IT Governance and Value Chain Analysis
This paper explores IT governance concepts regarding a value chain analysis for the organization’s activities and improved business performance. This analysis aims to examine what is governance and the relationship with value chain methods to increase productivity and reduce risk. Finally, the leadership qualities of the CIO skillsets are discussed in this examination to explore the organizational operations of implementing written theory into actionable business activities and then producing measurable results.
Organizations can ensure alignment between governance, risk, and compliance by implementing an effective IT governance framework (Ali & Green, 2012). Organizations that do not have an effective IT governance program suffer from managerial decisions that can significantly affect the company’s bottom line. An example is when an IT governance project within the organization can incur cost overruns due to mismanagement of business operations.
In other words, an IT governance framework provides policies that guide an organization within its business activities to be more efficient and profitable. An effective IT governance can create positive relationships within the business units of an organization by the involvement of IT management in business decisions that affect corporate culture, ethics, and business communication (Ali & Green, 2012).
The Information Technology and Infrastructure Library (ITIL) is one of the accepted IT governances that organizations have adopted for effective business management (Ahmad, Noha Tarek Amer, Qutaifan, & Alhilali, 2013). This IT governance framework aims to provide senior management with assistance in mapping business processes that would improve operational performance. After the procedures are created or modified within the IT framework, the most critical action is to implement, monitor, and adjust business activities to measure the changes.
Porter’s value chain is a management tool used to analyze how work is broken down into strategic parts to present an overall picture of cost drivers and revenue sources within the organization (Razak & Vattikoti, 2018). The value chain tool is considered a part of IT governance frameworks in designing the policies for the organization. The value chain guides the way organizations organize and define business activities that are measured and refined (Lee & Yang, 2000).
The value chain defines each business activity unit of an organization, which includes primary and supportive activities, that flow into the overall value of the business (Lee & Yang, 2000).
For example, the business’s supportive actions would consist of HR, IT, accounting, R & D, and production. The primary business activities would include logistics, operations, sales, and service. Every business looks for innovative ways to stay ahead of the wants and needs of their customers. The value chain integrates the supportive and primary business activities into a whole knowledge value of the organization’s products and services to provide the business with a competitive advantage in the marketplace to satisfy their customer’s needs.
Organizations concerned with risk management adopt digital supply chain systems to collaborate with suppliers, customers, and other stakeholders (Xue, Zhang, Ling, & Zhao, 2013). Organizations need accurate supply chain information to make effective business decisions. Having the right information regarding supply chain decisions is a critical point for companies to compete globally. IT governance can help organizations mitigate risk by digitalizing the supply chain resources and assisting in more productive business decisions (Xue, Zhang, Ling, & Zhao, 2013).
Successful organizations seek ways to maximize the benefits of IT by developing innovative processes through research (Gordon, Tarafdar, Cook, Maksimoski, & Rogowitz, 2008). The best practice for organizations regarding IT governance is to assess the firm’s tools, processes, and capabilities within the supportive and primary business activities. They must inventory what is needed to be productive and identify the gaps in automation by utilizing the IT department to assist in improving efficiency. The IT managers can assist in the development of the IT governance process with each business unit of the organization by automating the tools within the business units. In this example, the IT department supports the organization’s value chain.
ERP Systems to Improve the Value Chain
Another example of how the information systems can play a role in support the value chain is in the enterprise resource planning (ERP) activities of an organization (Johansson & Newman, 2010). Having an ERP system that supports the value chain of an organization will provide a competitive advantage (Johansson & Newman, 2010). The stakeholders within the organization using the ERP system will be able to communicate and share information and increase productivity.
In this researcher’s practice, a client sought ways to increase communication within the company departments. One of their problems was each department had its systems for accounting, customer tracking, and vendor procurements. This company set up created issues in double billing of clients and miss invoicing from vendors. They also created software tracking systems that did not collaborate with other systems within the organization. There was a need to create an IT governance framework that would assist the organization’s supply chain functionality in reducing errors in tasks and activities as well as sharing business-critical information among other departments and improving logistics and supply chain management.
The organization used an IT governance model that was the best practice for its industry standards. This new framework consisted of an information technology that implemented an ERP enterprise resource planning system. In this way, the organization could streamline and centralize its value chain activities within one software application across all business units.
The ERP system provided a full suite of applications which included financials, planning, order management, procurement, production, HR, and other functions that assisted the company in reducing errors and increasing productivity as well as employee morale.
The ERP’s additional benefits include improved business performance, avoiding custom applications, and automating core business processes. However, these implementations cost time and money to complete. Some of the other problems within a new ERP system include unclear expectations, and insufficient staff training can lead to bad project management.
Business Performance and IT Portfolio management
IT portfolio management provides an overview of the organization’s goals in terms of revenue growth, cost reduction, regulation mandates, and other operational objectives (Bennett, 2014). As with IT governance, the IT portfolio requires input from all managers across the business units to participate in group decision-making efforts on projects.
The IT portfolio management evaluates and monitors the demand on IT and its resources of personal, funding, and processes to improve business value.
The Role of IT Support and CIO Leadership within the Value Chain
Organizations must expand, or they will go out of business. Our global economy provides opportunities for an organization to compete around the world for products and services. If a company cannot offer products to the consumer, they will look elsewhere. The role of the CIO is to provide leadership that can assist an organization, and they must have the skillset to create opportunities in the global market. The CIO must lead the IT governance processes and procedure development for the organization. According to (Chun, Griffy-Brown, & Koeppel, 2014), c-level members must have and make fundamental changes to the structure and governance of the organization to compete in the global marketplace.
Here are some steps that the CIO can implement when supporting an IT governance value chain process:
- Gather all essential company projects for IT portfolio management.
- Review all project plans to compare objectives with company business goals and objectives.
- Prioritize vital projects with business goals and funding sources.
- Manage and monitor all projects to stay within budget and time variables.
This paper provides a review of the understanding of IT governance and value chain analysis within the organizational structure of management and leadership. This paper also offers critical elements for the CIO to implement an organization’s IT portfolio process. This review aimed to analyze IT governance best practices for value chain and leadership within an organization.
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