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The Impact of IT governance on organizational culture for innovation capability

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경제학석사 학위논문

The Impact of IT governance

on organizational culture for

innovation capability

IT 거버넌스와 혁신역량을 위한 조직문화의

영향

2013 년 2 월

서울대학교 대학원

농경제사회학부 지역정보전공

이 성 철

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The Impact of IT governance

on organizational culture for

innovation capability

지도 교수 문 정 훈

이 논문을 경제학석사 학위논문으로 제출함

2013년 2 월

서울대학교 대학원

농경제사회학부 지역정보전공

이 성 철

이성철의 경제학석사 학위논문을 인준함

2013년 2 월

위 원 장 (인)

부위원장 (인)

위 원 (인)

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Abstracts

IT governance is one of the important parts of corporate governance. IT governance enables the organization to ensure correct use of IT. Developing well-designed IT governance has become one of the most serious topics among scholars and management professionals because IT project is getting more complex form and also getting bigger. In previous literatures, various IT governance determinants are examined but, there are few studies for IT governance determinants variables under non-uniform IT governance framework, especially, there was no researches that examined the IT governance determinants on Weill et al. (2004)’s IT governance framework. Furthermore, IT governance outcome can be delivered in an intangible but, the previous researches on cultural outcome from IT governance are rarely found. This study developed a research framework to examine relationship between IT governance determinants and IT governance archetypes on IT decisions and also the relationship between IT governance archetypes on IT decision and cultural factors for innovation capability.

This study adopted interview and survey approach to examine the research framework, and total of 24 survey cases are collected. The results suggest that exploitation, business governance decentralization, information intensity, environment instability influenced various IT decisions governance centralization and the cultural factors for innovation capability influenced by the archetypes of IT architecture and business application needs.

Keywords: IT governance, IT Decision, contingency, innovation, culture

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목 차

I. Introduction ... 1

1. Overview ... 1

2. Research Questions ... 4

II. Literature review ... 6

1. Corporate Governance ... 6

2.1. IT governance ... 9

2.2. IT governance and IT management ... 12

2.3. IT governance frameworks ... 15

2.3.1 IT governance form stream ... 16

2.3.2. IT governance contingency analysis ... 20

2.4. IT governance arrangement matrix ... 28

III. Research framework and Hypotheses ... 33

1. Research Framework ... 33

2. Hypothesis Development ... 34

2.1. Determinants of IT governance ... 34

2.1.1 Exploitation (Business strategy construct alternative) ... 34

2.1.2. Business Governance Decentralization... 36

2.1.3. Information Intensity ... 37

2.1.4. Environment instability ... 39

2.1.5. Business competency ... 40

2.2. Organization cultural factors for innovation capability 41 2.3 Absorptive Capacity ... 47

2.4. Company profile variables ... 48

IV. Research Method and Data ... 49

1. Research design ... 49

2. Construct Operationalization ... 50

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4. Sample Characteristics ... 60

V. Data analyses and Results ... 65

1. Measurement Model Validation ... 66

2. Hypothesis Testing ... 72

2.1. IT Principle ... 73

2.2. IT architecture ... 74

2.3. IT Infrastructure ... 76

2.4. Business application needs ... 76

2.5. IT investments ... 78 2.6. ANOVA analysis ... 79

VI. Discussions ... 84

1. Summary of finding ... 84 2. Theoretical contribution ... 90 3. Managerial contribution ... 91

4. Limitation and future research ... 92

References ... 94

Appendix ... 1

Appendix 1. Loading and Cross loadings ... 1

Appendix 2. The correlation relationship table ... 1

Appendix 3. ANOVA Analysis ... 2

Appendix 3-1. ANOVA analysis on Business governance decentralization by IT Principle (LSD) ... 2

Appendix 3-2. ANOVA analysis on Business governance decentralization by IT architecture (LSD) ... 2

Appendix 3-3. ANOVA analysis on participative decision-making scale by IT architecture (LSD) ... 3

Appendix 3-4. ANOVA analysis on Information intensity by business application needs (LSD) ... 3

Appendix 3-5. ANOVA analysis on support and collaboration by business application needs (LSD) ... 4

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Appendix 3-6. ANOVA analysis on Participative decision-making scale by business application needs (LSD) ... 4 Appendix 3-7. ANOVA analysis on information intensity by IT investments (LSD) ... 5 Appendix 4. Survey Questionnaires ... 6

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List of Tables

[Table 1] IT governance definitions ... 10

[Table 2] IT governance form researches ... 16

[Table 3] Tradeoffs of Centralized and Decentralized IT

governance ... 18

[Table 4] Single contingency analysis research ... 21

[Table 5] Determinants of IT governance ... 26

[Table 6] IT governance decision making areas ... 28

[Table 7] IT governance archetypes ... 30

[Table 8] IT governance archetype mapping table ... 32

[Table 9] Exploitation ... 50

[Table 10] Business governance decentralization ... 51

[Table 11] Environment instability [Competition] ... 52

[Table 12] Environment instability [Contingency] ... 52

[Table 13] information intensity ... 53

[Table 14] Business competency ... 53

[Table 15] IT governance decision area checkboxes ... 54

[Table 16] Learning and development ... 55

[Table 17] Power no-sharing ... 56

[Table 18] Support and collaboration ... 56

[Table 19] Participative decision-making Scale ... 57

[Table 20] Absorptive capacity ... 58

[Table 21] Sample industry frequency ... 60

[Table 22] Sample yearly revenue frequency ... 61

[Table 23] Sample employee count frequency ... 62

[Table 24] Sample founded year frequency ... 63

[Table 25] Sample board pressure frequency ... 64

[Table 26] Reliability and convergent validity ... 67

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List of Figures

[Figure 1] Corporate / IT governance domain ... 7

[Figure 2] IT governance framework of ITGI (2003) ... 11

[Figure 3] IT governance and IT management ... 12

[Figure 4] Relations of infrastructure and business process 13

[Figure 5] IT governance research stream ... 15

[Figure 6] Governance arrangement centrality ... 31

[Figure 7] The research framework ... 33

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I. Introduction

1. Overview

IT governance helps the organization to ensure correct uses of IT and maximize IT performance (Weill and Ross, 2004). The importance of IT governance is rising because significance of organizations’ performance is also growing as organizations are facing more fluid and complex global business market (Chanopas and Krairit, 2006). Therefore, developing well-designed IT governance has become one of the most serious topics among scholars and management professionals as information technology continues to be regarded as an essential way to promote an organization’s competency and growth (Alshawi et al., 2003, Kumar, 2004, Chanopas and Krairit, 2006, Huang et al., 2006)

One of the important issue regarding IT governance is setting appropriate authority with responsibilities on organization’s IT activity due to the fact that organizations’ IT investment sizes are rising as IT projects are becoming more complex (Weill and Ross, 2004).

These trends are easily observed on IT investment of many organizations. According to Gartner, the average IT expenditure has risen up to 2.5% from 2010 (Potter et al., 2011). And it is important to emphasize the fact that greater investments on IT require more accountability by setting proper responsibility.

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Fast changing environments and IT trends are making IT projects more complex. In order to dealing it, Organizations are requiring organizations faster responsiveness in order to deal with projects that are increasingly becoming complex—due to fast changing environments and IT trends—organizations are required to enhance their responsiveness (Peterson, 2004).

Furthermore, IT is no longer IT department exclusive issue; it now takes over major roles in various departments in the organizations. This consequently increases complexity of IT projects because the scope of the projects are dealing department-specific knowledge. Basically, a worker cannot handle organization wide IT related matters as the complexity grows. (Weill and Ross, 2004). Therefore, one may conclude that owning IT governance is important.

In order to maximize IT performance by developing IT governance, the organization has to focus on designing IT governance. The importance of IT governance design is investigated by numerous researchers. For this reason, previous researchers are studied the way of designing IT governance that fits organizational contingency context for maximizing IT governance performance. Most of them were focused on organizations’ internal and external factors, since, they assumed that IT governance is influenced by those factors (Brown and Magill, 1994, Sambamurthy and Zmud, 1999, Peterson, 2004). However, each researcher used different way to setup the IT governance determinant constructs due to lack of standardization,

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and there were insufficient effort to integrate these variables for one empirical study, and, most of study has case study form or narrow sample empirical study. Therefore, there is a research opportunity for expanding empirical approach on IT governance, e.g. investigating contingency variables on the specific IT decision areas.

Lastly, activities of research on IT governance performance regarding intangible outcome, such as culture, is rare. Therefore, there is a research opportunity for further investigation of influence of IT governance to organizational culture.

This study will suggest a research framework for empirical test on relationship between organization’s contingency variables and IT decision governance (Weill and Ross, 2004). This framework will also investigate relationship between IT governance arrangements on each IT decision and innovation related cultural outcome as an IT governance performance.

This study will attempt to provide two contributions, first, expanding IT governance empirical evidence regarding IT governance determinant, and second, proposing new variable as IT governance performance result.

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2. Research Questions

This study develops a research model to address the following questions

I What factors influence IT governance arrangements for IT decisions?

II Does IT governance affect organizational culture for increasing innovation capability?

Regarding on the first question, this study is expanding empirical evidence for the determinants of non-uniform IT governance. One of the major IT governance framework enhancements was from vertical expansion which explains synergy between major IT service areas. Weill et al. (2004) introduced IT governance framework (non-uniform) which covers five IT decision areas with five archetypes. Despite many studies on the IT governance, there was no research on empirical study for IT governance determinants variables on non-uniform IT governance framework of Weill et al (2004).

With respect to the second question, this study introduces organizational cultures for innovation capability as an IT governance performance constructs. Previous IT governance study focused IT governance performance mostly on financial value creation perspectives or process refinement maturity. However, IT governance outcome can be delivered in an

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intangible form such as culture. In spite of this important factor, former research activities have rarely found relationship between IT governance and cultural outcome.

Hence, through empirical approach this study expects to discover implication between IT governance and organizational culture. One of the emerging IT governance paradigm focuses on collaboration rather than control; competency rather than authority; and finally flexibility rather than efficiency (Peterson, 2004). These emerging IT governance paradigms are in boundary of organizational culture. Therefore, this study proposes organizational cultures for innovation capability as an IT governance performance variable.

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II. Literature review

1. Corporate Governance

IT governance is a relatively broad concept thus; there exist different definitions of the term. However, some of definition describes IT governance as a part of corporate governance (See Table 1). Corporate governance is a broader concept than IT governance, which means that corporate governance covers broader asset. Corporate governance refers to systematic scheme that describes how these assets are being monitored and controlled (Van Grembergen et al., 2004).

Corporate governance also defines relationship between company’s related personnel such as the board, shareholders and management (OECD, 2004). This helps to create more transparent management ensured by defining accountability of management, organization shareholders and stakeholders.

Importance of corporate governance is heightened after Sarbanes-Oxley act in the United States. This law enforced organizations to have transparent governance framework for their organization. (Brown and Grant, 2005)

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Figure 1. Corporate / IT governance domain (Weill and Ross, 2004)

Figure 1 shows the domains of IT governance and corporate governance. Strategy is a choice regarding “What to focus”. “Desirable behavior” is a set of organization’s culture and beliefs regarding “How it should be done” for organizations assets. Senior executive team takes responsibility to formulate strategies and desirable behaviors. (Weill and Ross, 2004).

Corporate governance covers various key assets. These assets are creating business values. Therefore, each key asset should have mechanisms to be monitored and controlled correctly (Weill and Ross, 2004)

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- Human assets: people, skills, career paths, training reporting, mentoring, competencies.

- Financial assets: cash, investments, liabilities, cash flow, receivables.

- Physical assets: buildings, plant, equipment, maintenance, security, utilization.

- IP assets: intellectual property (IP), including product, service, and process knowhow formally patented, copyrighted, or embedded in the enterprises’ people and systems.

- Information and IT assets: digitized data, information, and knowledge about customers, processes performance, finance, information systems.

- Relationship assets: relationships within the enterprise as well as relationships, brand, and reputation with customers, suppliers, business units, regulators, competitors, channel partners.

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2.1. IT governance

IT governance is one of the fundamental sections of corporate governance (Huber, 2004, Trites, 2004). IT governance covers information and IT assets. IT governance domains are highlighted in grey color in figure 1.

Information and IT Asset are now becoming serious parts of organization’s assets. Most firms’ IT investment sizes are increasing (Potter et al., 2011). IT investment sides are increasing while organization’s environment is becoming more turbulent—organization has to confront broader and competitive market, and larger threat with faster changing phase (Van Grembergen et al., 2004). Furthermore, IT is no longer exclusive subject for the IT department (Weill and Ross, 2004). Finally, the factors that mentioned above induce bigger and more complex IT projects.

Organizations need transparent and well-designed mechanisms that support correct use of IT for their organization. (Weill and Ross, 2004)

IT governance covers organization’s mechanism regarding decision making structure and process for IT assets. Proper use of IT of an organization hardly happens by an accident. Therefore, IT governance is now recognized as one of the most important issue for organizations by many CIOs (Luftman and Ben-Zvi, 2010).

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Even though, IT governance is only a part of Corporate Governance concept, it still covers broad areas of organization. Definitions of IT governance definitions by different researchers are presented in Table 1.

Table 1. IT governance definitions Definer Definition

Weill and ross, 2002

Specifying the decision rights and accountability framework to encourage desirable behavior in the use of IT.

Gartner IT governance as the set of processes that ensure the effective and efficient use of IT in enabling an organization to achieve its goals. ITGI, 2001 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

From the Table 1, the definitions imply that "IT governance" should define "IT asset" related process and responsible authority. It is explicitly defined in ITGI definition that organization’s structure and process are parts of IT governance component.

Objective of IT governance is to make sure IT is aligned with organization’s objectives and IT performance is maximized. Often IT governance could give risk management function. (See figure 2)

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Figure 2. IT governance framework of ITGI (2003)

Weill and Ross posit that Effective IT governance must answer following questions (Weill and Ross, 2004)

1. What decisions must be made to ensure effective management and use of IT?

2. Who should make these decisions?

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2.2. IT governance and IT management

There are differences between IT governance and IT management. The IT governance definitions are not providing clear cut distinction about what is IT governance or IT Management. But, the area between IT governance and IT Management could be distinguished with Business Orientation and Time Orientation axis. (Peterson, 2004)

Figure 3. IT governance and IT management (Van Grembergen et al., 2004)

Figure 3 is a diagram that shows area distinction by internal-external and present-future axis. IT Management covers present internal business related matters. The diagram implies the IT Management area is covering every day internal IT Operation. Through IT Management, the organization can achieve more with effective internal supply of IT service or product.

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However, IT governance business orientation and time orientation is much broader extensive than IT Management. IT governance covers future external business related matters. (Van Grembergen et al., 2004).

Figure 4. Relations of infrastructure and business process (Van Grembergen et al., 2004)

Therefore, IT governance is more closely related with the organization’s future strategies. Developing IT governance that effectively supports externally sensitive future strategies is important, because of IT technology’s increasingly fast change cycle and external influence (such as market technology changes), could give significant effect to organizations (Van Grembergen et al., 2004).

For Example, one of future strategy related IT decision area is IT infrastructure. There are two infrastructures (See Figure 4): one is public infrastructure and the other is Firm information technology infrastructure. Public infrastructure is external

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infrastructure that could affect organizations. Public internet infrastructure or industry network could be categorized to this classification. (Van Grembergen et al., 2004)

Monitoring the changes on public infrastructure is important, since, firm information technology infrastructure will interact with public infrastructure. If unexpected radical public infrastructure changes occur, internal firm information technology infrastructure could become as a huge setback (Weill and Ross, 2004)

Furthermore, firm information technology infrastructure supports the organization’s local IT business process (E.g. Local email system, local document flow system) (Van Grembergen et al., 2004). If Firm information technology infrastructure cannot fulfill the business process requirement (e.g. new kinds of customer need is emerged). It could seriously interrupt their business process.

Unfortunately, IT Infrastructure is relatively more difficult to be changed in short period time as it requires a lot of resources and capitals (Weill and Ross, 2004).

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2.3. IT governance frameworks

Previous IT governance research stream can be categorized into two distinct research streams. One research stream focused on IT governance form and the other research stream focused on IT contingency analysis. Both of these IT governance research stream influenced Weill et al. (2004)’s IT governance framework. (Brown and Grant, 2005)

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2.3.1 IT governance form stream

IT governance form research stream studied IT related decision-making structures for organizations. As this stream evolved, IT governance form became expanded and more sophisticated. (Brown and Grant, 2005)

Table 2. IT governance form researches (Brown and Grant, 2005) Basic Locus of IT Decision Making Thompson (1957) Jelinek (1977) Burlingame (1967) Golub (1975)

Olson and Chervany (1980) Keen (1981)

Jenkins and Santos (1982) Wetherbe, (1988) Von Simson (1995) Traditional IT Structure researches Expanded IT Decision making structure

Ein-Dor and Segev (1978) Rockart et al. (1978) King (1983)

Zmud et al. (1986)

Boynton and Zmud (1987)

Vertical Horizontal expansions

One part of this research stream focused on locus of IT decision making. It was timely important issue at the time because in 1960, organizations were able to build highly centralized computer center locally (Olson and Chervany, 1980, Brown and

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Grant, 2005). The early age of IT governance form research investigated decision-making structures with bi-polarized IT governance form. (Brown and Grant, 2005)

 Centralized IT governance

 Decentralized IT governance (Brown and Magill, 1994, Schwarz and Hirschheim, 2003)

If organization’s IT governance is strictly centralized, central IS department or entity takes all decision-making authority. On the other hand, if organization’s IT governance is strictly decentralized then all decision making authority distributed to related process owners or business units. (Brown, 1997)

In this centralized-decentralized governance form, most researchers investigated what are the advantages and disadvantages of each IT governance form (Cross et al., 1997, Kayworth and Sambamurthy, 2000, Lewis, 2004). Most of researchers concluded that centralized governance form increases control for IT standardization and increases economies of scale and that decentralized governance increases the business unit’s responsiveness (Burlingame et al., 1967, Keen, 1981, Jenkins and Santos, 1982, Wetherbe, 1988, Von Simson, 1995). Those IT governance form has trade-off with bi-polarized states. (Peterson, 2004)

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Table 3. Tradeoffs of Centralized and Decentralized IT governance (Peterson, 2004) Centralized IT governance Decentralized IT governance Federal IT governance Synergy Standardization Specialization + + + _ _ _ + + + Customer Responsiveness Business ownership flexibility _ _ _ + + + + + +

However, Bi-polarized IT governance form cannot solve dilemma of organizations which desires to have the advantages of both IT governance form (Boynton and Zmud, 1987). To solve this issue, researchers investigated the methods to refine bi-polarized IT governance form. The related studies are approached this issue with following method. (Brown and Grant, 2005)

 Continuous classification  Discrete nominal classification  Redefinition of extreme

Continuous and discrete nominal classification approached bi-polarized classification problem by allowing multiple degree magnitudes of centralized and decentralized states. Continuous classification represented governance form between centralized

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and decentralized in continuum. Discrete nominal classification added more several mid-points between bi-polarized governance. (Brown and Grant, 2005)

One of the important argument in IT governance form classification is the emergence of “Federal Governance” (Zmud

et al., 1986) This governance form shows similarity with “central and states” governance form where the States gets certain degree of autonomy from central government. (Weill and Ross, 2004, Brown and Grant, 2005)

The federal governance form is suitable when organization pursue advantages from both centralized and decentralized option. (Rockart et al., 1978, Boynton and Zmud, 1987)

Redefinition extreme research redefined bi-polarized extreme points—for example investigating decision-making authorities of decentralized governance form (Boynton and Zmud, 1987, Rockart, 1987, Dixon and John, 1989).

Some studies studied relationship between IT governance form and IT decisions. This research focused on the impact of governance form for each different IT decision areas. (Sambamurthy and Zmud, 1999)

To provide an example, Olson and Chervany (1980) investigated the relationship between IT governance form and several IT service function. The result showed that IT governance form showed slightly different form on every different IT service area

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2.3.2. IT governance contingency analysis

Another major IT governance research stream is IT governance contingency analysis stream. This research stream investigated IT governance mechanisms in perspectives of contingency influence.

Most of researchers agree that there is no ultimate IT governance structure that fits to all organizations. This makes researchers to find variety of factors that influence best IT governance solution for organizations. (Brown and Magill, 1994, Brown and Grant, 2005)

Some of studies tried to find contingency factors under uniform governance condition. In this assumption, organization adopts single governance arrangement to all of their business units. Other study investigated IT governance under non-uniform condition. In non-uniform condition, organization could have different governance arrangement on each different division or decision area. (Brown and Grant, 2005)

This research stream focused with individual contingencies (contingencies are not interacting with each other) for uniform governance in early research (Brown, 1997). Later in time, researchers recognized that the research scope was limited (Allen and Boynton, 1991, Clark Jr, 1992, Brown and Magill, 1994, Brown and Magill, 1998, Sambamurthy and Zmud, 1999), and thus expanded the research scopes towards multiple contingencies with more complex analysis. (Brown and Grant,

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2005)

Table 4. Single contingency analysis research (Brown and Grant, 2005)

Contingency Authors Organizational Structure, Decision Making Structure, Organization Environment

Ein-Dor and Segev (1978) Olson and Chervany, (1980) Wheelock (1982)

King (1983) Tavakolian (1989) Dixon and John, (1989) Allen and Boynton (1991) Boynton et al. (1992)

Henderson and Venkatraman (1993) Competitive/Business

Strategy

King (1983) Tavakolian (1989) Boynton et al. (1992)

Henderson and Venkatraman (1993) Venkatraman (1997)

Industry Ahituv et al. (1989) Clark (1992)

Firm Size Olson and Chervany, (1980) Ein-Dor and Segev (1982) Ahituv et al. (1989)

Tavalkolian (1989) Clark (1992)

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For example, Ein-Dor and Segev (1978) investigated relationship between ten organization contingencies variables and IT governance adoption. Although, the research took multiple variables at the same time, it did not considered possible interaction between contingencies. Organizational maturity, organizational size, organizational structure, organizational time frames, psychological climate, extra-organization situations, Organizational resources, rank, and location of responsible executive and steering committees were adopt as an contingencies variables. Same author added two more variable in the follow-up paper, which are propensity to pioneer and implementer and user relationship (Ein-Dor and Segev, 1982). The study gathered data from 53 large firms and tested empirically. The result shows that organization size, psychological climate, quality of user/implementer relationship were directly associated with the IT governance arrangement (Brown and Grant, 2005)

Along with Ein-Dor and Segev (1978) study, there are many other individual contingencies related studies (See Table 4). Despite varying terms among researches, researchers commonly investigated organizational structure, Business strategy, industry and firm size (Brown and Grant, 2005)

Organizational Structure

Despite the fact that some researchers found that there is no linkage between organizational structure (Olson and Chervany, 1980), most researchers agree that centralized organizational structure induced centralized IT governance arrangement and

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Decentralized organizational structure induced decentralized IT governance design. (Ein-Dor and Segev, 1982, Ahituv et al., 1989, Tavakolian, 1989, Brown and Magill, 1994, Brown and Grant, 2005)

Competitive and Business Strategy

According to Tavokolian (1989), the organizations that have “Defender” competitive strategy showed centralized governance arrangement. In other words, if an organization develops more aggressive competitive strategy then other, their IT governance design tends to go decentralized (Brown and Grant, 2005).

Industry

Despite many studies tried to find relation between IT governance design and industry contingency, many researchers was not able to show relationship between IT governance design and industry type (Ahituv et al., 1989, Clark Jr, 1992, Brown and Grant, 2005).

Firm Size

Most of studies could not prove firm size as a valid antecedent factors (Olson and Chervany, 1980, Ahituv et al., 1989, Tavakolian, 1989, Clark Jr, 1992). However, Ein-dor and Segev (1982) were able to discover linkage between firm size and IT governance arrangement only from firm size as total revenue but not by employee headcounts. (Brown and Grant, 2005)

Above studies investigated many contingency variables under assumptions that contingency variables are not interacting with

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each other. Beginning with from Brown and Magill (1994) research, multiple and complex contingency analysis is appeared.

Brown and Magill (1994) adopted then interacting antecedent and investigated the relationships between antecedent variables and IT governance arrangement. Six companies were involved the study. (Brown and Grant, 2005)

 Corporate Vision  Corporate Strategy  Overall Firm Structure

 Culture – Business Unit Autonomy  Strategic IT Role

 Senior Management of IT

 Satisfaction with Management of Technology  Satisfaction with Use of Technology

 Strategic Grid of Current/Future Applications  Locus of Control for System approval/priority

The authors categorized four IT governance forms (Highly centralized, highly decentralized, Hybrid, Re-centralized) and tried to propose individualized contingency patterns for each IT governance form. (Brown and Grant, 2005)

Later contingency analysis research stream expanded in to “Complex analysis for non-uniform governance” (Brown and Grant, 2005)

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individual business units and several context variables. This study used case research approach and it marked the organization as “hybrid IS governance” if the organization has different IT governance design across their business unit. In the study result, Decision making structure, business unit autonomy, competitive strategy, and industry stability were regarded as good governance arrangement predictor. (Brown and Grant, 2005)

Brown and Magill (1998) refined previous research. This study utilized iterative approach which adopted not only hybrid IS governance, but IT service area as an IT governance subject as well. This study implemented framework between locus of decision making and six contingencies for system development context. (Brown and Grant, 2005)

Sambamurthy and Zmud (1999) adopted reinforcing, conflicting and dominating as interaction contingency and investigated these interacting contingencies for three IT service areas, and IT infrastructure, IT use and IT project are adopted as IT service area. (Brown and Grant, 2005)

Numbers of contingency variables tested the relationship with IT governance design in previous studies. As a result of previous study, it was found that it is possible to combines IT governance determinant variables. (Brown and Grant, 2005)

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Table 5. Determinants of IT governance (Peterson, 2004)

Centralized Federal Decentralized Business

Strategy

Cost focus < > Innovation focus Business

governance

Centralized < > Decentralized Firm Size Small < > Large

Information intensity Low < > High Environment Stability High < > Low Business competency Low < > High

Table 5 shows variables of IT governance determinants. Previous studies posit that the greater organization size negatively influences the IT governance arrangement centralization (Ein-Dor and Segev, 1982, Ahituv et al., 1989, Tavakolian, 1989, Clark Jr, 1992, Brown and Magill, 1994, Sambamurthy and Zmud, 1999), the cost focused business strategy positively influences to IT governance arrangement centralization (Tavakolian, 1989, Brown and Magill, 1994, Sambamurthy and Zmud, 1999, Peterson, 2001), and finally that the business governance structure centralization positively influences to IT governance arrangement centralization (Ahituv

et al., 1989, Tavakolian, 1989, Brown and Magill, 1994, Sambamurthy and Zmud, 1999, Peterson, 2001).

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These studies tried to expand empirical evidences for IT governance determinant. However, most of the studies consisted of limited sample pool. For example, Tavakolian (1989) took 52 computer component manufacturers. Brown & Magill (1994) took six companies, and Sambamurthy & Zmud (1999) took eight companies samples. (Brown and Grant, 2005)

Furthermore, activities on IT governance contingency analysis study under non-uniform governance were rarely found. Most of previous studies investigated various contingency variables under uniform governance assumption. However, uniform governance assumption is often unrealistic for most organizations. Especially, there was low activities on non-uniform governance contingency study which adopted IT governance framework by Weill et al. (2004)

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2.4. IT governance arrangement matrix

Weill & Ross (2004)’s IT governance framework integrated IT governance components which allows capturing the whole organization’s IT governance snapshot in macro level. This IT governance framework consisted of IT decision making area and IT governance archetypes. This framework can show whole organization’s IT governance in one table by analyzing IT governance archetype on each IT decision making area. (Weill and Ross, 2004). Table 6 shows Well & Ross’s IT governance decision making areas.

Table 6. IT governance decision making areas (Weill and Ross, 2004)

IT Decision area Description

IT Principles High level statements about how IT is used in the business

IT Architecture An integrated set of technical choices to guide the organization in satisfying business needs. The architecture is a set of policies and rules for the use of IT and plots a migration path to the way business will be done (includes data, technology and applications)

IT infrastructure strategies

Strategies for the base foundation of budgeted-for IT capability (both technical and human), shared throughout the firm as reliable services, and centrally

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coordinated (e.g., network, help desk, shared data)

Business application needs

Specifying the business need for purchased or internally developed IT applications

IT investment and prioritization

Decisions about how much and where to invest in IT including project approvals and justification techniques

First IT decision making area is IT principle. IT principle is the decisions regarding defining IT roles in the organization. For example, it could create an IT mission statement that could describe entire organization level. Second IT decision making area is IT architecture. IT architecture decision considers how to integrate the data or processes which are closely related to the core business process.

It is like the blue-print about integrated data and processes. Third IT decision area is IT infrastructure. It is the decisions are about organization wide shared service. The service can be used by multiple applications. For example, investing for improved network hardware to the organization is part of decision of IT infrastructure.

Usually, investing on IT infrastructure takes serious IT budget and this decision will affect the competence of IT of the organization for the future. Fourth IT Decision area is Business application need. This decision area covers IT application

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development or purchases for the organization’s business need. For example, purchasing IT solution to solve the business unit’s problem could be Business application need decision area. Last IT decision category is IT investment & prioritization. IT invest decision area is about prioritizing IT projects and deciding how much budget should be invested. (Weill and Ross, 2004)

Table 7. IT governance archetypes (Weill and Ross, 2004) Archetype Description

Business Monarchy

A group of, or individual, business executives (i.e., CxOs). Includes committee comprised of senior business executives (may include CIO) Excludes IT executives acting independently IT Monarchy Individuals or groups of IT executives

Feudal Business unit leaders, key process owners or their delegates

Federal C level executives and at least one other business group (e.g., ExO and BU leaders)-IT Executives may be an additional participant. Equivalent to a country and its states working together.

IT Duopoly IT executives and one other group (e.g., ExO or BU leaders)

Anarchy Each individual user

According to Weill et al. (2004), Each IT Decision area could have different archetypes depending on who makes the decision. There are six archetypes. Table 7 describes these six

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archetypes.

Figure 6. Governance arrangement centrality

The IT governance archetypes are derived from Information Ecology by Davenport and Prusak (1997) (figure 6). Those archetypes included Anarchy type which is highly decentralized archetype and also monarchy archetype which is highly centralized archetype. In Weill and Ross (2004) IT governance framework, IT governance archetype should be analyzed for each IT decision area. This allows an organization’s IT governance form on each IT decision area. (Weill and Ross, 2004)

Table 8 shows IT governance archetype mapping table. Based on patterns of who is making the decision, each archetype will be determined.

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Table 8. IT governance archetype mapping table (Weill and Ross, 2004) C-Level executives Corp. IT and/or BU IT BU leaders or Core process owners Biz monarchy √ IT monarchy √ Feudal √ Federal √ √ √ √ √ IT Duopoly √ √ √ √ Anarchy

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III. Research framework and

Hypotheses

1. Research Framework

Based on Weill et al. (2004) IT governance framework, This study develops a research framework that incorporates organizational contingency variables and organization’s culture characteristics that affects innovation capability. The research framework of this study is presented in Figure 7.

Figure 7. The research framework

The research framework posits that the determinant IT governance variable will influence IT decision area governance arrangement, and IT decision area governance arrangement will influence organization’s cultural factors that affect their innovation capability.

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2. Hypothesis Development

2.1. 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

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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.

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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.

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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.

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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.

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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.

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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.

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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.

2.2. Organization cultural factors for innovation capability

Many previous researches tried to find value of IT in terms of financial value. However, measuring the values that are created by IT could be a complex problem because of the IT impact dilution (Weill and Broadbent, 1998). Non-financial measure for IT governance outcome is needed, since IT governance outcome can be delivered in an intangible form. Generally, intangible assets are harder to measure by financial measurements than tangible assets.

Many companies are trying to keep their competence by leveraging their intangible assets. Culture and innovation capability are the kinds of this intangible asset. (Kaplan and

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Norton, 2004)

Organizations’ innovation can be influenced by IT governance arrangements (Peterson, 2004). However, it is difficult to find research activities that studied IT governance outcome regarding innovation or innovation related culture.

According to Weill et al. (2004), organizations tend to adopt decentralized governance arrangement to pursue their innovation and customer responsiveness. Inversely, firms tend to adopt centralized governance arrangement to pursue their reuse, sharing, and asset utilization which help cost efficiency. There is a tradeoff between centralized or decentralized decision making structure for their innovation or standardization.

Organizations have interest to develop suitable IT governance arrangement for their intended IT governance outcome. If centralized IT governance improved organizations’ cost efficiency, this outcome is relatively easier to measure into financial result than innovation or culture outcome. Inversely, organization’s manager would want to measure IT governance outcome for innovation related culture or innovation capability by taking decentralized IT governance arrangement.

Previous researches showed that innovation related cultural aspects affect organization’s capacity to innovate (Hurley and Hult, 1998). However, causal relationship between IT governance arrangement and innovation related culture is not yet certainly determined in previous researches. There are two

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arguments for this causal relationship perspective.

Weill et al. (2004) conceptually defines the causal relationship. The authors claim that effective IT governance encourages consistent behavior with culture. Deshpande' and Zaltman's (1993) also found no relationship between firm structure centralization and market orientation (one of cultural variable for innovation capability). These notions are implying that IT governance arrangements are not influenced by the culture.

In other perspective, Pelham & Wilson (1995) conducted longitudinal studies for relationship between firm structure and market orientation culture. The study result showed that market orientation culture is influenced by organization structure. Marcoulides and Heck (1993) conducted an empirical study, and it also found that organization culture is influenced by organizational structure. Based on the result, Marcoulides and Heck (1993) claimed that organizational culture variable are influenced by some extent through management manipulation (such as setting method of decision-making process). Jaworski & kohli (1993) suggest that formalization, centralization and departmentalization can inhibit innovative behavior.

Based on previous research results on impact of organization structure on organization culture, this study posits that IT governance arrangement affects organization’s culture for innovation capability.

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influence on performance from cultural characteristics. As the result, learning and development culture, participation decision-making culture, support and collaboration culture and power sharing are showed as predictors of organization’s innovation capacity (Hurley and Hult, 1998).

Therefore, this study adopted four cultural constructs from Hurley and Hult (1998) as organization’s cultural factors for innovation capability, and posits that IT governance arrangements influence organization’s culture factors for innovation capability

H6a. IT principle governance arrangement centralization negatively influences Learning and development culture

H6b. IT architecture governance arrangement centralization negatively influences Learning and development culture

H6c. IT infrastructure governance arrangement centralization negatively influences Learning and development culture

H6d. Business application needs governance arrangement centralization negatively influences Learning and development culture

H6e. IT investments governance arrangement centralization negatively influences Learning and development culture

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negatively influences Support and collaboration culture

H7b. IT architecture governance arrangement centralization negatively influences Support and collaboration culture

H7c. IT infrastructure governance arrangement centralization negatively influences Support and collaboration culture

H7d. Business application needs governance arrangement negatively influences Support and collaboration culture

H7e. IT investments governance arrangement centralization negatively influences Support and collaboration culture

H8a. IT principle governance arrangement centralization positively influences Power no-sharing culture

H8b. IT architecture governance arrangement centralization positively influences Power no-sharing culture

H8c. IT infrastructure governance arrangement centralization positively influences Power no-sharing culture

H8d. Business application needs governance arrangement centralization positively influences Power no-sharing culture

H8e. IT investments governance arrangement centralization positively influences Power no-sharing culture

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H9a. IT principle governance arrangement centralization negatively influences Participative Decision-Making Scale

H9b. IT architecture governance arrangement centralization negatively influences Participative Decision-Making Scale.

H9c. IT infrastructure governance arrangement centralization negatively influences Participative Decision-Making Scale

H9d. Business application needs governance arrangement centralization negatively influences Participative Decision-Making Scale

H9e. IT investments governance arrangement centralization negatively influences Participative Decision-Making Scale

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2.3 Absorptive Capacity

Cohen and Levinthal (1990) defined Absorptive capacity with “Absorptive capacity refers not only to the acquisition or assimilation of information by an organization but also to the organization's ability to exploit it”. The authors also claim that Absorptive capacity “is a critical component of innovative capabilities”. (Cohen and Levinthal, 1990)

Absorptive capacity is innovation related culture value. This study posits that IT governance arrangement centralization negatively influences Absorptive capacity because decentralized governance is suitable for innovation focus (Peterson, 2004).

H10a. IT principle governance arrangement centralization negatively influences Absorptive capacity

H10b. IT architecture governance arrangement centralization negatively influences Absorptive capacity

H10c. IT infrastructure governance arrangement centralization negatively influences Absorptive capacity

H10d. Business application needs governance arrangement centralization negatively influences Absorptive capacity

H10e. IT investments governance arrangement centralization negatively influences Absorptive capacity

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2.4. Company profile variables

Other company contingencies that might relate to the IT governance are also measured. They are firm size (by Employee count and yearly revenue), founded year, size of the board, board pressure, union pressure and industry type.

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IV. Research Method and Data

1. Research design

Based on this study’s framework, this study provides a research framework for IT governance determinant and cultural factors under non-uniform IT governance.

This study requires capturing organization-wide contingency variable, IT governance arrangements for each IT decision area and organization cultural factors for innovation capability. For data collection of organization-wide data, this study adopted interview and survey method simultaneously.

The participants are commercial organizations in South, Korea. Due to this study participants are Korean, this survey is translated into Korean. The interview is also conducted in Korean.

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2. Construct Operationalization

This study’s survey instrument was developed by identifying the appropriate measurement based on comprehensive literature review. Each construct is operationalized on a five-point Likert scale with some exception.

According to Miles & Snow (1978), Business strategy can be categorized into four typologies (reactor, defender, prospector, analyzer with/or without innovation).

The typology depends on firm’s exploitation and exploration (Burton et al., 1998). “refinement, efficiency, selection, and implication” is the area of exploitation, and “search, variation, risk taking, innovation” is the area of exploration (March 1991).

According to Peterson (2004), IT governance arrangement tends to go centralized if the firm’s business strategy is cost-focused. To measure business strategy, this study adopted “exploitation” as a measuring instrument for cost-focused business strategy. This instrument is developed by Burton et al. (1998). Table 9 shows the measuring instrument items for “Exploitation”.

Table 9. Exploitation (Burton et al, 1998)

E1 What is the organization’s degree of process innovation

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E3 What is its quality in terms of its standardization and reliability

E4 What is the number of products that the organization have compared to its competitors

E5 What extent are the barriers to entry in its industry

“Business governance decentralization” measures organization’s locus of business governance. To measure it, this study adopted measuring instrument from Burton et al. (1998).

Table 10. Business governance decentralization (Burton et al., 1998)

BIZG1 To what extent are subunit decisions and actions directed by corporate headquarters or another sole authority (reverse coded)

BIZG2 To what degree does the top management leave control of operational decisions to manager or other in charge of those operations

BIZG3 How much discretion do subunit managers have in establishing their budget

BIZG4 How much discretion do subunit managers have in determining how his or her unit will be evaluated BIZG5 How much discretion do subunit managers have over

how work exceptions are to be handled

Environment instability should measure organizations’ environment instability caused by the competition and other environment contingency variable (for example, government

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policy and oil prices).

To measure this, this study adopted measuring instrument from Porter (1979) that measures competition environment (see Table 11). The other instrument is adopted from Burton et al. (1998) for measures other contingency environment factors (See Table 12).

Table 11. Environment instability [Competition] (Porter, 1979) COMP1 How many other companies exist in same industry COMP2 How fast your industry growth speed

COMP3 To what extents are fixed cost, inventory cost high COMP4 To what extents your product differentiation is low

and easy to find another buyer

COMP5 To what extent are able to increase produce capacity COMP6 To what extents other competitors have different

strategy

COMP7 To what extents are possible to get better result when strategy is better

COMP8 To what extents are Exit barrier

Table 12. Environment instability [Contingency] (Burton et. al, 1998)

ENV1 What is overall interdependency among factors which your organization’s gets impact

ENV2 What is overall Unpredictability among factors which your organization’s gets impact

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To measure “Information Intensity”, this study adopted instruments from Burton et al. (1998). This instrument measures uniqueness of the information, data availability for decision makers, and usefulness of the data.

Table 13. information intensity (Burton et. al, 1998)

IA1 Are most of the organization’s work tasks unique (mark at low), or the task repeated in large volume (mark at high)?

IA2 Does execution of work tasks relay on having large amount of data available to the worker or decision maker responsible for the task

IA3 To what extent are there common types of data that can be captured and made useful for many transactions and tasks

“Business competency” covers organizational, business and management related competency (Cash et al., 2004). To measure this, this study adopted questionnaires from several different studies.

Table 14. Business competency

BIZCOM1 How well do the employees know about the company’s organizational structure? (Lee et al., 1995)

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organizational strategy and culture? (Stokes Jr, 1991) BIZCOM3 How well do the employees know about the business

environment (Lee et al., 1995)

BIZCOM4 How well do the employees know about the ethics (business ethics) (Leitheiser, 1992)

BIZCOM5 How well do the employees know about the environmental constraints (Zmud, 1983)

BIZCOM6 How well do the employees know about the project management (Todd et al., 1995)

“IT Principle”, “IT Architecture”, “IT Infrastructure”, “Business application need”, “IT Investment” are all adopted from Weill et al (2004). Only IT decision area did not use 5 point Likert scale. Three check box areas provided for each IT Decision area.

This checkbox are designed to check current decision maker (“C-Level executives”, “Corp. IT and/or BU IT”, “BU leaders or Core process owners”) of the IT decisions. The Checkboxes allowed multiple checking. The way of coding for this checkboxes is showed on Table 8.

Table 15. IT governance decision area checkboxes C-Level executives Corp. IT and/or BU

IT

BU leaders or Core process owners

“Learning and development” adopted from Hurley and Hult (1998). It represents organization’s learning-oriented culture. It also defined as “the degree to which learning and development are encouraged in the organization.” (Hurley and Hult, 1998).

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Many researchers agreed that the organizational emphasis on this culture, it induces new ideas (Thompson, 1965, Marquis, 1969, Katz and Tushman, 1981, Damanpour, 1991, Hurley, 1995), increase capacity to absorb the new ideas (Dewar and Dutton, 1986, Damanpour, 1991), Promote creativity, opportunity monitoring and problem solving (McGinnis and Ackelsberg, 1983, King and Anderson, 1990, Senge, 2004).

Table 16. Learning and development (Hurley and Hult, 1998) EDUC1 Does your organization provides opportunities for

individual development other than formal training (e.g. job rotation)

EDUC2 Does your organization encourages manager to attend formal developmental activities such as traing, professional seminars, symposia, etc

EDUC3 There are people at your organization who provide guidance and counsel regarding one’s career

EDUC4 Career management is a shared responsibility of both employee and the manager

“Power sharing” is adopted from Hurley and Hult (1998). Power sharing is defined as the “degree of sharing of information, resources, and influence across levels and areas of the organization” (Hurley and Hult, 1998)

When power sharing is promoted, it also promotes information resource sharing (Thompson, 1965, Kanter, 1983, Van de Ven,

수치

Figure 1.    Corporate / IT governance domain (Weill and Ross, 2004)
Figure 2.    IT governance framework of ITGI (2003)
Figure 3.    IT governance and IT management (Van Grembergen et al.,  2004)
Figure 4. Relations of infrastructure and business process    (Van  Grembergen et al., 2004)
+7

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