Getting a Handle on IT Governance: Experiences of using Strategy Maps at the Bank of England

Introduction

Increasingly, information technology (IT) is seen as an important resource and a key building block of organizational performance. IT can support business processes and be a powerful enabler or even driver of competitive advantage. Driven by the realization of the central role of IT as well as the often major investments required for IT projects, CEO's and other senior executives are calling for improved IT governance and alignment of IT with the overall business strategy. This has resulted in increasing pressure on IT functions not only to align investment and projects with the corporate strategic objectives, but also to justify their existence and demonstrate their contribution to firm performance. Tools such as the Balanced Scorecard (BSC) and in particular strategy maps have been proposed to improve strategic alignment of different business functions. The argument goes that by visually mapping the causal relationships of the different corporate objectives corporations achieve a more holistic understanding of performance. This also breaks down many of the functional barriers often seen within large corporations. However, a key challenge to a successful implementation is often the existence of diverse or even competing governance and measurement frameworks, which are already in place.This case study outlines how the Bank of England responded to the above outlined challenges and implemented an improved IT governance approach by integrating the traditional BSC strategy map with the COBIT (Control Objectives for Information and related Technology) IT governance Framework. The Bank of England is the central bank of the United Kingdom. Sometimes known as the 'Old Lady' of Threadneedle Street, the Bank was founded in 1694, nationalized on 1 March 1946, and gained operational independence in 1997. Standing at the centre of the UK's financial system, the Bank is committed to promoting and maintaining a stable and efficient monetary and financial framework as its contribution to a healthy economy.6 A key element of the Bank's ability to deliver its overall strategy to support the "Core Purposes of Monetary Stability and Financial Stability" is to "raise business standards across the Bank".

In response to this challenge and the on-going need to demonstrate the delivery of value to the business, the Bank embarked on an initiative to improve its IT Governance in 2004. IT Governance has a number of different definitions, however, here we use one provided by the IT Governance Institute7, which states that: "IT Governance is the responsibility of the board of directors and executive management. It is an integral part of enterprise governance and consists of the leadership and organizational structures and processes that ensure that the organization's IT sustains and extends the organization's strategies and objectives". Ensuring effective IT Governance is an industry recognized approach to improving the way that IT delivers the desired outcomes for an organization, namely closer strategic alignment, improved value for money and reduced risk. The Bank of England decided to adopt this approach because of the balance of control, consistency and flexibility it provided to its hybrid IT organization, which the Bank did not wish to change. A situation further complicated by the need to work closely with other governance mechanisms within the Bank's business areas. The IT Governance improvement initiative has concentrated on three main areas, based upon the COBIT framework, namely: Decision Making Structures, IT Processes and Procedures, and Performance Measurement. (See also "Overview of COBIT) This case study focuses on the performance measurement work and how a strategy map has been used to link the IT performance indicators, for all the federated IT functions, to the Bank's overall strategy. Effective performance measurement is essential for the Bank-wide IT functions, in order to provide transparency of IT delivery and also improve the overall implementation of IT Governance. This will enable the IT function to more clearly demonstrate value to the business divisions across the Bank.

Overview of COBIT

In order to understand the rationale for the approach used for the development of the strategy map it is important to understand the COBIT framework 9 and how it links to the sphere of performance measurement. COBIT is maintained and developed by the IT Governance Institute, which was formed by ISACA 10 in 1998 in order to advance the understanding and adoption of IT Governance principles. In the words of the IT Governance Institute11: "COBIT provides good practices for the management of IT processes in a manageable and logical structure, meeting the multiple needs of enterprise management by bridging the gaps between business risks, technical issues, control needs and performance measurement requirements." The COBIT framework is split into four separate domains, all underpinned by the effective use of IT resources i.e. people, applications, technology, facilities, data. These four domains are: ƒ Planning and Organization ƒ Acquisition and Implementation ƒ Delivery and Support ƒ Monitoring In total they cover 34 different processes, which span the entire remit of an IT department, with monitoring covering the performance measurement component. In order to provide a more coherent mapping between the Bank's IT organization, COBIT and meaningful performance indicators, an IT Governance framework was developed to split the COBIT processes into: ƒ Strategy (~ covers Planning and Organization processes) ƒ Projects (~covers Acquisition and Implementation processes) ƒ Operations (~covers Delivery and Support processes) ƒ Resources With the IT Governance framework defined and new decision making structures in place, covering the Bank's Executive Directors (IT Executive Committee) and senior IT management / business representatives (IT Steering Committee ), the next challenge was to define a relevant and succinct set of performance indicators.

Development of an IT strategy map

The Bank had worked on the development of IT performance indicators and a balanced scorecard in the past. Due to the high number of indicators covering many aspects of IT and the focus only on the central IT function, this was not adequate for use with the new governance arrangements. They did not provide a comprehensive view across entire Bank-wide IT and were not focused at a level which could be effectively used as a decision making tool for either senior management or the Bank's Executive Directors. The key challenge was providing a closer linkage of IT performance to the strategic needs of the Bank as a whole. This resulted in further research into the performance measurement arena and the decision to base the IT performance measurement upon a strategy map, as defined by Kaplan and Norton. (See "The Balanced Scorecard") However, the standard strategy map template covering customer, financial, internal process and learning & growth dimensions did not prove sufficient to ensure a close relationship with the COBIT framework, which was being used as a basis for the IT Governance work within the Bank. This led to the development of a hybrid COBIT / balanced scorecard strategy map, which covered the four COBIT dimensions already mentioned above of strategy, projects, operations and resources alongside the standard balanced scorecard dimensions. In addition to this, the customer and financial dimensions of the balanced scorecard were switched around to reflect the fact that the Bank of England is not a commercial organization in the same way as a retail or investment bank. The resulting strategy map provided a balanced structure around which to define a set of goals and associated indicators across the IT function. The resulting symmetry was deliberate to ensure coverage across the entire IT function of the Bank. This is illustrated in the example strategy map shown below based upon the same concepts used at the Bank of England. (See "IT Strategy Map") The COBIT dimensions are shown along the left hand side and the balanced scorecard dimensions along the bottom of the strategy map. The arrows illustrate the basic linkages between the different goals shown in the bubbles and the performance indicators are written underneath each goal. The strategy and customer dimensions contain the seven goals which are of primary interest to the Bank's Executive Directors, who form the IT Executive Committee as part of the IT Governance decision making process.

The Balanced Scorecard

Over recent years the Balanced Scorecard (BSC) has evolved into one of the most popular strategic management tools.14 The BSC was developed by Robert Kaplan and David Norton in the early 1990s and initially positioned as a strategic performance measurement innovation15 to counteract the prevalent financial bias in existing performance measurement systems. The idea was that financial measures are lag indicators, which when used in isolation, could lead to short-term thinking. To promote the long-term value creation it was suggested that the financial perspective of performance should be complemented with measures in three supplementary perspectives, namely customer perspective, internal business perspective, and innovation and learning perspective. In 1996, the BSC was repositioned as a strategic management system and it was suggested that firms move away from presenting BSCs in a four-box model. Instead it was suggested that firms create a strategy map as the visual representation of a company's critical objectives and the cause-and-effect relationships among them.16 Today, strategy maps are seen as vital components of a BSC as they allow firms to understand how their intangibles are converted into tangible outcomes.

The process for developing the IT strategy map within the Bank of England was to: ƒ 1.Start with the customer and work backwards to identify the goals which are required in order to support the customer needs. Also check to make sure all the goals support the required IT strategies as well as the overall Bank strategies. ƒ 2.Identify one goal and one indicator for each element of the matrix. It was acknowledged that future versions may have a greater emphasis on a particular element, but the Bank initially wanted a balance across all areas in response to the IT Governance improvement initiative. ƒ 3.Limit the number of goals related to the strategy to the 16 elements, in order to maintain focus and avoid over complication and dilution. Emphasis or weighting may change the focus in the future, but the aim is to limit to 16 goals as part of the IT function's performance improvement measurement. ƒ 4.Avoid changing the goals because there are difficult to measures. Once goals had been agreed it was important to find a way to measure them, regardless of how hard this might prove to be.

5.Avoid any discussion around numerical information until the strategy map was in place to avoid people diving into the detail. ƒ6.Ensure that stakeholders were engaged at the right time in order to balance buy-in against progress of the development of the IT performance indicators. As such the initiative was sponsored by the IT Executive Committee and developed in consultation with the IT Steering Committee to agree the structure of the strategy map and the IT performance indicators. ƒ7.Ensure that the strategy map could be presented on a single sheet of paper to enable clear and concise communication across both the IT and the user communities ƒ8.Recruit a IT Performance Analyst to maintain and develop the strategy map, along with the performance indicators themselves. Once the goals for the strategy map had been drafted it was then necessary to work on the development of the actual IT performance indicators, in order to make it come alive. Examples indicators are shown in the strategy map above, but these are only the top level statements of the indicator. The indicators were included on the strategy map to aid the communication and discussion process with the various stakeholder groups.

Selection of performance indicators for the strategy map

The selection of appropriate performance indicators is always a difficult and complicated process. However, the limiting of the number of goals via the strategy map ensured that the number of indicators was carefully selected to meet the needs of the Bank's IT strategy. The decision to refer to performance indicators rather than measures was specifically done to reflect that any measures are not a guarantee, but rather an indicator to the status of a goal. Additional information and explanation will always be required, in order to gain a full understanding of the situation and ensure that the best information is available for the required decision making. This is the role of the IT Performance Analyst within the Bank. A performance indicator was selected for each goal in order to ensure balanced coverage across the IT strategy map. This is expected to evolve over time with potentially greater measurement or weighting in specific areas. In addition to the goals being measured from the strategy map a small number of "Base Indicators" were also developed. This was done in order to cover specific areas which the Bank wished to measure, but which did not directly reflect areas of performance improvement work being driven by the strategy map, e.g. financial performance against budget. A performance measure record sheet was completed for each performance indicators to ensure that measures were developed comprehensively, to confirm their applicability, and also to identify suitable targets for the performance indicators. For each indicator the COBIT area and the Balanced Scorecard perspective are identified, together with a other measures specific definition information and ranges for the traffic-light color coding in the system. (See "Performance Measure Record Sheet")

Once the performance indicators had been identified they were tested against a number of criteria in order to verify whether the measures were considered realistic and practical to use19. (See "Performance Measures Tests")

After initial testing, performance indicator data was collected, where immediately available from current data sources, it was then populated into the IT performance indicator scorecard. Where data was not available it was left at 0%, in order to highlight where additional work was required to obtain the data as part of the IT Governance initiative. The performance indicator scorecard is grouped into five areas in accordance with the IT Governance initiative for the Bank, i.e. Strategy, Projects, Operations, Resource & Base Indicators to provide greater alignment to the desired outcomes of the customer. In this scorecard each performance indicator is shown together with values for the target, status for the measurement period and the change since the last measurement period. (See "Performance Indicator Scorecard).

The table below lists the performance indicators used in the scorecard of the Bank of England and describes how the performance indicators are obtained at a basic level, along with the example targets. The targets will always be specific to different organizations and require refinement as performance improves; this process continues as part of the development of the IT performance indicators at the Bank.

 

How the strategy map and performance indicators evolved

The process of developing the performance indicators from the strategy map at the Bank of England evolved over about a six month period from the start of 2005 and is on-going as the implementation of more formal IT Governance continues within the Bank. This process is a journey of understanding both with respect to attaining sustainable and useful measures but also as a focus for debate at a senior level as to how IT is contributing to organizational performance. One of the directors has remarked that using previous metrics felt a bit like having random management information where you know the speed you are going but not what direction you are heading. The stages that the Bank followed in the development of the performance indicators are described below: ƒ

Stage 1 - Development of the Strategy Map The basic strategy map was developed based upon the work done as part of the overall IT Governance review within the Bank at the end of 2004. A "straw man" approach was adopted in the development of the strategy map because all areas of the Bank were already agreed on the need for performance measurement as part of the IT Governance review. ƒ

Stage 2 - Review of the Strategy Map with IT Steering Committee members Once the strategy map and performance indicators had been developed it was reviewed in a series of small workshops with all the members of the IT Steering Committee, who represent all areas of the Bank's businesses and IT functions. This enabled all IT Steering Committee members to understand the concept, how it was to be used and allowed them to comment on changes that needed to be made, in order to ensure that the goals supported the IT strategy. The development of the additional "Base Indicators" was a direct result of this review process.

ƒStage 3 - Draft of the Performance Indicators & test data collection A key recommendation that came out of the strategy map review was the need to populate the performance indicators with real data, in order for people to be able to really understand the implications of the information being presented to them. This was initially done using data from the end of the Bank's 2004/05 fiscal year, which ended in February 2005. The process of testing the indicators with real data allowed the validity of the indicators to be assessed and also confirm whether valid data was available or not.

ƒStage 4- Review of Strategy Map and Performance Indicators with the IT Steering Committee The FY Q4 2004/05 performance indicators were reviewed by the IT Steering Committee in April 2005, in order to gain confirmation that the performance indicators provided the right level of information across the Bank's IT function. In some instances the data provided reflected all of FY 2004/05, in order to offer a more balanced view, since it was the initial set of data and no change information compared to the previous quarter was available. ƒ

Stage 5 - Review of Strategy Map and Performance Indicators with the IT Executive Committee After review and agreement by the IT Steering Committee the strategy map and associated performance indicators for FY Q4 2004 were initially discussed by the IT Executive Committee at their meeting in April 2005. The concepts were agreed in principle with a view to reviewing the performance indicators at the regular quarterly meetings of the IT Executive Committee.

ƒStage 6- Collection and review of quarterly data The IT performance indicators are now being compiled on a quarterly basis and becoming part of the normal management review cycle across the IT Governance structure within the Bank. This started with the first Bank-wide IT Business Owners survey and the production of the performance indicators for FY Q1 2005, during the first half of June 2005. However, as already stated some of the performance indicators require the outputs from elements of the IT Governance initiative before they can be measured. These are expected to be in place before the end of 2005. The production of the performance indicators is accompanied with a commentary for each performance indicator to explain what the information presented means and any anomalies which may require additional explanation. An example of this is shown below:

Purpose- Reason for including the performance indicator

Indicator - Description of indicator

Target - Commentary on the target and how it might be related to actual data rather than in percentage terms.

Status - Explanation of the status value and what it actual means in business terms to the readers of the performance indicator report.

Change- Explanation of the change since the last period and how this should be interpreted. Also a description of whether this reports against the last period of the same period from last year for comparison

Importance of stakeholder management and taking people on the journey

Throughout the implementation of the IT Governance initiative, management of IT stakeholders up, down and across the organization has been of great importance, especially the members of the IT Steering Committee and the Executive Directors. It is by no means an easy task and not something that can be done too quickly. This has been especially true for the development and implementation of the IT strategy map and associated IT performance indicators. A number of the key things which have helped the stakeholder management process, and which we believe to be relevant to any performance measurement implementation, include: ƒ Active targeting of key stakeholders to ensure they are involved in the development of the strategy map and performance indicators early and then on an on-going basis, using a mixture of one-to-ones, small workshops and presentations ƒ On-going stakeholder management and communication planning to ensure that people are brought along the journey and that people buy-in to the need for performance measurement ƒ Performance measurement being a key thread of the IT Governance vision for change, so that people were open to its adoption because they could see why it was being done ƒ Performance measurement being part of the Bank-wide communications initiative so that people see the relevance and don't feel threatened by the impact of performance indicators ƒ The strategy map being an excellent way to articulate the IT functions' contribution to the Bank's business division, in order to meet its core purposes and clarify how each individual's contribution fits into the organization. However, the key element to the success so far within the Bank has been using the strategy map to show how the performance indicators actually relate to the IT strategy. Separating the goals away from the performance indicators and the actual data means that people have to focus on what is being measured and why, before they focus on the results and the associated data. This has ensured that people have been brought along the journey of the IT performance indicator development. It has also enabled the Bank's IT function to remain focused on the right performance indicators rather than those that are easy to measure.

Current status and next steps within the Bank

The IT strategy map and associated performance indicators within the Bank of England are now being used to assess the performance of IT within the Bank. Continuous refinement of both strategic objectives on the strategy map as well as the performance indicators remains necessary. Improvement and evolution of the system is seen as an on-going process as part of the Bank's IT Governance implementation. Specific areas that will be worked upon over the coming months include: ƒ Wider communication of the strategy map and IT performance indicators across all IT teams and also the business areas of the Bank as appropriate. It is seen as important that everybody understands the approach and why it is being used. It will also provide a good communication medium for people to understand how their roles help with the overall delivery of IT strategy to support the Bank's Core Purposes. On-going stakeholder management will remain essential to the successful long term use of the IT performance indicators within the Bank. ƒ Working closely with the internal audit team at the Bank to ensure they understand the approach and rationale for the performance indicators that have been chosen. This process has already begun and has been well received. ƒ Continuing to develop the required data sources as part of the IT Governance initiative to deliver data which is currently limited or not available. Compromises have been made with some performance indicators already to obtain data which is "good enough" for the job rather than perfect. However, in some cases elements of the IT Governance initiative need to complete in order to deliver the required performance indicators, for example the introduction of a new Bank-wide service desk. ƒ On-going monitoring of the strategy map and the IT performance indicators to ensure that they continue to evolve and deliver the information required to demonstrate the value of IT to the business divisions. The strategy map is expected to develop over time to increase focus on certain areas of the matrix and also further understand the linkages between the different goals. ƒ On-going IT performance measurement process and review within the IT Governance management structure to ensure that the IT Governance process is leading the Bank's IT in the required direction. ƒ Now that the basic framework is in place an eventual next stage maybe to use a performance measurement tool. There are currently a plethora of tools in the market place and a review of these alongside the requirements for the Bank will be required. However, it will be important to allow the IT performance indicator work to settle before a tool is selected to automate the collection and presentation of the information.

ƒ An IT Performance Analyst is now working specifically on the development and maintenance of the IT performance indicators. Part of this work will also involve working with individual IT Steering Committee members to assess the value in driving additional performance indicators into individual teams to enable teams to demonstrate their delivery against strategy.

Lessons learnt

The implementation of an effective performance measurement system for the Bank's IT function has not been easy. However, the use of a structured strategy map has greatly enhanced the process and helped to focus people's thinking on what really matters and what the desired outcomes need to be, in order to demonstrate the value of IT to the Bank's business divisions. A few of the lessons learnt include: ƒ Using the strategy map concept helped to focus people's thinking on what goals needed to be achieved to meet the strategy, before worrying about what performance indicators should be used. It also ensured that things were not measured purely because it was easy to do so. ƒ Although the strategy map matrix was very symmetrical it provided a good framework to start from and provided a balanced starting point for improving IT Governance and measuring IT value delivery. ƒ The strategy map offers a good communication medium to use with IT staff and directors alike to explain what IT is doing and why. It also offers a good way to discuss whether the focus is correct to meet what the business divisions actually want ƒ Start populating the performance indicators with actual data as soon as you can and start using them for analysis and decision making. Actually using real data helps to refine the performance indicators that you are using. Publishing performance indicators with 0%, where data is not available, highlights where additional work is required to obtain the data as part of a specific initiative and also engages senior sponsors or directors to help get things done. ƒ Balance perfect measures against how quickly you can get information and cost of doing so. A measure based on 90% of the available information maybe good enough and better than initiating a project just to gather the data. ƒ Stay true to the goals you are measuring and the outcomes you want to get. The performance indicator may need to be revised to provide the information in the most pragmatic way. However, the goal should not be changed only because it is difficult to measure. ƒ Keep to a limited number of performance indicators which demonstrate the attainment of the IT goals and hence the IT strategy. As a consequence this will enable the IT function to clearly demonstrate value to the business The strategy map and associated IT performance indicators will continue to evolve over time as both the Bank and the Bank's IT strategies evolve. However, the use of focused performance measurement has already had a significant positive impact on the whole IT Governance process. This is expected to improve further as people develop what ought to be focused upon and take decisions based upon the information provided through IT performance measurement.

Bernard Marr is a globally regognized big data and analytics expert. He is a best-selling business author, keynote speaker and consultant in strategy, performance management, analytics, KPIs and big data. He helps companies to better manage, measure, report and analyse performance.
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