Determinants of IT governance

Variables that are on the left side represents IT governance determinant constructs (Peterson, 2004). Those variables have never been tested under non-uniform governance assumption based on Weill and Ross’s IT governance framework. Therefore, there is no knowledge about which contingency variables affects specific IT decision area which defined by Well and Ross (2004).

Therefore, this study framework assumes that each contingency variable may possibly influence every IT decision area.

2.1.1 Exploitation (Business strategy construct alternative)

Numbers of research investigated organization’s business strategy as an IT governance determinant contingency variables.

Most of the result shows that if an organization is cost focused, IT governance arrangement tends to go centralized form (Ahituv et al., 1989, Tavakolian, 1989, Brown and Magill, 1994, Sambamurthy and Zmud, 1999, Peterson, 2001, Peterson, 2004).

There is no common way to measure business strategy with single variable. However, exploitation can be used as a business strategy variable in terms of cost-focus perspectives.

Exploitation is the degree of company’s action towards

“refinement, efficiency, selection, and implication”. Higher level of exploitation means the company is pursuing higher cost

efficiency.

Based on previous knowledge, this study posits that more exploitation leads to centralized IT governance.

H1a. Exploitation positively influences IT principle governance arrangement centralization.

H1b. Exploitation positively influences IT architecture governance arrangement centralization.

H1c. Exploitation positively influences IT infrastructure governance arrangement centralization.

H1d. Exploitation positively influences Business application needs governance arrangement centralization.

H1e. Exploitation positively influences IT investments governance arrangement centralization.

2.1.2. Business Governance Decentralization

Numbers of research investigated organization’s business governance structure (or business unit structure) as an IT governance determinant contingency variables (Ahituv et al., 1982; Brown & Magill, 1994; Peterson, 2001; Sambamurthy &

Zmud, 1999; Tavakolian, 1989).

Centralization is defined as “to whether decision authority is closely held by top managers or is delegated to middle and lower-level managers” (Olson et al., 2005). Decentralization is an inverted concept of centralization. Therefore, business governance decentralization measures business governance authority centralization in reverse value form.

Most researchers agreed that the organizational structure centralization positively influences to IT governance arrangement centralization. (Ein-Dor and Segev, 1982, Ahituv et al., 1989, Tavakolian, 1989, Brown and Magill, 1994).

Based on previous knowledge, this study posits that Business governance decentralization negatively influences IT governance arrangement centralization.

H2a. Business governance decentralization negatively influences IT principle governance arrangement centralization.

H2b. Business governance decentralization negatively influences IT architecture governance arrangement centralization.

H2c. Business governance decentralization negatively influences IT infrastructure governance arrangement centralization.

H2d. Business governance decentralization negatively influences Business application needs governance arrangement centralization.

H2e. Business governance decentralization negatively influences IT investments governance arrangement centralization.

2.1.3. Information Intensity

Generally, the reason why organization adopts Information technology is to enhance and maximize their information process capability. As information complexity and importance increases, role of Information technology becomes more significant.

Information intensity refers to “the amount of information necessary in the acquisition, transformation, and delivery of resources to the consumer in final form” (Porter and Millar, 1985, Glazer and Weiss, 1993)

Even though, Brown (1997) claims that information intensity of products/services was not valid predictor in his case study, other studies demonstrated the importance of information intensity towards IT governance.

Starre, D., & De Jong (1998) investigated relationship between IT governance and information intensity, and in this study, organizations are divided into 3 groups by information intensity (High tier, medium tier, low tier). The study result posits that information intensity gives strong influence IT governance. Most of low tire company tends to have centralized IT control.

Based on previous knowledge, this study posits that Information intensity negatively influences IT governance arrangement centralization.

H3a. Information intensity negatively influences IT principle governance arrangement centralization.

H3b. Information intensity negatively influences IT architecture governance arrangement centralization.

H3c. Information intensity negatively influences IT infrastructure governance arrangement centralization.

H3d. Information intensity negatively influences Business application needs governance arrangement centralization.

H3e. Information intensity negatively influences IT investments governance arrangement centralization.

2.1.4. Environment instability

Environment stability refers to “the extent to which a firm’s competitive environment is complex, uncertain, and prone to strategic change” (Carpenter and Westphal, 1999, Wiersema and Bantel, 2006)

Environment instability can be caused by competitions and other market or industry contingency. From competition based perspectives, according to Tavokolian (1989), more competitive strategy induces decentralized IT governance arrangement.

Brown (1997) also claims that industry stability was a valid predictors.

Based on previous knowledge, this study posits that Environment instability negatively influences IT governance arrangement centralization.

H4a. Environment instability negatively influences IT principle governance arrangement centralization.

H4b. Environment instability negatively influences IT architecture governance arrangement centralization.

H4c. Environment instability negatively influences IT infrastructure governance arrangement centralization.

H4d. Environment instability negatively influences Business application needs governance arrangement centralization.

H4e. Environment instability negatively influences IT investments governance arrangement centralization.

2.1.5. Business competency

The definition of business competency is “a business competency is a set of interdependent and related skills whose purpose is to enhance a firm’s economic interests, and a social competency is a set of interdependent and related skills whose purpose is to benefit society” (Nelson and Winter, 1982, Winter, 1998, Marcus and Anderson, 2006).

According to Peterson (2004), organization which has higher business competency tends to go decentralized IT governance arrangement.

Similarly, higher business competency influences IT manager’s Business unit partnership intention (it induces decentralized) (Bassellier and Benbasat, 2004) and taking role of effective communication channel (Nelson and Cooprider, 1996). If business competency is low, the IT manager tends to be standalone (centralized)

Based on previous knowledge, this study posits that Business competency negatively influences IT governance arrangement centralization.

H5a. Business competency negatively influences IT principle

governance arrangement centralization.

H5b. Business competency negatively influences IT architecture governance arrangement centralization.

H5c. Business competency negatively influences IT infrastructure governance arrangement centralization.

H5d. Business competency negatively influences Business application needs governance arrangement centralization.

H5e. Business competency negatively influences IT investments governance arrangement centralization.