Unit III Annotated Bibliography

DBA 8671, Technology and Innovation Management 1

Course Learning Outcomes for Unit III Upon completion of this unit, students should be able to:

3. Evaluate the role of portfolio management in governing the innovation management process. 3.1 Critique peer-reviewed sources relating to governance of portfolio management.

6. Synthesize communication methods, leadership skills, and business acumen in the development of a

new technology strategy. 6.1 Summarize peer-reviewed sources relating to the role of internal collaboration between

technology and business functions.

Course/Unit Learning Outcomes

Learning Activity

3.1

Unit Lesson Chapter 6 Chapter 7 Unit III Annotated Bibliography

6.1 Chapter 8 Unit III Annotated Bibliography

Reading Assignment Chapter 6: Governance for a Redefined IT Chapter 7: The IT Budgeting Process Chapter 8: Managing IT-Based Risk

Unit Lesson Governance The term governance is a word that can mean different things to different people and is, therefore, not always clearly understood and applied in the context of technology and innovation. Governance implies the meting out of power, authority, and policy within the corporate environment. This is generally what is meant by this term, but it also raises questions. Who is responsible for making technology policy within the organization? Further, how is this responsibility actually carried out in practice? When technology is understood as information technology (IT) specifically, the chief information officer (CIO) is often considered the owner of processes and policies associated with information systems. Often this is true, but this may not be the case when the organization decides upon significant technology development and information system implementation. Frequently, a committee of senior officers of a company is formed to make business decisions at stages of system development from concept to launch. A committee is formed, not only because of the scale of typical system projects, but also because decision-making for systems that impact all functions of the organization must have cross-functional representation. In addition, the assumptions behind large-scale technology development may change as the development lifecycle unfolds. Such changes may not be completely obvious to any single functional group. Committee representation at the executive level provides the holistic, cross-functional view that supports the rigorous vetting of projects under development. The chief executive officer (CEO) may delegate authority to the CIO to manage such a technology or large-scale project approval committee; however, if managed in this way, the CEO will likely retain veto power over committee

UNIT III STUDY GUIDE

IT Governance, Budgeting, and Risk Management

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decisions. Finally, development efforts and investments that are considered to be material to a company’s health may also require support from the board of directors. The term governance is also used in the context of corporate governance. Corporate governance is how the shareholders of a company ensure that the officers of the company are acting in good faith to operate the company within the law and to generate fair returns for shareholders. Shareholder representation is managed by the company’s board of directors. For shareholders, their representation governs their stake or investment in the company, while the officers of the company manage the portfolio of investments undertaken, including technological developments. The CEO reports to the board of directors, so the ultimate final say in matters of policy, process, or authority for systems and technology lies with the shareholders. Relatively recent developments in the legal environment have altered the landscape of technology governance. Laws, such as the Sarbanes–Oxley Act of 2002, make officers of the company personally liable for some legal and financial infractions. This makes it incumbent upon the CEO to thoroughly vet any system, policy, or development that has a material impact on the earnings of the company. A mistake or oversite at this level may create significant liability for the individuals involved as well as the company. Budgeting Technology budgeting is a difficult matter for any company or individual manager. This is because IT wants tend to be nearly endless, but the actual needs of individuals tend to be much more difficult to assess. For example, assume that the salesforce requests new ultra-book laptops with 4G LTE and connectivity to a new customer relationship management (CRM) system for managing major accounts. This is a significant expenditure, but is it necessary? Is this request simply the salesforce wanting the latest and greatest technology, or is this a legitimate request that, if not satisfied, will cause the company to fall behind competitors? Many financial tools exist to aid with making such determinations, and stakeholders within the operation should be led by technology decision makers to view system and technology budgets from the perspective of the shareholder. If the budget is approved, in what way will this improve the operation of the company or the returns for shareholders? How will it better serve customers? A final consideration of budgeting is to encourage managers to begin from zero each year and learn to express in business terms why they are requesting specific budgets rather than beginning with last year’s operating budget and layering on new funding. Budgeting in this manner better reflects the fact that there are no givens in the macro environment, including the industry and market in which the industry competes. Each year, the company may need to emphasize some things while de-emphasizing others. Because of this, no department and no functional group—particularly those involved in technology—should make the assumption that the next year’s budget cycle is business as usual. Further, zero-based budgeting within the context of technology governance helps avoid the sunk cost fallacy. The sunk cost fallacy causes managers to use money already spent—even though it may no longer make sense—simply because they do not want that investment to go to waste. In reality, all managers, including technology managers, better serve the company when they create a budget and spending plan that is forward-looking rather than backward-looking. Do not ask, “Will previously invested money be wasted?” Rather, ask, “What actions taken today and going forward are most likely to produce optimal returns?” Risk Information systems by way of analogy have been compared to the nervous system within the human body. This analogy rings true because of the connectivity of information systems as well as its sensing and data retention (memory) capability. At the same time, information systems are intangible. Stakeholders who rely on systems interact with specific applications and hardware but usually have minimal awareness of the “nuts and bolts” behind the scenes. The fact that most users interact with only the tip of a large, unseen iceberg presents substantial risks. For example, who is fully aware of what is recorded when one uses an information system? What happens if something unseen is configured incorrectly and leads to misstatement of accounts or quarterly earnings? Risks in technology, especially corporate IT, are endless because they are often so difficult to see or even imagine. A particularly minor incident could link to another incident, and then link to a third incident, and eventually cascade to a much larger risk that turns into a disaster. For example, consider the story of the Samsung Galaxy Note 7 battery failure (Pham, 2017). This is a phone that was recalled because the battery would cause the entire phone to go up in flames. Why? Small differences in battery dimensions led to a poor fit of the battery inside some of the phones. When this occurred, the apparently minor dimensional mismatch forced together elements of the battery that led to a sudden release of a large amount of electrical current. The high current heated up the battery, and the lithium and plastic within the

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lithium-ion battery caught fire. This is an example of why technology managers are encouraged to brainstorm and think through risk scenarios so that the potential for cascading risk can be observed and acted upon. When acting upon corporate technology risks, there are generally four primary actions that can be taken and summarized using the mnemonic device MART. Beginning with the M in MART, risks can be mitigated. This means that the senior levels of the organization can authorize actions that result in limiting the impact of the risk. The A in MART stands for avoid. For example, if some risk is observed to be extremely severe with no clear way to effectively address it, perhaps it is best that the company avoid the activity altogether. The R in MART refers to retaining risks. Some risks are acknowledged but are sufficiently reasonable in scope and scale that it makes more sense to deal with the risk as it arises rather than spending money on other options. Finally, the T in MART refers to risk transfer. Risk is transferred to a third party using this strategy, and a common form of risk transfer is insurance. Linking Governance, Budgeting, and Risk As observed in this unit, making policy and authorizing activities and development requires the allocation of funding. There must be business justification for doing so. This is governance, and it is also referred to as portfolio management since governance oversees the totality of investments made by the company, including projects, system implementation, and technologies. The term portfolio management, much like the term governance, is a term that may cause confusion for some technology managers because of its general applicability to a number of fields—many of which are outside of the context of technology management. It pays to remember that at its heart, governance and portfolio management simply refer to the ongoing decision-making process involved in deciding what the firm will and will not do (or invest in) now and going forward. Such decisions are risky in the same manner as financial investment. It is clear then that any policy, process, or system development or implementation is inherently risky. It is essential, therefore, for managers in the technology domain understand the hidden, unintended consequences of risks always lurking behind the scenes just out of view.

References Pham, S. (2017, January 23). Samsung blames batteries for Galaxy Note 7 fires. Retrieved from

http://money.cnn.com/2017/01/22/technology/samsung-galaxy-note-7-fires-investigation- batteries/index.html

Sarbanes–Oxley Act of 2002, Pub. L. No. 107–204, 116 Stat. 745 (2002).