive management, and IT management to control the formulation and implementation of IT strategy and in this way ensure the fusion of business and IT.”

  2. In this study an IT strategy committee means a sub committee of board members with responsibility to provide insight and advice to the board on topics such as the alignment of IT with the business direction and the achievement of strategic IT objectives; and also to provide direction to management relating to the IT strategy (IT Governance Institute, 2003a).

  3. In this study an IT steering committee means a high-level executive management team of representatives from multiple divisions or functions that are assigned the task of linking IT strategy with business strategy by setting strategic directions, matching corporate concerns with technology potential, and building commitment (IT Governance Institute, 2003b).

  4. In this study senior management means the CEO and the level of management directly below that of the CEO.

  5. In this study, ethics or culture refers to similar concepts that mean “all the beliefs, values, attitudes, rituals and behaviour patterns that people in an organization share” (Meyer, 2004, p.29).

  6. No significant difference existed between early and late respondent groups. This result implies no non-response bias. Factor analyses were performed on the individual IT governance variables to establish discriminant and convergent validity. Six final factors explaining 87.2 percent of the total variance were extracted and entered into the subsequent SEM analysis. Factor analyses were then performed to confirm that the dependent variable was extracted as one factor. Based on the Hair et al. (1998) suggestions, factor scores were derived from the two items (i.e., ITBGITEM and ITBGTEM) and used as a composite measure of IT intensity factor. Subsequent to the prior three factor analyses, a reliability test was performed for the extracted factors. None of the factors’ Cronbach alpha was lower than 0.89. The full details of these validity processes are available from the authors on request.

  7. This type of strategy is the most direct application of SEM. However, as there are no competing models examined in this approach, “if the proposed model has acceptable fit by whatever criteria are applied, the researcher has not ‘proved’ the proposed model but only confirmed that it is one of several possible models.” (Hair et al., 1998, pp.590-591).

  8. In this study, researchers used a similar approach for measuring the level of IT outsourcing. There are five levels of IT outsourcing decisions with certain range values on each level and respondents were asked in what range their organizations’ IT outsourcings values fell in. This approach was used as it was impractical and almost impossible to ask respondents to give an accurate value of their IT outsourcing decisions. To facilitate the empirical analysis, this study used the mid-point for each respondent answer related to the IT outsourcing question as a proxy for IT outsourcing decisions.

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Authors and Affiliations

  1. Department of Accounting, Universitas Gadjah Mada, Yogyakarta, 55281, Indonesia

    Syaiful Ali

  2. School of Business, University of Queensland, St. Lucia, Brisbane, QL, 4072, Australia

    Peter Green

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  1. Syaiful Ali
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Correspondence to Syaiful Ali or Peter Green.

Appendix A

Appendix A

Variable, questions and source of constructs in the study (continue)

QUESTIONS

Perceived overall effective IT governance

∎ To what extent do you agree with the following: The current individual IT governance mechanisms within my organization's IT environment has a large, positive impact on the overall level of effective IT governance within the organization.

∎ To what extent do you agree with the following: The current individual IT governance mechanisms within my organization are an important and valuable aid to implementing overall effective IT governance within the organization

IT outsourcing Decisions

What is the percentage of the outsourcing contracts to the annual IT budget?

- Less than 10%

- 10% -- 25%

- 25% -- 50%

- 50% --75%

- Greater than 75%

IT strategy committee

∎ To what extent does IT strategy committee provide strategic direction and the alignment of IT and the business issue?

∎ To what extent does IT strategy committee provide direction for sourcing and use of IT resources, skills and infrastructure to meet the strategic objectives?

∎ To what extent does IT strategy committee provides direction to management relative to IT strategy?

IT steering committee

∎ To what extent does IT steering committee provide strategic direction to IT project that are in line with the strategic directions of the organization?

∎ To what extent does the IT steering committee provide a mechanism for coordinating IT practices?

∎ To what extent does the IT steering committee provide leadership in deriving benefits from IT?

∎ To what extent does the IT steering committee provide leadership in managing IT?

Involvement of top management in IT

∎ To what extent does top management get involved in strategic matters related to the use of IT within the organization, outside of the IT steering committee?

∎ To what extent is top management knowledgeable about IT opportunities and possibilities for the organization?

∎ To what extent is top management knowledgeable about IT innovations that have been developed by major competitors?

Corporate performance measurement system

∎ To what extent does your organization’s corporate performance measurement system measure the degree to which the organization’s IT strategy supports the business strategy?

∎ To what extent does your organization’s corporate performance measurement system produce a concise model to assist managers in tracking the organization’s progress?

∎ To what extent does your organization’s corporate performance measurement system provide management with control measures on IT expenses?

Ethics/culture of compliance

∎ To what extent does your organization’s ethics/culture of compliance enables to achieve objectives in IT?

∎ To what extent does your organization’s ethics/culture of compliance enables to circumvent any violation that could hinder organization to achieve its IT objectives?

∎ To what extent does top management provides leadership in ethics/culture of compliance related with IT objectives?

IT Intensity

∎ What is the total number of personal computers (PCs) in your organization (or client organization)? Please Select

- Less than 50

- 51 – 100

- 101 – 500

- 501 – 1000

- 1001 – 2000

- 2001 – 3000

- 3001 – 4000

- 4001 – 5000

- More than 5000

∎ What was your organization's client's organization) annual IT budget for the previous fiscal year? Please Select

- Less than $200 K

- 200 K -- $1 million

- 1 million - $5 million

- $5 million - $10 million

- More than $10 million

∎ What is the total number of employees in your organization (or client organization)? Please

Select

- Less than 50

- 51 – 100

- 101 – 500

- 501 – 1000

- 1001 – 2000

- 2001 – 3000

- 3001 – 4000

- 4001 – 5000

- More than 5000

∎ What is the total number of employees providing information technology (IT) services in your organization (or client organization)? Please Select

- Less than 50

- 50 – 100

- 101 – 500

- 501 – 1000

- More than 1000

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Ali, S., Green, P. Effective information technology (IT) governance mechanisms: An IT outsourcing perspective. Inf Syst Front 14, 179–193 (2012). https://doi.org/10.1007/s10796-009-9183-y

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