An ongoing journey from cost-of-IT to business-value-of-IT
De Haes, Steven; Gemke, Dirk; Thorp, John; Van Grembergen, Wim (corresponding author: firstname.lastname@example.org)
A common and critical dilemma confronting enterprises today is how to ensure that they realise value from their large-scale investments in information technology (IT) and ITenabled change. IT-enabled investments can bring huge rewards, but only with the right governance and management processes and full engagement from all management levels. This case describes the tough but rewarding journey of the Dutch airline company KLM in improving the governance of IT, moving from managing the cost of IT towards managing the business value of IT.
Information technology (IT) has become crucial in the support, sustainability, and growth of most, if not all enterprises. To overcome the IT productivity paradox as described by Strassman (1990) and Brynjolfsson (1993) (i.e no clear correlation between IT spend and bottom-line impact), this pervasive use of IT calls for a specific focus on enterprise governance of IT (EGIT) (De Haes and Van Grembergen, 2008; Thorp, 2003). Enterprise governance of IT is an integral part of enterprise governance and addresses the definition and implementation of processes, structures and relational mechanisms in the organization that enable both business and IT people to execute their responsibilities in support of business/IT alignment and the creation of business value (Van Grembergen and De Haes, 2009).
In academic and professional literature, the term ‘IT Governance’ is more commonly used instead of ‘Enterprise Governance of IT’. However, due to the focus on ‘IT’ in the naming of the concept, most discussion around, and implementation of IT governance occurs within the IT area. Yet, it is clear that business value from IT investments cannot be realized by the IT function, but will always be created by the business through its use of IT. For example, there will be no business value created when IT delivers a new Customer Relationship Management (CRM) application on time, on budget, and to specification, if the business has not made the necessary changes to the business model, business processes, organisational structure, people competencies, and the reward system required to effectively integrate the new IT system into its business operations. IT-enabled investments should therefore always be treated as business programmes, composed of a collection of business and IT projects delivering all the capabilities required to create and sustain business value. This discussion clarifies the need for the business to take ownership of, and be accountable for,
governing the use of IT in creating value from IT-enabled business investments. It also implies a crucial shift in the minds of the business and IT, moving away from managing IT as a ‘cost’ toward managing IT as an ‘asset’ to create business value. As Weill and Ross describe in their 2009 ‘IT Savvy’ book: “If senior managers do not accept accountability for IT, the company will inevitable throw its IT money to multiple tactical initiatives with no clear impact on the organisational capabilities. IT becomes a liability instead of a strategic asset”. KLM experienced this mind-shift in 2001 at the start of what has become an ongoing journey, which will be discussed in the remainder of this case study. The paper starts with a short introduction to the case company, followed by an overview of how KLM experienced the journey towards better enterprise governance of IT. This is followed by a discussion on the reported benefits and lessons learned, as well as overall conclusions, and recommendations for executives, based on KLM’s experiences. At the end, background information on the research approach, and referenced literature is provided. THE CASE COMPANY KLM
The airline company KLM was founded in 1919, and has...