Knowledge Management in Governance

The knowledge-based view of the firm has established itself as an important perspective in strategic management. This perspective builds on the resource-based theory of the firm. The knowledge-based view of the firm implies that information systems are designed to support knowledge management in organizations. Knowledge management can be defined as a method to simplify and improve the process of sharing, distributing, creating, capturing, and understanding knowledge in a company. Knowledge management is description, organization, sharing, and development of knowledge in a firm. Knowledge management is managing knowledge-intensive activities in a company. Knowledge management refers to identifying and leveraging the collective knowledge in a company to help the company compete. Knowledge management is a method for achieving corporate goals by collecting, creating and synthesizing and sharing information, insights, reflections, thoughts, and experience. Knowledge management is a discipline focused on systematic and innovative methods, practices, and tools for managing the generation, acquisition, exchange, protection, distribution, and utilization of knowledge, intellectual capital, and intangible assets (Montana, 2000). The purpose of knowledge management is to help companies create, share and use knowledge more effectively. Effective knowledge management causes fewer errors, less work, more independence in time and space for knowledge workers, fewer questions, better decisions, less reinventing of wheels, improved customer relations, improved service, and improved profitability. Knowledge management is purported to increase both innovation and responsiveness. The recent interest in organizational knowledge has prompted the issue of managing knowledge to the organization’s benefit (Alavi & Leidner, 2001).

IT Governance as Strategic Alignment

Strategy can simply be defined as principles, a broad based formula, to be applied in order to achieve a purpose. These principles are general guidelines guiding the daily work to reach business goals. Strategy is the pattern of resource allocation decisions made throughout the organization. These encapsulate both desired goals and beliefs about what are acceptable and, most critically, unacceptable means for achieving them.

Sourcing Practices

The rapidly increasing use of outsourcing for IT services, both in the public and private sectors, has attracted much interest from researchers and practitioners alike. While early studies of IT outsourcing were largely qualitative in nature, more recent studies have attempted to analyze the outcomes achieved in quantitative terms. Domberger et al. (2000) are consistent with the latter, but goes further by modeling the price, performance, and contract characteristics that are relevant to IT outsourcing. A two-equation recursive regression model was used to analyze 48 contracts for IT support and maintenance.

Strategy Analysis

Stages 1 to 3 cover strategy analysis in the Y model. While stage 1 is concerned with describing the current IS/IT situation, stage 2 is concerned with describing the current and desired business situation, and stage 3 is concerned with analyzing needs for change based on the gap identified when comparing current and desired situation as illustrated in Figure 4.1.

Theories of the Firm

In this book we need to develop a general understanding of business firms to enable strategic IS/IT planning. We will present the resource-based theory of the firm, the activity-based theory of the firm and the firm in terms of its value configuration. An understanding of firm theories and value configurations is important to later discussions of the topics in the book. The resource-based theory is applied to understand resources needed for e-business, sourcing, and governance. An important resource is knowledge in terms of know-what, know-how and know-why.

IT Governance as Allocation of Decision Rights

Most scholars seem to agree that a critical part of IT governance is allocation of decision rights. Allocation is concerned with identifying decision makers and decision categories.

Sourcing Theories

In Chapter I, general theories of the firm and value configurations of firms were introduced. Here we return to more theories. While theories and value configurations in Chapter I were introduced to develop e-business strategy, more theories are introduced here to understand the specifics of sourcing in general and outsourcing in particular. We want to understand why companies choose IT outsourcing in the middle of the Y model. We know that many companies choose IT outsourcing based on an analysis of core competencies. As we shall see, there are, however, many other theories that can be applied and that may provide both convergent and divergent answers to an outsourcing question. An example of divergent answer would be the theory of core competencies suggesting that non-core IT can be outsourced, while the resource-based theory suggests that non-core IT should be kept in-house if we have strategic IT-resources (valuable, non-imitable, non-substitutable, non-transferable, combinable, exploitable and available).

Case Studies

The primary learning objective of this term paper assignment is to enable you to practice the application of various techniques that are used in the process of developing an IS/IT strategy for an organization. Each of these techniques will be discussed in detail during the face-to-face class sessions with the professors, and they are also described in the textbooks for the course.

Sourcing Markets

According to Gartner (2004b), IT infrastructure consolidation and standardization characterized the largest multibillion IT outsourcing contracts during 2003 and 2004 and are expected to continue for the next several years. These contracts are not just exercises in cost reduction necessitated by economic doldrums, but they are also intended to advance clients toward becoming enterprises that are more efficient. The foundation of an IT portfolio is the firm’s information technology infrastructure. This internal IT infrastructure is composed of four elements as was illustrated in Figure 2.3. The presentation of Weill and Vitale’s (2002) work on infrastructure services indicated the number and complexity of services that constitute the IT infrastructure in an organization to enable electronic business. Successfully implementing e-business initiatives depends on having the necessary IT infrastructure in place. E-business initiatives can be decomposed into their underlying atomic e-business models, which can have quite different IT infrastructure requirements.

Sourcing Management

An important point is made about how strategy was absent from early e-business attempts. The first part of this book described how strategy might be present. To establish and maintain a distinctive strategic positioning, an organization needs to follow six fundamental principles concerned with right goal, value proposition, value configuration, trade-off, fit, and continuity (Porter, 2001). One of the strategic choices often overlooked is concerned with IT sourcing. IT sourcing decisions are influenced by trade-off, fit, and continuity principles. IT sourcing is related to the previously discussed topics in various important ways. First, the resource-based theory influences the choice of sourcing options, as sourcing is dependent on the availability of IT resources from internal and external sources. Second, e-business has specific requirements for IT infrastructure services depending on e-business models, and these requirements will typically be met through sourcing of IT services. Furthermore, decisions concerning IT sourcing belong in the strategic IS/IT planning process at the middle stages of the Y model. Finally, while e-business represents an answer to the question “what” the organization wants to do, sourcing represents an answer to the question “how” the organization can do it. More and more companies move into IT sourcing combinations that require proactive management, leading to an increased need for IT governance. This is the topic of the third and final part of this book.