Governance the Key to Meaningful Federation

Whatever its merits in theory, a federated model can never be an effective compromise between the centralized and distributed models of IT unless the governance is right

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All the evidence shows that effective governance creates greater value for IT. However, as Butler Group research director Tim Jennings and Datamonitor director Alistair Leathwood point out in an article prepared for the December 2005 Butler Group Review, it is just as clear that both the structure of the IT function and the role of IT within the organization determine the way IT governance is implemented.

Datamonitor's benchmarking shows that those organizations most effectively using IT tend to have a more highly centralized approach to IT governance and decision making

Datamonitor's IT spend benchmarking services show how best-in-class organizations rely on both low IT intensity and low cost/income ratio to help the business run efficiently, and also have a good grip on IT spending. IT intensity typically increases where additional IT spend enhances efficiency, while when low IT intensity is combined with a high cost/income ratio, it may be a sign there is room for improvement in productivity.

However, the authors say less important than the absolute level of spend on IT is how well it is spent. This is where IT governance and the way that IT is structured come in.

"Over many years, the popularity of centralized or distributed models for IT has shifted according to both business and technology climates. The centralized model is touted as offering greater economies of scale, avoiding duplication of effort and simplifying governance and compliance, but can be less responsive to business needs and makes it difficult to get business unit funding for centralized projects," they write. "Conversely, the distributed model offers closer alignment with business units, is more responsive to tactical needs and reduces the competition between divisions for funding, but makes it more difficult to get an enterprise-wide view of IT and is prone to increased costs through duplication.