IT balanced scorecard as IT governance framework.

Kozina, Melita

Abstract: Information Technology (IT) is one of the leading 'high' technologies and has an increasing role in the area of modern business. IT investments most often result in insufficient returns, which points to the need for development of IT management. The main question today isn't whether to use IT or not, but rather to which extent and how. An important aspect of IT management has been developing lately, called IT Governance, or, in other words, IT business value management. This paper contains an analysis of IT Balanced Scorecard (IT BSC) as an important instrument in support of IT Governance processes. The mission of IT BSC is to develop strategic goals and indicators for the establishment of adequate organization of IT processes which would connect business and IT strategies. To that end, the IT BSC maturity model has been formed, guiding IT management to scorecard process improvements, especially those of IT Strategic BSC. Further research should define this instrument in more detail, and especially the relationship between the outcome measures and performance drivers within IT BSC as a support of the Business BSC.

Key words: Business/IT Alignment, IT Governance, IT BSC, Balanced Scorecard Cascade, IT BSC Maturity Model

1. Introduction

Modern companies make great investments into Information Technology (IT). However, research shows that the return on these investments is not satisfactory, which has initiated the need for the development of various IT management aspects. The essence of modern IT management methods is to ensure modern organization of IT processes, aimed at linking business and information systems and achieving a growing IT business value. To that end, IT Governance became an important issue within IT management methodologies. In recent years, a lot of IT Governance definitions were developed. One of them states: "IT Governance is the responsibility of the Board of Directors and Executive Management. It is an integral part of enterprise governance and consists of leadership and organizational structures and processes that ensure that the organization's IT sustains and extends the organization's strategy and objectives" (Van Grembergen & De Haes, 2004a).

The goal of this paper is to analyze the modern methodology called the IT Balanced Scorecard (BSC), as one of the main IT Governance frameworks, and in that way evaluate its benefits in the support of IT Governance processes. The paper is structured as follows: Chapter 2 offers a short overview of the evolution of the IT function within organizations (from technology provider to strategic partner); Chapter 3 analyzes the generic IT Balanced Scorecard strategic map; Chapter 4 describes how a cascade of scorecards can be instrumental in the IT/Business Governance processes and how this hierarchy of scorecards can support the alignment of business and IT strategy (the IT Development BSC and the IT Operational BSC are introduced as enablers for the IT Strategic BSC that in turn is the enabler of the Business BSC); the same chapter gives us an analysis of the generic model for IT Strategic BSC; Chapter 5 concludes this problem area by analyzing maturity levels for the IT BSC.

2. Evolution of the IT function within organizations

IT has been serving the enterprise field as a technology provider, helping businesses perform more efficiently. As a result of its increasing role in the enterprise, the IT function is changing. This change means that various aspects of IT managements are being developed. The level of technology provider is focused on IT infrastructure management (ITIM). Effective infrastructure management means maximizing return on computing assets and taking control of the infrastructure, the devices it contains and the data it generates. The next level, IT service management (ITSM) focuses on the efficient and effective supply of IT services and products as well as on the management of IT operations. At the level of IT Governance (IT business value management), IT processes are fully integrated with the complete lifecycle of business processes enabling new business opportunities and achieving higher IT business value.

Fig. 1 shows the evolution of the IT function, from lower to higher maturity levels, in accordance with the development of IT management (Salle, 2004).

[FIGURE 1 OMITTED]

IT as service provider has the following characteristics:

* IT is for efficiency and effectiveness;

* IT is separable from the business;

* IT is seen as an expense to control;

* IT managers are technical experts.

IT as strategic partner has the following characteristics:

* IT is for business growth;

* IT is inseparable from the business;

* IT is seen as an investment to manage;

* IT managers are business problem solvers.

3. Generic IT Balanced Scorecard

The Balanced Scorecard initially developed by Kaplan and Norton, is a performance management system that enables enterprises to drive their strategies on measurement and follow-up. In recent years the BSC concept has been applied to IT. Since the goal of this paper is to describe IT BSC as an important mechanism and support for IT Governance processes, this chapter will offer an outline of the generic IT BSC strategic map. Fig. 2 shows basic IT BSC perspectives in cause-effect relations. Using the top-down approach, we define strategic goals, from business contribution perspective, over customer orientation and operative excellence perspectives to future orientation perspective. The bottom-up approach is used to define their cause-effect relations.

[FIGURE 2 OMITTED]

Each of stated perspectives has a particular mission which needs to be completed using strategic goals. Strategic goals are defined through cause-effect relations and must be measurable (Key Performance Indicators (KPI)) (Van Grembergen &Bruggen, 2004). KPI give us a better view of IT processes in achieving the strategic goal. Same as with the Business BSC-a, the IT BSC also differentiates outcome measures which estimate the result (e.g. programmers' productivity) and performance drivers as factors leading us to the result (e.g. IT staff education) (Watts, 1999). Generally, within the IT BSC strategic map we also recognize perspectives of performance drivers type (such as future orientation and operational excellence) and of outcome perspective type (such as customer orientation and business contribution).

4. Balanced Scorecard Cascade

The proposed generic IT BSC links with business through the business contribution perspective. However, the relationship between IT and business can be more explicitly expressed through a cascade of balanced scorecards. Balanced Scorecard Cascade is presented in Figure 3 (Van Grembergen, 2000).

[FIGURE 3 OMITTED]

By using a cascade of balanced scorecards, a method for business and IT alignment is provided to senior management. Linking the Business BSC and the IT BSC is a supportive mechanism for IT Governance (Van Grembergen, De Haes & Guldentops, 2004). This cascade of scorecards becomes a linked set of measures that will be instrumental in aligning IT and business strategy and that will help to determine how business value is created through IT. Fig. 4 offers a detailed look at individual IT BSC levels.

[FIGURE 4 OMITTED]

Business strategy (Business BSC) represents input for the IT Strategic BSC focused on IT processes of planning and organization, aimed at defining the business value of IT and its business contribution. Other IT BSC levels, such as the IT Development BSC focused on IT processes of development and implementation and the IT Operational BSC focused on IT processes of delivery and support, represent the lower levels of cascading scorecards model. Each of the IT BSC levels defines the goals of the IT processes (WHAT) within the relevant domain, but also assesses the quality of IT processes leading to the actualization of said goals (KPI's/Audit). This is the way to initiate the improvement of IT performance.

Along with strategic managing of IT processes, which defines their goals, individual aspects (domains) also contain tactical management, which must answer the question HOW IT processes will reach their goals. Integrated IT process maps (reference models) and various standards defining conditions for modern organization of the IT function have been getting developed very intensively lately, and are known as IT Service Management Reference Models. Information Technology Infrastructure Library (ITIL) is one of these reference models (Salle, 2004). IT Service Management method can be combined with the IT Governance method such as COBIT, IT BSC, etc. (Salle, 2004; Van Grembergen, De Haes & Amelinckx, 2003).

Therefore, IT service management facilitates the mechanism of IT process measuring and control (Manage/Control) in order to reach optimal level of managing expenses, quality and timeliness of IT services. Results of measuring IT performance at lower levels get filtered into data necessary for the assessment of IT performances on the strategic level. Management using key performance indicators (KPI's) assesses the quality of IT processes in the realization of the strategy within every individual IT BSC and initiates the improvement of IT performance. Generally, in the cascading scorecards model (as shown on Fig. 4), goals of individual IT BSC levels get accomplished through IT performance organized by integrated IT processes. In tune with this, the IT Development BSC and the IT Operational BSC are both enablers of the IT Strategic BSC which is itself the enabler of the Business BSC.

4.1 The It Strategic BSC

The following text describes the IT Strategic Balanced Scorecard in more detail. Fig. 5 shows the cause-effect relations within the IT Strategic BSC (Van Grembergen & De Haes, 2004b).

[FIGURE 5 OMITTED]

[FIGURE 6 OMITTED]

Business contribution of the IT Strategic BSC evaluates the performance of the IT organization from the viewpoint of executive management, the board of directors and the shareholders (Saull, 2000; Van Grembergen & Timmerman, 1998; Van Grembergen & De Haes, 2004b). Fig. 7 describes in more detail the business contribution perspective within the IT Strategic BSC.

Customer orientation of the IT Strategic BSC evaluates performance of IT from the viewpoint of IT customers (Saull, 2000; Van Grembergen & Timmerman, 1998; Van Grembergen & De Haes, 2004b). Fig. 8 describes in more detail the customer orientation perspective within the IT Strategic BSC.

Operational excellence of the IT Strategic BSC provides the performance of IT (answers to key questions of maturity, productivity and reliability of IT processes) from the viewpoint of IT management (process owners, service delivery managers) and the auditing and regulatory bodies (Saull, 2000; Van Grembergen & Timmerman, 1998; Van Grembergen & De Haes, 2004b). Fig. 9 describes in more detail the operational excellence perspective within the IT Strategic BSC.

Future orientation of the IT Strategic BSC shows the performance of IT from the viewpoint of the IT organization itself: process owners, practitioners and support professionals. This perspective provides answers to questions regarding the readiness of IT for future challenges (Saull, 2000; Van Grembergen & Timmerman, 1998; Van Grembergen & De Haes, 2004b). Fig. 10 describes in more detail the future orientation perspective within the IT Strategic BSC.

5. IT BSC Maturity Model

At the beginning of the development of IT balanced scorecard, IT balanced scorecard was primarily focused on the operational level (Van Grembergen & De Haes, 2004a). Therefore, activities were initiated to go beyond the IT Operational BSC and to measure IT business value. The goal is to evolve to the IT Strategic BSC that shows how to achieve IT business value or higher business contribution enabled by IT.

A cascade of balanced scorecards (shown on Fig. 3) has been established to create a link between the Business BSC and the IT BSC at hierarchy levels. IT Strategic BSC resides at the highest hierarchy level within the IT BSC, and is described in more detail in the previous chapter, and is important because it is in a close relationship with the Business BSC. IT Strategic BSC is mainly focused on the processes of planning IT business value and achieving the business/IT alignment. On the other hand, IT Strategic BSC is focused on high quality management of the organization of IT processes and increasing its maturity. Other levels of IT BSC, such as IT Development BSC and IT Operational BSC are lower levels, but still important for achieving the IT Strategic BSC. Establishing the link with the business objectives through a cascade of scorecards and defining the cause-effect relationships within the scorecards are important steps in determining the maturity of IT BSC. This maturity can be assessed through a maturity model based on the Software Engineering Institute's Capability Maturity Model (CMM). IT BSC maturity model is shown in Fig. 11. The model has five maturity levels and appropriate determined characteristics of each level. The model guides the manager to increased maturity of scorecard processes.

6. Conclusion

The paper features an analysis of the development and implementation of the IT BSC as one of the important mechanisms supporting IT Governance processes. Reasons currently initiating the need to research such mechanisms spring from the fact that return on IT investments is not sufficient. Subsequently, a question is posed how to establish an adequate organization of IT processes which will achieve the connection between business and IT strategies. In other words, the question is focused on how to accomplish the greatest possible IT contribution in (successful) business, i.e. greatest possible business value of IT.

The needs of modern companies are intensifying and broadening, and it is very important for the company to have the IT function as it strategic partner, not just a service provider. Pursuant to this, IT BSC offers 4 aspects (business contribution, user orientation, operational excellence and future orientation) and facilitates a mechanism for the development of IT organization strategic goals, but also the indicators for the evaluation of achieving these goals (key performance indicators). Such a mechanism has a bearing on the organization of IT processes and its continual improvement. The business contribution aspect within IT BSC is the link between IT and business goals. However, in order top examine this relationship in detail, a model of cascade scorecards has been constructed, in which we differentiate three IT BSC levels: IT Strategic BSC, IT Development BSC and IT Operational BSC. The paper aims at closer description of the IT Strategic BSC, since this is the top level of the hierarchy and the closest level to the Business BSC. Lower IT BSC levels are enablers for the IT Strategic BSC.

The IT BSC maturity model is important to companies developing a mechanism like IT BSC. Therefore, the paper also presents the IT BSC maturity model which allows IT managers to gain insight into the maturity of scorecard processes and provides an initiative for further improvement of the model and, finally, the possibility of achieving the greatest possible IT business value. Further research should define in more detail individual IT BSC strategic maps, especially the cause-effect relations between outcome measures and performance drivers within each IT BSC level.

7. References

Kaplan, R.S. & Norton, D.P. (1996). The Balanced Scorecard: translating vision into action, Harvard Business School, USA.

Kaplan, R.S. & Norton, D.P. (2001). The strategy-focused organization: how Balanced Scorecard companies thrive in the new business environment, Harvard Business School, USA.

Luftman, J. (2000). Assessing business-IT alignment maturity, Communications of the Association for Information Systems, vol. 4.

Salle, M. (2004): IT Service Management and IT Governance: Review, Comparative Analysis and their Impact on Utility Computing, HP Laboratories Palo Alto, June 2.

Saull, R. (2000). The IT Balanced Scorecard--A roadmap to effective governance of a shared services IT organization, Information Systems Control Journal, Vol. 2, pp.31-38.

Van Grembergen, W. & Timmerman, D. (1998). Monitoring the IT process through the Balanced Scorecard, Proceedings of the 9th Information Resources Management (IRMA) International Conference, Boston, pp.105-116.

Van Grembergen, W. (2000). The Balanced Scorecard and IT Governance, Information Systems Control Journal, Vol.2, pp.40-43.

Van Grembergen, W.; De Haes, S. & Amelinckx, I. (2003). Using COBIT and the Balanced Scorecard as instruments for Service Level Management, Journal of Information Systems Control, vol.4, pp. 56-62.

Van Grembergen, W. & De Haes, S.(2004a): IT Governance ad its Mechanisms, Information Systems Control Journal, vol.1., pp.27-33.

Van Grembergen, W. & De Haes, S.(2004b): Measuring and improving Information Technology Governance through the Balanced Scorecard, research report no.2, ITAG Research Institute.

Van Grembergen, W. & Bruggen, R.V. (2004). Measuring and improving corporate information technology through the Balanced Scorecard, Available from: http://www.ejise.com/volume-1/issue1-art3.htm, Accessed: 2006-02-05.

Van Grembergen, W.; De Haes, S.& Guldentops, E.(2004). Structures, Processes and Relational Mechanisms for IT Governance, In: Strategies for Information Technology Governance, book ed. by Grembergen, pp.1-37, IdeaGroup Publishing.

Watts, B.(1999): A Balanced Scorecard (BSC) for IT performance management, CMGProceedings,Australia,Available from: http://www.cmga.org.au/proceedings, Accessed: 2006-02-21.

This Publication has to be referred as: Kozina, M. (2006). IT Balanced Scorecard as IT Governance Framework, Chapter 28 in DAAAM International Scientific Book 2006, B. Katalinic (Ed.), Published by DAAAM International, ISBN 3-901509-47-X, ISSN 1726-9687, Vienna, Austria

DOI: 10.2507/daaam.scibook.2006.28

Authors' data: Ph.D Information Sciences Kozina M.[elita], Faculty of Organization and Informatics, Croatia, melita.kozina@foi.hr

Fig. 7. Business contribution perspective within the IT Strategic BSC

Business Contribution in the IT Strategic BSC

Objective Measures Description

Business/IT alignment Operational Business/IT alignment
 plan/budget approval is measured by the
 approval of the IT
 operational plan and
 budget.

Value delivery Business unit The performance of a
 performance specific IT services
 group delivering to a
 specific business
 unit is measured.

Cost management Attainment of expanse The expenses refer to
 and recovery target the costs that the IT
 organization has made
 for the business, and
 the recovery refers
 to the allocation of
 costs to IT services.

Risk management Results of internal This will enable the
 audits business to get an
 Execution of Security insight on how well
 Initiative they are prepared to
 respond to different
 disaster scenarios.

Fig. 8. Customer orientation perspective within the IT Strategic BSC

Customer Orientation in the IT Strategic BSC

Objective Measures Description

Customer satisfaction Business unit survey: It is the intent to
 --service quality set up one generic
 --responsiveness survey with relevant
 --value of IT advice questions.
 and support
 --contribution to
 business objectives

Development services Major project These measures are
performance success: project oriented
 --recorded goal using attributes such
 attainment as goal attainment,
 --project governance sponsor satisfaction,
 project governance
 (the way the project
 is managed).

Operational services Attainment of For each operational
performance targeted service unit, average
 level response time,
 service availability
 are important service
 performance metrics.

Fig. 9. Operational excellence perspective within the IT Strategic BSC

Operational Excellence in the IT Strategic BSC

Objective Measures Description

Development process Function point Function point based
performance measures of: measures of
 --productivity productivity, quality
 --quality, and delivery rate
 delivery rate such as number of
 faults per 100
 installed function
 points and delivery
 rate of function
 points per month, are
 defined.

Operational process Benchmark based These measures are
performance measures of: benchmarked against
 --productivity selected studies
 --responsiveness (e.g. on data
 --change management centers, client
 effectiveness server, etc.).
 --incident
 occurrence levels

Process maturity Assessed level of The process maturity
 process maturity is assessed using
 within: COBTT (Control
 --planning & Objectives for IT)
 organization framework. COBIT
 --acquisition and identifies 34 IT
 implementation processes within 4
 --delivery & support domains and describes
 --monitoring detailed maturity
 levels for each of
 these processes.

Enterprise architecture --major project Enterprise
management architecture architecture
 approval management deals with
 --product acquisition the IT responsibility
 compliance to to define as
 technology enterprise
 standards architecture which
 --"state of the supports the business
 infrastructure" strategy and
 assessmnet objectives. Example:
 the "state of the
 infrastructure"
 assessment measures
 the degree to which
 IT has been able to
 maintain a reliable
 infrastructure as
 required to deliver
 effectively to
 business needs.

Fig. 10. Future orientation perspective within the IT Strategic BSC

Future Orientation in the IT Strategic BSC

Objective Measures Description

Human resource --staff complement by Staff management
management skill type effectiveness such
 --staff turnover as training and
 --professional education of IT
 development days staff; their
 per staff member professional
 development,
 expertise of IT
 staff, number of
 people with a certain
 profile and etc., is
 very important here.

Employee satisfaction Employee satisfaction Employee satisfaction
 survey scores in: is measured by using
 --compensation surveys with
 --work climate questions relating
 --feedback to compensation, work
 --personal growth climate, feedback,
 --vision and propose personal growth mid
 vision and purpose.

Knowledge management --internal process To measure
 improvement improvements, metrics
 --implementation of still need to be
 "lessons learned" developed.
 sharing process

Fig. 11. Maturity levels for the IT Balanced Scorecard

Maturity level IT BSC Maturity

1) Initial There are ad hoc approaches to
 measure IT with respect to the
The entire development process two main IT processes: operations
seems like a black box, and it and system development.
is very difficult to follow the
states of the project. It is
unknown what goes on within the
process, how much the development
will cost or last, or what the
quality of the product will be.

2) Repeatable Management is aware of the
 concept of the IT BSC. It focused
Due to the demands of deadlines, to define appropriate measures.
expense monitoring and Cause-effect relationships
effectiveness, general project between outcome measures and
management functions have been performance drivers are generally
introduced. The project is defined but are not yet precise.
disciplined in so far as that it Processes for scorecard training
can repeat its success on earlier are informal.
projects of similar nature.

3) Defined Management has standardized,
 documented the IT BSC through
The development process is formal training. The scorecard
clearly defined, standardized, process has been structured and
documented and integrated. linked to business planning
 cycle. Management accepts the
 need to integrate the IT BSC
 within the alignment process of
 business and IT.

4) Managed The IT BSC is fully integrated
 into strategic and operational
The development process in its planning and review systems of
entirety contains detailed the business and IT. Cause-effect
knowledge of causes and effects. relationships between outcome
By collecting results of a number measures and performance drivers
of assessments, i.e. measures are systematically reviewed. A
made on the development process business scorecard and a cascade
and product quality, there are no of IT scorecards are in place
more unknowns in the achievement and are communicated to all
of the said process. Both the employees.
process and the products are
measured and managed intensively.

5) Optin11zed The IT BSC is fully aligned with
 the business strategic management
Continual process improvement. framework and vision is
 frequently reviewed, updated and
 improved. The measurements and
 results are part of management
 reporting and are systematically
 acted upon by senior and IT
 management.