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Control and Governance: providing safeness in times of turmoil

Economic nature has a morbid trend to combine turmoil: worrying oil prices, dollar valuation issues, inflation, important dysfunctions within the international financial system and drug agreements not accorded to pharmaceutical companies … and the truck-loads of newspapers carrying the message. Every Investor, Director and Manager is desperately seeking safe heavens, fearfully hoping their own business support fundamentals are well-organized. It is clearly not the time for CIO and IT Managers to initiate and run risky projects without decent background for control. Control and Governance methods are however available with minimal effort.

There are differences between having control, demonstrating control and proving control. It is very understandable that business managers are not sleeping well when their CIO only talks about being in charge instead of proving it. Lehman Brothers, Northern Rock and consorts also said they were under control. In times of turmoil, business enterprise prefers having certitude on good results instead of hoping for the best results. CIO and IT Managers should divert from their historic aversion of governance principles and install practical and effective steering capabilities, as a way of maintaining their needed business agility in a down-turn environment avoiding at all cost any hint of lethargy.

The common knowledge on control and governance systems offers magnificent possibilities, although an intelligent implementation fit to the need is the key for effectiveness. Handling these models should not lead to unnecessary overhead, which has to be avoided in all times but foremost in times of cash shortage. The basic objective of all these methods is to guarantee that what needs to be realized is realized. It is then obvious that the system itself cannot be a burden to an ever-existing business law: cost-effectiveness.

As in most matters, there is sufficient literature available as a basis for sound management of organizational control, some being more detailed than others. The main challenge is to pick the best fit for its own environment and to use it pragmatically. Two basic considerations can help.

The first one is to determine whether your approach will be “audit”-based or “steering” based. In the first case, the organization shall focus more on creating, producing and managing evidence of action and control. Practically, the organization shall center its attention to the instauration of decision taking processes, including underlying KPI, management information, execution checkpoints and other documentation. This is most appropriate when one’s business is seeking guarantees on the pursuit of actual business support. With a Steering based approach, an organization should formalize the relationships between forecasts and reality, creating tangible measurements on analysis variables, their respective reliability score and the checkpoints with reality. This is most appropriate when organizations are forced into adaptation through the crisis in order to survive. Fundamentally, the difference in approach lays in the fact that an organization respectively wants to guarantee that what needs to be done, will be done or that decisions for the future are taken based on the best available information.

A second guiding consideration regards the span of control of the organization. The most obvious difference resides in the separation between outsourced or in-house managed services. Moreover, with a wrongly deliberated approach, the secondary risk of creating fuzziness about roles and accountabilities becomes reality. Essentially, service operations which are managed in-house, with direct control span over activities, shall need governance built on on people, activities and deliverables; while service operations with indirect span of control (outsourced or subsidiaries) shall need governance on means, alignment and results.

It is clear that implementing a decent governance system in a Business supporting organization is a matter of long-term survival and stability; and it is commonly known that stability in relationship and trust is the most fertile ground for sustained business agility. However, the challenge and the criticality of the approach make two things utterly important: on the one hand, having Management and Directors with solid knowledge and understanding of the governance options and consequences is a basis for sound performance and implementing the right approach pragmatically is another … Training and consultancy are to be recommended.

Marnik Demets

Managing Director MSD Partners

September 2008