SCHOOL OF BUSINESS AND SOCIAL SCIENCES How to successfully internationalize the IT Function? – Towards a Competence Framework to face the Challenges of the globalizing World Master-Thesis Handed in to: Per Svejvig, PhD Department of Business Administration IS Research Group Date: By: 31.10.2013 Patrick Mühlhausen Krausenstraße 15 30171 Hannover Germany Phone: +49 (0) 176/240 070 67 Email: [email protected] Exam number: 414436 Table of Content I Table of Content Page Figures ..................................................................................................................... III Abbreviations .......................................................................................................... IV Abstract .....................................................................................................................V 1 Introduction ............................................................................................................. 1 2 Research Methodology ............................................................................................ 3 2.1 Research Paradigm ......................................................................................... 3 3 2.2 Research Approach ......................................................................................... 5 2.3 Data Collection and Analysis ......................................................................... 6 The Concept of Internationalization ..................................................................... 9 3.1 What is Internationalization? .......................................................................... 9 3.2 3.3 3.4 4 The Internationalization Process .................................................................. 10 Rationale for Internationalization ................................................................. 12 Risks of Internationalization......................................................................... 13 Assets and Competences needed to internationalize the IT Function .............. 15 4.1 Necessary Prerequisites ................................................................................ 15 4.1.1 Defining a Vision ........................................................................... 15 4.1.2 Establishing a Strategy ................................................................... 18 4.2 4.3 4.4 Global IT Governance .................................................................................. 25 Global IT Infrastructure ................................................................................ 33 Global IT Project and Portfolio Management .............................................. 39 4.5 Global Organization Enablement ................................................................. 45 4.5.1 Change Management ...................................................................... 45 4.5.2 Workforce Enablement and Skill Development ............................. 48 5 A Competence Framework for IT Internationalization .................................... 50 5.1 Assembling the Competence Framework ..................................................... 50 5.2 Important Considerations for Applying the Framework .............................. 51 6 Limitations and Future Research ........................................................................ 53 7 Conclusion .............................................................................................................. 54 Table of Content 8 II Appendices ............................................................................................................. 55 8.1 Applied Search Terms .................................................................................. 55 8.2 Hofstede’s dimensions of culture on Luftman’s variables of BIA maturity 57 8.3 Key Question for IT decisions ...................................................................... 58 8.4 Key Question for Implementing the IT Architecture ................................... 59 References...................................................................................................................... VI Figures III Figures Page Figure 1 - Number of Multinational Enterprises 2004 - 2008 .......................................... 1 Figure 2 - Hermeneutic Interpretation Process ................................................................. 6 Figure 3 - The Internationalization Process (Rugman et al., 2006:41) .......................... 11 Figure 4 - Pillars of a successful strategy ....................................................................... 19 Figure 5 - Reduced Alignment Model (Henderson & Venkatraman, 1993) .................. 21 Figure 6 - Driver Alignment (Henderson & Venkatraman, 1993) ................................. 22 Figure 7 - IT Governance Matrix (Weill and Ross, 2004) ............................................. 27 Figure 8 - IT Governance Matrix at UPS ....................................................................... 28 Figure 9 - Best Practice IT Governance Design (Rau, 2004:36) .................................... 30 Figure 10 - International IT Governance Design............................................................ 32 Figure 11 - Infrastructure Competencies & Business Initiatives (Weill et al., 2002:63) 35 Figure 12 - IT Architecture Approaches (Kettinger et al., 2010) ................................... 37 Figure 13 - Multi-weighted scoring model (Larson and Gray, 2011:41) ....................... 41 Figure 14 - Portfolio Selection Framework (Archer and Ghasemzadeh, 1999:211) ...... 43 Figure 15 - Site Selection Matrix (Larson and Gray, 2011) ........................................... 45 Figure 16 - A Competence Framework for IT Internationalization ............................... 51 Abbreviations IV Abbreviations B2B .................................................................................................... Business-to-business B2C ................................................................................................... Business-to-customer BHAG ..................................................................................... Big, Hairy, Audacious Goal CIO ............................................................................................ Chief Information Officer COBIT ................................ Control Objectives for Information and Related Technology DSR ............................................................................................ Design Science Research EU ............................................................................................................. European Union FDI ............................................................................................ Foreign Direct Investment IS ........................................................................................................ Information Systems IT ................................................................................................. Information Technology ITIL.............................................................................................. IT Infrastructure Library MNE ............................................................................................ Multinational Enterprise PESTEL ............. Political, Economical, Social, Technological, Environmental and Legal PPM .................................................................................... Project Portfolio Management SME .....................................................................................Small and Medium Enterprise SWOT ................................................... Strength, Weaknesses, Opportunities and Threats UPS ................................................................................................... United Parcel Service Abstract V Abstract Within the five years between 2004 and 2008 the number of multinational enterprises grew by 12.000 to 82.000 organizations in 2008, a development which stands symbolic of our increasingly globalizing world. Today’s business and cultural world is characterized by international markets and global interconnections; an environment that offers just as many opportunities of growth as it challenges organizations that aim to strive in it. Against this background the author poses and answers the question how the IT function, an important organizational enabler of internationalization, can support the corporate internationalization process and which assets and competence are necessary for global success. All findings are summarized in a competence specific “How to…?” and finally combined in a holistic framework which are both intended as general guidelines for organizations that aim to go international. To achieve this and to answer the research question, an in-depth literature analysis of more than 80 sources has been conducted. The results helped to identify the typical internationalization process and to understand the rational behind internationalization as well as the related risks. The literature analysis furthermore led to the identification of competences and practices that best support the internationalization of the IT function. It is found that first a compelling vision needs to be established, which sparks motivation among employees. The vision then needs to be further detailed in a sound strategy, which has to be aligned between business and IT. Next, to ensure compliance with the vision and strategy, global IT governance should be implemented, which introduces the organization to decision hierarchies as well as defined business process. In this context, the implementation of a global IT infrastructure is found to be just as necessary. Among others, it helps clustering and providing common IT services to the global organization. Second to last, the internationalization needs to be supported by a sophisticated project and portfolio management, as it helps prioritizing and implementing projects under consideration of resource availability and business value contribution. Lastly, it is recommended that all of the above is complemented by an enablement of the organization, which includes appropriate change management measures and an enablement of the workforce. As a final point, all findings are prioritized, interconnected and converted into a competence framework, which is intended serve as a supporting guideline for the internationalization of the IT function. The thesis is concluded with a reflection on limitations and resulting potential areas for future research. Introduction 1 1 Introduction Today’s business world is characterized by international markets and global interconnections; goods are often produced in one country and sold in another; brands such as Apple have established global icons like the iPhone, which are equally desired in China and in Europe. All causing global interconnection and leading to the fact that nowadays an event on one end of the world will most likely have large influences somewhere else. A prime example for a global chain reaction can be seen in the burst of the housing bubble in the United States in late 2005 – early 2006, which was only the tip of the iceberg and evolved into a global financial crisis, leading to the downfall of multinational banks such as Lehmann Brothers, the Icelandic financial crisis in 2008 and ultimately to the European depth crisis, which is still threatening many European countries today. Despite the potential threats of global interconnections, the trend of corporate internationalization is unbroken. According to estimates by the United Nations Conference on Trade and Development, the number of multinational enterprises1 (MNEs) did rise by 12.000 MNEs in just four years, starting at approximately 70.000 in 2004 and reaching 82.000 in 2008: 82.000 77.000 78.000 79.000 70.000 2004 2005 2006 2007 2008 Figure 1 - Number of Multinational Enterprises 2004 - 2008 2 However, becoming internationally successful does not come without difficulties. Organization will most likely face several challenges along the way, which include the need to develop new business strategies and the selection of appropriate markets to enter. Nevertheless, there are also various opportunities and benefits the organization can participate from. They range from new customers and suppliers to cost reduction and many other competitive advantages. In order to overcome the challenges and to achieve the aspired benefits the organization often has to change the way the business is carried out, which has large effect on all parts of the organization. Thereby, the IT function often is one of the most affected parts of the organization. Not only do they have to revise longstanding business procedures and processes, but also serve as an enabler of interna1 Only parent organizations were studied, the number of multinational subsidiaries might be higher. 2 Visualization based on the data of the UNCTAD World Investment Reports 2005 until 2009. Introduction 2 tionalization. The IT department typically provides the necessary tools and preconditions for the corporation to be globally successful. This includes global IT governance, the establishment of global IT infrastructure, and many other important assets. This master thesis therefore poses and answers the question how to establish a successful global IT function within an international corporation. It clarifies which challenges and risks of internationalization need to be considered and it shows which IT assets and competences need to be developed for global success. The approach to achieve this is as follows: the author first gives insight into the applied research methodology including a description of the chosen research paradigm, the selected research approach as well as a clarification of how the research data has been collected and analyzed. To establish the necessary theoretical foundation and to create a common understanding of internationalization, the author then presents the concept of corporate internationalization by answering the question “What is internationalization?” and giving insights into the typically internationalization process as seen by academia. Furthermore, the rationale and risks of internationalization are presented. This is followed by a comprehensive description of the assets and competences needed to successfully internationalize the IT function. The focus here is on finding ways to face the challenges for the business in general and the IT function in particular when going international. The subsequent chapter reflects on the learning of the previous chapters and combines the findings in a “Competence Framework for IT Internationalization”. The goal is to establish guidelines that can be followed by corporations to establish a successful IT function and thereby enable corporate internationalization. Before using the last chapter for a final reflection on the thesis results and drawing a conclusion, the limitations of this work are presented and possible areas for future research and framework improvements are pointed out. Research Methodology 2 3 Research Methodology Before establishing the theoretical foundation for the aspired framework it is essential to give insights into the applied research method. The following chapter therefore introduces the used research methodology, including a discussion of the author’s research paradigm, the chosen research approach and a description of how the research data has been collected, processed, and analyzed. 2.1 Research Paradigm The choice of the research methodology is largely influenced by the author’s research paradigm as it represents his world view. Therefore this section discusses the most common research paradigms in the necessary depth and gives reason why the interpretative paradigm is most fitting to the author’s socio-dynamic world view. This is moreover paramount since the research paradigm serves as the basis for the research approach, the data collection as well as the data analysis. To identify a suitable research paradigm, it is important to understand the general concept and definition of the term paradigm. The oxford dictionary defines a scientific paradigm as “a world view underlying the theories and methodology of a particular scientific subject” (Oxford Dictionary, 2013a). In the same vein, Kuhn defines a paradigm as “the entire constellation of beliefs, values, techniques, and so on, shared by the members of a given community” (1970:175). Hence, a paradigm defines the way one sees the world. Thereby it is important to note that there is no wrong or right paradigm and that every research topic can be seen from different paradigmatic perspectives. According to Kanellis and Papadopoulos (2009), there are three different research paradigms commonly used in the field of Information Systems (IS): the positivistic, the interpretative, and the critical paradigm; each having its own specific view on the world and implying different research methods: The positivistic approach is characterized by the ontological belief that the social world, just like the physical world, is made up from tangible and relatively stable structures (Burrell and Morgan, 1979) and that the world exists independently of people’s minds and sense experiences (Kanellis & Papadopoulos, 2009). Positivism furthermore follows the epistemological understanding that all knowledge can be expressed in statements and laws (Kanellis & Papadopoulos, 2009), which can be identified, studied and measured through methods derived from natural sciences (Burrell and Morgan, 1979). The interpretative approach follows a different ontology. It perceives the social world as a network of assumptions and inter-subjectively shared meaning (Burrell and Morgan, 1979) that can hardly be measured by applying methods of natural science. It can only be understood by deriving knowledge from the observation and the interpretation of Research Methodology 4 social interaction. In that vein, Burrell and Morgan describe the interpretative epistemology as follows: “[Researchers] are much more oriented towards obtaining an understanding of the subjectively created world ‘as it is’ in terms of an ongoing process” (1979:31). According to Kanellis & Papadopoulos (2009), there are a number of interpretative techniques that can be used to attain an understanding of the social world. They suggest using case studies, textual analysis, action research as possible techniques. In contrast to positivism one can conclude that the goal of interpretative research is not to identify universal laws but to seek an understanding of the observed social interaction without claiming that the made findings are universally applicable. The primary objective of the critical research paradigm is the improvement of the human condition. The goal is to be radically different from the status quo approaches to science and to take the human construction of the social world into account (Ngewenyama, 1991). According to the ontological understanding of critical research there is an empirical reality to the world that is independent of peoples’ perception. However, people construct their reality based on personal experience, cultural beliefs and social interaction. Social systems are understood as naturally unstable and multilayered, meaning that social actions often root in deeper levels of the social construct (Neuman, 2006). The critical paradigm follows the epistemological understanding that knowledge can only be built and understood in the social and historical context. Similar to interpretative research, critical research aims to reach an understanding of the social world without trying to find universal laws. However, it distinguishes itself from the interpretative paradigm by trying to identify the deeper roots of social actions and to establish new ways of thinking away from the status quo (Neuman, 2006). To answer the question which paradigm represents the world view of the author best, one has to understand the nature of IS and the business world. The author follows Kanellis & Papadopoulos’ (2009) belief that in their essence both are socially constructed systems which are largely based on social interaction between human beings. This implies that the success in business and information systems can only be controlled and predicted to a certain degree, everything else is subject to the unpredictability of human behavior. Hence, it seems inappropriate to choose the positivist approach as the paradigmatic foundation of this thesis, because even though there seem to be numerous rules and norms in social behavior, there will always be exceptions from the rule, which make social interactions unpredictable. This leaves two remaining paradigmatic options: the critical and the interpretative approach. However, as presented earlier, the intention behind the critical paradigm is to question the status quo and develop drastic new ways of thinking by digging to the root of social action. This seems unfitting to the author’s worldview, because rather than breaking with established ways of thinking, the exploitation of established knowledge is intended. Thus, the interpretative approach remains Research Methodology 5 as the paradigm, which represents the author’s world view best. It is more open towards the characteristics of social dynamics than the positivistic approach, yet more moderate than the critical approach. One could of course argue that in order to conduct proper interpretative research this thesis is missing in field research and that the data collection should not be solely literature based. These are legitimate arguments; however, the author argues that this thesis still is valid interpretative research: It proposes a framework to guide the internationalization efforts of corporations in general and the IT function in particular in an environment that is strongly influenced by social dynamics, which most likely causes different outcomes each time the framework is applied. It might also be that the framework cannot be applied to a certain organization simply because it does not fit the specific circumstances. These characteristic cannot be displayed in the positivistic paradigm, as it would assume general applicability of the framework and expect the same result every time the framework is applied. Furthermore, the thesis relies on research techniques derived from interpretative research, which will be presented in further detail in the following section. 2.2 Research Approach Having identified the interpretative approach as the fitting research paradigm, it is necessary to derive the appropriate conclusions for the research approach. Kanellis & Papadopoulos (2009) define three interpretative techniques that are typically used to gain an understanding of the social world: Case studies, textual analysis and action research. Not all of these techniques are applied in this thesis; however, the case study approach and the textual analysis are valuable as research techniques for this work. Whereas the textual analysis serves as the general research foundation, a light version of case study approach is used to provide tangible examples, which are in the following addressed as “A Glance at Practice”. A case study is characterized by the observation of phenomena in its natural surroundings with no interaction or experimental manipulations of the subject(s). During the observation numerous data is collected and analyzed applying quantitative or qualitative methods, or a mixture of both (Kanellis & Papadopoulos, 2009). The main criticism often made in regards to case studies is that the findings tend to be difficult to generalize and apply in other scenarios. This of course is not an issue when following the interpretative approach, as it does not attempt to achieve general applicability. The goal of literature analysis is to derive knowledge from literature by understanding and interpreting the meaning of texts by applying a number of distinct steps; a concept often referred to as hermeneutics (Kanellis & Papadopoulos, 2009). In the hermeneutic interpretation process the researcher first has a certain pre-understanding of the topic or Research Methodology 6 problem at hand. This pre-understanding causes him or her to find a solution by analyzing texts that he or she believes to hold the solution to the problem. The researcher is then asked to interpret the findings, which leads him or her to a new understanding and subsequently to a new interpretation of the earlier problem. It then serves as the new foundation for an improved pre-understanding (Hirschheim et al., 1995, cited in Kanellis & Papadopoulos, 2009). The described technique can be visualized in an iterative cycle: Figure 2 - Hermeneutic Interpretation Process One could of course pose the question why design science research (DSR) is not considered in a thesis that aims to design a framework, which shall later be applied within real world organizations. The answer is simple: according to Hevner et al. (2004), DSR has its roots in engineering and natural sciences and is basically a problem solving paradigm. The main goal is finding an answer to the question “What works?”. For this it approaches identified issues by repeatedly proposing and testing solutions, which are then gradually improved with each iteration, incorporating theoretical knowledge and environmental learning. Here lies the fundamental problem: this thesis uses a largely literature based approach and it lacks the environmental learning, which is the reason why the interpretative approach has been chosen over DSR. 2.3 Data Collection and Analysis While the previous two sections have been rather philosophical and dealt mostly with the scientific world view of the author, this chapter gives a more technical description of how the data has been collected and analyzed. As is evident from many statements above, this thesis is solely based on literature research. It is therefore of utmost importance that the literature search and analysis is carried out with the greatest possible caution and as flawless as possible. For this reason, the literature search as well as the data collection and analysis have been carried out in four distinct steps: Research Methodology 7 1. Unstructured literature search: First, an unstructured literature and internet research has been conducted to identify general concepts, frameworks and theories to get an initial understanding of the sought thesis topic and research. This step allowed deriving a first set of search terms necessary for the following indepth literature search and scientific research. 2. Literature search: In the second step, the identified search terms3 were applied in a comprehensive key word search in all major literature data bases accessed through the Aarhus University – Business and Social Sciences literature search.4 Due to a high susceptibility to keyword variations this step was complemented with the use of Google Scholar,5 because this search engine proved to be less susceptible to search term variations and therefore allowed increasing the number of useable search results. Subsequently, the search results were subject to a first rough selection based on the literature title and all information provided by the data bases. In the course of the first literature selection and to reduce complications that were experienced during search term identification process, the references of high quality articles and books were also analyzed for applicable and topic related literature. 3. Abstract analysis: The results that seemed suitable for further examination were then transferred into the third step of the data analysis. In this step, the identified literature and especially the abstracts were skimmed for matches regarding the thesis topic and problem statement. In case a thematic match was identified, the literature was transferred into the in-depth analysis, the fourth and final step of the data analysis. 4. In-depth analysis: The final analysis step largely followed the hermeneutical interpretation process as described in the previous section. Having gained a preunderstanding of the relevant thesis topics, the selected literature was carefully read and notes summarizing the texts’ key points were taken. Once the different viewpoints were understood, the interpretation process started. The goal was to identify similarities and differences in the perspectives of the various scholars, which culminated in a new understanding of the literature and ultimately the problem at hand. The results of the in-depth analysis were then combined and formulated to what is now this thesis. During this process the literature selection continued and articles that did not meet the requirements of this work were sorted out. 3 An overview of the applied keywords can be found in Appendix 8.1. 4 http://fuglesang.library.au.dk/en/. 5 http://scholar.google.com. Research Methodology 8 The following table summarizes the filtering and selection process achieved with the application of the above introduced steps. The total number of articles that remained after completion of the aforementioned filtering and selection steps is represented in the last table row: Topic First Literature Search Abstract Analysis In-depth Analysis Used in Thesis Introduction 12 9 9 5 Research Methodology 15 12 9 8 Internationalization 19 15 18 12 IT Vision 9 5 4 2 IT Strategy 22 17 13 5 IT Governance 21 16 10 5 IT Infrastructure 16 11 7 4 IT Project & Portfolio Mgmt. 10 7 5 2 IT Organizational Enablement 13 10 6 3 137 Articles 106 Articles 81 Articles 46 Articles Total Table 1 – Progress: Filtering and Selection Process The Concept of Internationalization 3 9 The Concept of Internationalization When working towards a framework, which faces the challenges and opportunities of internationalization, laying the theoretical foundation and explaining the fundamental concepts is just as important as introducing the applied research methodology. The following chapter therefore gives comprehensive insight into the concept of internationalization, including an answer to the question “What is Internationalization?” and an introduction to the typical internationalization process. It furthermore presents the rationale for most organizations to expand internationally and identifies risks that typically come along with internationalization. 3.1 What is Internationalization? In order to provide an answer to the question “What is Internationalization?” it seems reasonable to first seek a clear definition of the term internationalization. Even though Bell and Young (1998 cited in Susman, 2007) argue that there is no unique agreed upon definition of the term, Welch and Luostarinen (1988 cited in Susman, 2007) define internationalization as the increasing involvement of organizations on an international level. This understanding is supported by the Oxford Dictionary (2013b), which defines the verb “to internationalize” as making something international. That raises the question, if internationalization is the process of becoming increasingly involved internationally, what is the actual process goal? The answer is conducting business with an international reach, in other words: international business. Eden et al. define international business as “Business that crosses national borders, that is, it includes the comparative study of business as an organizational form in different countries, cross-border activities of businesses, and interactions of business with international environment” (2011:58). International business thereby rests upon two key concepts: international trade and international investment. International trade refers to the exchange of goods (tangible) and services (intangible) across national borders, whereas international investment implies that the organization itself crosses the boarders to secure the ownership of assets located abroad (Cavusgil et al., 2012). According to the scholars, assets include capital, technology, management as well as manufacturing infrastructure. Foreign direct investment (FDI) is thereby often referred to as the ultimate international investment and thus, the highest degree of internationalization (Rugman et al. 2006). According to Cavusgil et al. (2012) there are three main participants in the field of internationalization and international business: The Concept of Internationalization 10 1. Multinational Enterprises (MNE): Cavusgil et al. characterize a MNE as “a large company with substantial resources that performs various business activities through a network of subsidiaries and affiliates located in multiple countries” (2012:12). Following this description, one could argue that MNEs are per definition internationalized. However, since organizations always seek opportunities to expand their business globally e.g. into emerging markets, they have to be seen as a key player for internationalization. 2. Small and Medium Size Enterprises (SME): Contrast MNEs because they are typically many times smaller, yet they also participate in international business. According to the European Commission (2013), a SME is defined as a company that has less than 250 employees and a turnover no higher than 50 million Euros or a balance sheet total less than 43 million Euros. SMEs establish and defend their international business share by reacting faster and more flexible to economical changes than most MNEs ever could. This is why in some countries SMEs contribute about 50 percent of the total export value (Cavusgil et al., 2012). 3. Born Globals: Are usually young and aspiring entrepreneurial organizations that are founded with the goal to distribute their products globally from day one. This characterization is supported by Gabrielsson and Manek, who state that “born globals from their inception pursue a vision of becoming global and often globalize without any preceding long term domestic or internationalization period” (2004:557). 3.2 The Internationalization Process Despite the organizational differences a graduate internationalization process is something that unites all organization types. It is characterized by several steps, which are typically followed by the organization. This section therefore gives insight into two different process models presented in the literature. First, the internationalization process as seen by Rugman et al. is presented, followed by the “Uppsala Internationalisation Model” developed by Johanson and Vahlne in 1977 and revised in 2009. Rugman et al. (2006) note that their model is a broad generalization of the internationalization process; nevertheless it is useful to give a first insight into a typical progression. According to the scholars, firms commonly perceive the international markets as risky due to lack of knowledge about the foreign customs, which is why the first step of internationalization is typically the arrangement of joint ventures or license agreements. In this early stage the company does not enter the international markets directly, but receives royalties paid by the licensees when its products are sold. Once the firm gets more familiar with the international environment it often engages into the direct export of its products, which obviously requires increased foreign involvement. However, to The Concept of Internationalization 11 still keep risks at a minimum, firms often decide to take advantage of the services of an agent or local distributer to minimize the local involvement. Nevertheless, some organizations decide to establish their own distribution network by sending sales representatives into the foreign markets, which represents the next step of international involvement. Once the organization has further familiarized itself with the foreign market, it might decide to engage into the local packing and assembly of its goods. The achievable benefits then come at the cost that the organization now is required to deal with the local wages and regulations. The ultimate step of internationalization according to Rugman et al. is foreign direct investment, where the organization decides to establish its entire product line in the foreign market at sells it output there. The following figure depicts the presented internationalization process steps in an ascending manner: Figure 3 - The Internationalization Process (Rugman et al., 2006:41) The internationalization approach as seen by Rugman et al. matches the “Uppsala Internationalisation Model” developed by Johanson and Vahlne in 1977 to a large extend. Over the years, the model has been well acknowledged and hotly debated in academia. According to the two researchers, the internationalization process follows a number of incremental steps, which are very similar to those presented by Rugman et al.: The organization slowly approaches the international markets and steadily increases its foreign involvement. The internationalization process thereby typically starts with ad hoc exporting of goods because of favorable circumstances and the process ends with the establishment of foreign manufacturing subsidiaries. However, unlike Rugman et al., Johanson and Vahlne give comprehensive insight into the learning process that accompanies the internationalization process. The psychic distance, which is defined as “the sum of factors preventing the flow of information from and to the market” (1977:24) and largely existent in the early stages of the internationalization, is gradually reduced by gaining market knowledge. This leads to increased commitment decisions as well as growing market activities and ultimately increased market commitment. The Concept of Internationalization 12 As mentioned earlier, the “Uppsala Internationalisation Model” has been subject to intense discussion in academia, which eventually sparked Johanson and Vahlne to revise their over twenty years old model in 2009. The updated version now considers and incorporates important research findings of the past decades and puts bigger emphasis on the increasing social aspects (e.g. relationship building or the establishment of trust) of the business network, which are typically established in the process of internationalization. In conclusion one can say that the process of internationalization is characterized by a number of incremental steps, which are not necessarily followed by every organization and it shows that most organizations are not born global, but rather work their way slowly into international markets. This movement is always accompanied by learning which enables progressing internationalization in the first place. 3.3 Rationale for Internationalization When discussing internationalization, it is important to understand the reasons and the rationale why organizations want to expand globally. To illuminate this topic, the following table gives a comprehensive overview of the most common and important reasons of corporate internationalization: Rationale Description Entering new markets Entering new markets allows the organization to increase sales and profits. Especially the rapidly growing markets in Asia or South America allow the organization to realize high growth rates due to still unsatisfied needs. It furthermore allows organizations to spread their margins, as the fixed costs are distributed across a higher number of sold items. Also, the local competition in most emerging markets is considerably lower than in most western countries, which allows firms to play their advantages in technology and know-how and thereby secure market shares. Lastly, selling products worldwide allows organizations to expand the product life cycle considerably. Products which are perceived as outdated in the western world can often still be sold in emerging markets (Cavusgil et al., 2012; Rugman et al., 2006). Achieving cost advantage Considerably lower labor costs in most emerging countries allow western organizations to produce their products noticeably cheaper, which allows lower retail prices as well as higher profit margins per item. Realizing economies of scale when selling products to a larger customer base is yet another implied cost advantage (Cavusgil et al., 2012; Rugman et al., 2006). Market risk Spreading the business across multiple markets allows the organization to compensate local demand fluctuations and hedge against local risks (Rugman et al., 2006). diversification The Concept of Internationalization 13 Protect domestic and foreign markets Organizations often aim to protect their domestic markets by facing potential foreign competitors abroad and thereby hinder their global expansion and forcing them to focus their energies on the competition in their home markets. The protection of foreign markets follows a similar approach: Instead of allowing foreign competition to strive and over time dominate their home markets, already established organizations enter the foreign markets to secure potential future market shares (Cavusgil et al., 2012; Rugman et al., 2006). Proximity to strategic suppliers and customers Reducing the physical distance to key suppliers and customers helps reducing the costs for the transportation of goods. However, because internationalization not only includes tangible items but also intangible services, another benefit of physical proximity is the reduction of time zone differences. Also, reduced distance between strategic suppliers and customers and the organization allows representatives of both parties to meet physically more easily and find quick solutions to potential problems (Cavusgil et al., 2012; Rugman et al., 2006). Protection against tariffs and economic blocs To avoid tariffs, which need to be paid when a product is produced outside of an economic bloc and then imported, organizations tend to shift the production of goods into countries within strategically important economic blocs. This has the added advantage that the transportation of the produced goods within the economic block is also free of tariffs. (Rugman et al., 2006) Table 2 - Rationale for Internationalization 3.4 Risks of Internationalization Having identified the rationale and the potential benefits of internationalization it is equally important to point out the potential risks that come along with internationalization, because only when the risks are known it is possible to face them in the appropriate manner. Against this background, Cavusgil et al., (2012) have identified four potential risks of internationalization that shall now be examined: Risk Description Cross Cultural Risk Refers to the dangers that arise from disparities in lifestyle, mindsets, customs, as well as religions and because cultural values tend to be particularly long lasting and hard to change, it is crucial that organization consider the local cultural differences when internationalizing the business. As found by KPMG (2008), language is yet another very important cultural aspect and risk factor, which requires top management’s attention when going global. Country Risk Arises from “the possibility of foreign government intervention in firms’ business activities […], governments may restrict access to markets […] and limit the amount of income that firms can bring home from foreign operations.” (Cavusgil et al., 2012:11). Country risk furthermore in- The Concept of Internationalization 14 cludes country-specific laws and regulations that might limit the organization’s internationalization progress and success. Again similar findings were made by KPMG who identify geopolitical risk as well as the understanding and compliance of foreign laws and regulations as high priority internationalization issues (2008). Currency Risk Refers to fluctuations in exchange rates, which might have direct influence on the revenue. Yet again, this finding is supported by KPMG, stating that the management of the financial risk is a top priority of internationalization (2008). Commercial Risk Refers to potential shortcomings in regards to strategic assets such as a business strategy or a market plan and the potential commercial risk, which might arise from this. According to Cavusgil et al. (2012), failure in that regard weights twice as hard in an international environment, because they are way harder to fix on the international scale. Table 3 - Risks of Internationalization Assets and Competences needed to internationalize the IT Function 4 15 Assets and Competences needed to internationalize the IT Function To benefit from the opportunities and to avoid the risks that come along with internationalization, the corporation typically has to change the way the business is carried out. As pointed out in the introduction, the IT function thereby often serves as an important enabler of the corporate internationalization as it provides the necessary prerequisites and tools for a successful global expansion. The following chapter therefore focuses on the assets and competences needed to successfully enable the IT function for internationalization. Each chapter thereby follows the same structure: First, the results of the literature analysis are being discussed and summarized. Second, the findings are applied to the internationalization scenario at hand in textboxes entitled “How to…?”. Also, where meaningful, “A Glance at Practice” is added to illustrate the findings made with examples from practice. 4.1 Necessary Prerequisites The establishment of competences needed to successfully internationalize the IT function is based on a number of necessary prerequisites. Assets which have to be established by any organization that plans to engage in the process of internationalization, as they serve as the foundation for any further competence development. This foundation includes the establishment of an internationalization vision, which defines the long term goals of the IT function as well as the formulation of an internationalization strategy, comprising ways how the vision shall be accomplished. Hence, the following section focuses on these two assets by defining the terms and presenting best practice approaches for developing them. 4.1.1 Defining a Vision Whenever starting a new endeavor it is important to clarify the desired objectives as well as to provide clear guidelines and a compelling ideology, which can be followed in the pursuit of these objectives. All of this is typically comprised in the organization’s vision. One well acknowledged academic approach for establishing a vision is offered by Collins and Porras in their 1996 Harvard Business Review article “Building Your Company’s Vision”. According to the scholars, a sophisticated vision consists of two main components; the core ideology and the envisioned future: The core ideology can be seen as the enduring identity of an organization that goes beyond product life cycles, technological changes or management fads. It thereby provides “the glue that holds an organization together as is it grows, decentralizes, diversifies [or] expands globally” (Collins and Porras, 1996:162). The ideology itself is again composed of two building blocks: Core values and core purpose. Core values reflect the Assets and Competences needed to internationalize the IT Function enduring tenets of an organization. According to Collins and Porras most organizations tend to have between three and five core values, which do not require any outside justification or alignment, as long as they are of importance to the people inside the organization. Furthermore, it is important to note that there are no wrong or right core values as long as they have relevance for the organization and only the test of time can tell whether they are right for a company. The scholars note, that to pass the test of time, core values should be selected in such manner that they are not subject to constant change. Hence, a company “should not change its core values in response to market changes it should change markets, if necessary, to remain true to its core values.” (Collins and Porras, 1996:163). 16 A Glance at Practice Continental AG, a multinational automotive supplier based in Germany, recently decided to base its corporate vision on four appealing values: Trust, Passion To Win, Freedom To Act, and For One Another. The intentions behind this are obvious: providing ideological clue that holds the company together, offering a value system for guiding employee actions and ensuring a solid foundation for the vision itself. To ensure that the vision serves its purpose of a long term guiding principle, Continental furthermore complemented its values with a set of demanding goals using absolute terms, such as “We want to provide the best solutions for each of our customers in each of our markets.” or “All of our stakeholders will thus come to recognize us as the most value creating, highly reliable and respected partner.” Bold statements of this kind ensure that the The core purpose represents people’s motivation for doing the organization’s work. It thereby captures the soul of the organization. Following Collins and goal is not achieved too soon causing lethargy and they encourage employees to work hard to eventually reach the goal. Source: www.continental-corporation.com Porras it is of great importance not to (Our Basics) confuse the core purpose with specific goals or the business strategy. Instead it shall be seen as a guiding principle, which can never be fully reached and therefore sparks the organization to never stop stimulating change and progress. Also, the core purpose is not intended to differentiate the company, as it is very well possible that two organizations follow the same core purpose. The envisioned future is the second key element of a well defined vision. It comprises what the organization is aiming to become in the passage of time. Just like the core ideology, it is composed of two building blocks: something what Collins and Porras refer to as Big, Hairy, Audacious Goals (BHAG) and a vivid description. A BHAG thereby is more than just a simple goal; it rather has to be seen as an immense challenge which engages people and sparks the process of change and organizational progress. Typically it should take ten to thirty years to achieve the desired outcome. According to the schol- Assets and Competences needed to internationalize the IT Function 17 ars, “a true BHAG is clear and compelling, serves as a unifying focal point of effort, and acts as a catalyst for team spirit.” (Collins and Porras, 1996:168). There should furthermore be a clear finish line to let the people involved know when they have achieved a BHAG. The second element of the envisioned future, the vivid description, is a highly motivating and inspiring description of what it will be like to achieve a goal. It is a picture “that people can carry around in their heads” (Collins and Porras, 1996:169) and which gives an extra motivational boost. As it is the goal of this thesis to propose a procedure that can be applied by the IT function to support a successful global expansion, the questions remains how this knowledge can be used in practice. The following text box gives an answer to this question: How to establish a vision for the IT function? As an initial step for establishing a long lasting and inspiring vision it is important to get away from daily business and to truly reflect on the current standing of the organization as well as on what shall be achieve in the future (Schawbel, 2011). This fundamental understanding can then be used in the second step, where the management of the IT function should apply a selection of methods similar to those introduced by Collins and Porras in 1996: 1. Identify Core Values For identifying the core values it is suggested to apply relentless honesty to the question what the organization’s true core values are. Answering the question “If the circumstances changed and penalized us for this core value, would we still keep it?” (1996:163), can support this endeavor and should lead to a set of core values (not more than three to five). Thereby it is important that the IT function ensures not to confuse core values with operating practices or business strategies. 2. Identify Vision A method to support the vision identification process has been entitled “Mars Group” (1996:163). The general idea is to imagine a scenario in which the very best version of an organization needs to be rebuilt on a remote location, e.g. Mars and for that task a group of five to seven well suited individuals has to be selected. The rationale is that the people chosen for this job will most likely also be most appropriate to enable the core values identification process. 3. Identify Core Purpose The Mars Group once again is of great value when identifying the organization’s core purpose. The idea is to present the group members to a scenario in which they wake up one day rich enough to never have to work again. They are then asked for that purpose Assets and Competences needed to internationalize the IT Function 18 which would nonetheless motivate them to work for the organization. Following Collins and Porras, this method can be further supported by asking for the “Five Whys” (1996:165). The basic idea is to five times pose the question “Why is it important what we do?” while each time trying to come up with a better answer. This will force people to truly reflect and ultimately help pointing out the true purpose of the organization. 4. Formulate Goals In order to formulate true BHAGs the executive team is asked to think far into the future and beyond the current capabilities, which is why the team should have true visionary skills. Furthermore, the BHAGs should be selected in such manner that there is only a 50 to 70 percent likelihood of success, which ensures consistent commitment and avoids the “We’ve Arrived Syndrome” (1996:171), causing lethargy. As a general advice Collins and Porras suggest answering the question “Being 20 years from now, what would we like to see?”. This method also helps to develop a vivid description of the future, which incorporates great passion as well as strong emotions and thereby sparks the employees’ desire to reach the vision. In that regard, IT executive should not be shy about expressing emotions and exposing their dreams. 4.1.2 Establishing a Strategy Having identified a vision as well as the associated key elements, it is now crucial to define ways to put it into action. This step is typically comprised in the strategy and shall now be further examined. First, the question “What is strategy?” is briefly answered and one well acknowledged approach for establishing a general strategy is introduced. Next, these general findings are combined with more specific IS research, examining the IT strategy domain and most importantly different approaches for aligning the business and IT strategy. In that context, the impact of cultural differences on business and IT alignment are also examined, as it is of special importance in the process of internationalization. First of, Porter defines strategy as “creating fit among a company’s activities. The success of strategy depends on doing many things well – not just a few – and integrating among them.” He adds “If there is no fit among activities, there is no distinctive strategy and little sustainability.” (1996:105). For a strategy to live up to his ambitious definition, Porter identifies three pillars that serve as the basis for a great strategy: 1. Unique activities: The organization should either deliberately aim to be different than its competitors or try to perform the same activities in a different way. 2. Willingness for trade-offs: If necessary, the organization has to sacrifice some of its positions and focus on its core competencies to achieve a competitive advantage Assets and Competences needed to internationalize the IT Function 19 3. Fit between strategic activities: All elements of a strategy also need to be tightly aligned and should complement each other. In addition to establishing all three pillars, Porter adds that for a strategy to be truly successful it has to be accompanied by a change in the management mindset. This means that executives have to make sure not to follow old management fads such as short term growth and commit to a clear positioning and excellent leadership skills. Hence, the changed management mindset can be seen as the foundation of any sound strategy, which leads to the following illustration: Fit of Strategic Activities Trade-offs Unique Activities Strategy Changed Management Mindset Figure 4 - Pillars of a successful strategy Reflecting on the above, one short coming immediately catches the eye: the described approach for defining a strategy seems to be very inward oriented and thus lacks the general consideration of external factors; a weakness that could be fatal especially when developing a strategy to meet the challenges of internationalization. As presented earlier, some of the major risks of internationalization are related to cultural differences as well as local laws and the economic situation. One way to take these risks into consideration is presented by Phillips (2011). He recommends considering to the acronym PESTEL when developing an international strategy. It stands for political, economical, social, technological, environmental and legal issues and ensures that all relevant external factors are considered and a sustainable and successful international strategy is achieved. Keeping the general understanding of strategy in mind, it is now time to turn the interest towards more specific approaches for developing an IT strategy. An essential element in that regard is the identification of the IT function’s strategic role in the overall organization, as it has large influence on the strategy formulation process and ultimately implies different strategic alignment approaches. One approach in that regard has been developed by Chen et al. (2010), who identified three major practices for defining a sound IT strategy: Assets and Competences needed to internationalize the IT Function 20 1. Business Centric: The first practice follows the understanding that the IT strategy should support the general business strategy by identifying ways in which information systems can help the business domain to realize and sustain competitive advantages. Thus, the initiation of the IT strategy follows the establishment of the business strategy, which leaves this approach as business centric and the alignment of the business and IT domain as intrinsic. 2. IT centric: In the second practice, the IT strategy serves as the IT function’s master plan, which is focused on running the IT organization as effective and efficient as possible. The strategy serves as a plan “that aims to identifying the required IS assets, including personnel […], structure […], monetary resources […], and technologies and allocate the existing IS assets in the most efficient way.” (Chen et al., 2010:240). Hence, this approach is very IT centric and has its strategy development starting point in the IT function. The alignment of business and IT usually takes place after the initial strategy formulation. 3. Organization Centric: In the third approach, the IT and business domain have a mutual understanding of the role that IT plays for the organization. As a result, this allows an independent development of the IT and business strategy, because both sides aim for the same targets and no sides tries to outweigh the other. Hence, this practice is characterized as organization centric with limited need for IT and business alignment. Another well acknowledge approach for developing the IT strategy and aligning it with the business strategy has been introduced by Henderson and Venkatraman in 1993: the “Strategic Alignment Model”, which supports the findings of Chen et al. to a large extend. According to Henderson and Venkatraman, the strategic alignment between business and IT is depended on smooth interplay between four building blocks: 1. Strategic fit between internal and external domain: Ensures that any strategic decision addresses the internal as well as the external domain. The external domain describes the surroundings in which the organization competes and the internal domain addresses the administrative structure within the organization. 2. Functional integration between the business and IT: Describes the integration of the business side and the IT side of the organization. One thereby has to distinguish between strategic integration and operational integration. Whereas the first describes the link between the business and IT strategy, the latter deals with the link between the business and IT infrastructure and processes. External Domain 21 Business Strategy IT Strategy Internal Domain Assets and Competences needed to internationalize the IT Function Organizational Infrastructure & Processes IT Infrastructure & Processes Business Information Technology Strategic Fit Functional Integration Figure 5 - Reduced Alignment Model (Henderson & Venkatraman, 1993) Even though successful strategic alignment requires the contribution and integration of all described building blocks, there is typically one strategic driver sticking out. Hence, Henderson and Venkatraman introduce four different types of strategic alignment, which again show great similarity to the work done by Chen et al. In the first two cross functional relationships the business strategy thereby serves the driving alignment force: · Scenario 1 – Strategy Execution: This scenario is said to be the most common approach to strategy alignment and preferred by many non IT savvy executives. The top management serves as the formulator of the strategy, which is then carried into all parts of the organization. Hence, the IT domain only serves as the strategic executer with no direct influence on the strategy. This approach is largely similar to the first practice introduced by Chen et al., which puts the business domain in the leading role of the strategy development process. · Scenario 2 – Technological Transformation: Here, the IT domain has say in regards to strategic issues. Even though the initial strategic development is again done by the business domain, it is then assessed and improved by the IT domain and subsequently implemented throughout the organization. This scenario is very common in technological transformations and it seeks to establish the best possible IT competencies by ideal positioning in the IT marketplace. It shows great similarity to Chen et al.’s third approach, emphasizing business and IT jointly working together. Whereas in the first two perspectives the business strategy served as the diving force, the next two scenarios are characterized by the IT strategy being the strategic driver. Assets and Competences needed to internationalize the IT Function 22 Scenario 3 – Competitive Potential: This approach aims for the utilization of · emerging IT trends and capabilities to reach a competitive advantage. Unlike in the earlier perspectives, the business strategy has not yet been established and can therefore still be influenced by the IT strategy. The business domain thereby serves as the business visionary, whereas the IT domain is in the role of the catalyst. Again, this scenario has great similarity to the third practice presented by Chen et al. Scenario 4 – Service Level Alignment: Here the major focus is on building a first in class IT service organization. Alongside a grounded IT strategy, this de- · mands corresponding IT infrastructure and processes. The business domain only has limited importance in this perspective and is therefore put in the role of the prioritizer, whereas the role of the IT function is executive leadership. Hence, Henderson and Venkatraman emphasize that in order to achieve successful alignment it is important that the management across domains acquires the necessary set of skills and acknowledge the increased importance of IT. This perspective is very similar to the second approach introduced by Chen et al., which puts IT in the leading role. The following figure summarizes the four introduced scenarios. The numbers in the green bubbles correspond with the above scenario numbering: Business Strategy as the Driver 1 IT Strategy as the Enabler 3 Business Strategy Business Strategy Organizational Infrastructure & Processes Organizational Infrastructure & Processes IT Infrastructure & Processes 2 IT Strategy 4 Business Strategy IT Strategy IT Strategy IT Infrastructure & Processes Organizational Infrastructure & Processes IT Infrastructure & Processes Figure 6 - Driver Alignment (Henderson & Venkatraman, 1993) Assets and Competences needed to internationalize the IT Function 23 Another important element of strategy development and alignment, especially against the background of internationalization, is the consideration of national cultures, an issue which is closely related to the aforementioned external factors. This topic is of particular importance for MNEs, as they have to establish and align their strategy across a workforce composed of different national cultures, whereas SMEs, with a maximum of 250 employees, rarely have the same cultural diversity. One approach to cater to these requirements is presented by Silvius (2010). He proposes a framework which combines Hofstede’s dimensions of culture6 with Luftman’s variables on business and IT alignment maturity.7 Silvius concludes that the unique cultural dimensions of a country will have specific influence on the achievable business and IT alignment. A high power distance for example enables a high degree of governance maturity, which in turn is essential for strategic alignment.8 Having introduced approaches for defining a sound strategy and to align the business and IT strategy, yet again the question remains how this knowledge can be applied to the internationalization scenario and the IT function. This is presented in the below text box: How to establish a successful strategy for the IT function? To successfully establish a sound international strategy the author recommends a three step approach: 1. Identify the strategic driver – IT vs. Business As presented above, every strategy development process is typically lead by one driving force: the business domain, the IT domain or the organization as a whole. Hence, one first has to determine which organizational function shall take the leading role in the strategy development process. To do so the following question should be answered: What are the strategic goals and which organizational domain is best suited to lead the way? In the specific case of internationalization the answer to this question will most likely be that the business domain is best suited as strategic driver. However, due to the fact that the IT domain typically serves as an important enabler of internationalization, the IT function should at least have some say in the strategic development and alignment process. Hence, one could consider the joint strategic approach as present6 Power distance, individualism vs. collectivism, masculinity vs. femininity, and uncertainty avoidance. 7 Maturity of communication, value measurement, governance, partnership, scope & architecture and skills. 8 An overview over all relationships between Hofstede’s dimensions of culture and Luftman’s variables on business and IT alignment maturity can be found in Appendix 8.2. Assets and Competences needed to internationalize the IT Function 24 ed by Chen et al., where the internationalization strategy is being developed by the business domain and then assessed and improvement by the IT domain. 2. Establish and align the IT strategy Once the leading role in the strategy development process has been identified, one can enter the actual strategy development process. A good method to begin with is applying a SWOT analysis to the organization (Phillips 2011). It allows the identification of strengths & weaknesses as well as opportunities & threats and thus the results can serve as the foundation for any subsequent step. A good way to proceed is assessing the results against Porter’s three strategic pillars by answering the following three questions. This will help identifying areas in which the current strategy needs improvement: Which unique activities support the internationalization process? To answer this question, the identified strengths and weaknesses prove to be highly relevant, as they show areas in which the organization already is prepared for the internationalization but also point out weaknesses that might hinder the organization from internationalization. Hence, the strategy should be formulated in such way that it embraces the individual strengths and at the same time defines ways how to turn the weakness into strengths. Which are the key elements of the organization’s competitive advantage? As learned above, an essential element of a sound strategy is to decide what not to do. Therefore, the organization has to assesses its current capabilities and honestly answer the question, which capabilities are necessary to successfully compete on an international market and which are less important? Letting go of unnecessary weight allows the organization to focus its energy on capabilities which increase the international competitive advantage. Hence, the decision where to put the focus needs to be part of the IT strategy. Are all major strategic activities aligned? Answering this question helps to identify areas in which the strategic alignment is not yet fully ensured. It furthermore allows the definition of actions that ultimately lead to alignment. Any form of contradictions between the business and IT strategy has to be avoided, strategic decisions need to reinforce each other, and they need to be constantly improved to achieve the optimal result. 3. Assess strategy against external factors & cultural differences After defining the international IT strategy and ensuring that Porter’s three strategic pillars are fully established, the strategy should once more be assessed against external factors and cultural differences. As mentioned earlier, this is of particular im- Assets and Competences needed to internationalize the IT Function 25 portance in the internationalization process. Combing the PESTEL acronym introduced by Philipps with the opportunities and threats identified in the SWOT analysis can serve as a great basis for this. In particular in the last step the following question should be answered: Does the strategy consider all major political, economical, social, technological, environmental and legal uncertainties the organization might encounter? An analysis of the national characteristics of the potential host countries, as introduced by Silvius, may also prove to be helpful when answering this question. For example, Asian countries often have significantly higher power distances than many western countries, which needs be considered in the strategy. 4.2 Global IT Governance Having established the necessary prerequisites by defining and aligning the two most important assets vision and strategy, it is time to turn the interest to the competences needed by the IT function for establishing and sustaining international success. The first competence that shall be examined is global IT governance. It ensures implementation of and compliance with the specified vision and strategy by introducing responsibilities, decision hierarchies and processes throughout the entire IT function. This understanding of IT governance is supported by Weill and Ross, who define it as “specifying the decision rights and accountability framework to encourage desirable behavior in using IT” (2010:2). To them, the ultimate governance goal is to increase the overall value that IT contributes to the business. Weill and Ross (2004) further state that companies with effective governance structures can realize profits that are up to twenty per cent higher than enterprise that have the same strategy but no defined governance. Hence, IT governance is an essential continuation of the IT vision and strategy development process, which allows significant profit growth and therefore should not be neglected. Following Weill and Ross (2005) further, they recommend a matrix approach, which maps key governance decisions against different decision making archetypes. According to the scholars, IT governance typically comprises five main decision domains that are related to the management of IT and the accountability for decisions: Decision Domain Description IT principles Comprises high-level decisions regarding information technology’s strategic role in the business. IT architecture Decisions regarding a set of technical choices to guide the IT function in satisfying the business needs. IT infrastructure Choices regarding centrally coordinated shared IT services, which provide the foundation for the IT capabilities. Assets and Competences needed to internationalize the IT Function 26 application needs Decisions regarding requirements from the business domain for externally purchased or internally developed IT applications. IT investment and prioritization Includes choices of how much and where to invest in information technology. Business Table 5 – Decision Making Archetypes Hence, Weill and Ross conclude that the first step in designing IT governance is to decide who is responsible for each of the above decision domains. In the next step, these decision domains have to be mapped against six decision making archetypes, which are typically found in most organizations. They are characterized by a different degree of centralization in regards to IT decision making. The following list starts with the highest and ends with the lowest degree of centralization: Archetype Description Business All IT decisions are made by a senior executive or a group of senior executive, for example the board of directors. The Chief Information Officer (CIO) is not necessarily part of this group. monarchy IT monarchy IT decisions are made by one executive or a group of executives in the IT domain. Federal Senior executives and representatives of all operating units collaborate with the IT function in the decision making process. IT duopoly IT decisions are made in cooperation of IT executives and a group of business representatives. Feudal Operating unit leaders or process owners make their own IT decision based on the individual unit or process needs. Anarchy IT decisions follow no standardized process and users or groups of users pursue their own IT agenda. Table 6 – Decision Making Archetypes Weill and Ross (2004) found that organization with high focus on profit tend to have more centralized IT governance (the monarchy types), whereas organizations more focuses on growth through innovation and time to market often govern in a decentralized way (feudal or anarchy). This allows them to be more flexible to the local characteristics and to adapt their market penetration accordingly. Lastly, organizations that follow the golden mean between centralized and decentralized IT governance (federal or duopoly) are typically focused on customer responsiveness or economies of scale. This hybrid approach emphasizes the reuse of processes, systems and data. In regards to internationalization one could conclude that either decentralized or hybrid IT governance seem most appropriate as they allow catering and adapting to local char- Assets and Competences needed to internationalize the IT Function 27 acteristics. In case some degree of control is to remain with the executive management, a hybrid approach is certainly the choice to make. The following illustration maps the five major decision domains against the six decision making archetypes typically found in organizations. The associated governance task is to decide at which organizational level decisions are made and how centralized or decentralized this process shall be. The matrix can also be used for an assessment of the current situation and subsequent comparison against the desired target state: Decision Domain IT Principles IT IT Architecture Infrastructure Business Application Needs IT Investment Business Monarchy Archetype IT Monarchy Federal IT Duopoly Feudal Anarchy Figure 7 - IT Governance Matrix (Weill and Ross, 2004) Once the decision rights for all key domains are defined, it is necessary to set up appropriate governance mechanisms, which bring the matrix to life. Three mechanisms are thereby most important for successful IT governance, as they promote desirable IT behavior and individual accountability (Weill and Ross, 2005): 1. Decision Making Structures: Organizational roles and responsibilities have to be established in accordance to the intended archetypes. The higher the degree of centralization, the higher the need to establish clear organizational structures. 2. Alignment Processes: Widespread and effective implementation of governance decisions requires alignment processes, which range from investment processes, ensuring prioritized investment to service level agreements, clarifying costs and expected service quality. 3. Formal Communication: A lack of communication throughout the organization is one of the biggest threats to successful IT governance. To ensure that the newly established governance processes are understood, the management has to ensure formal communication for example by general announcements or individual question and answer sessions. Assets and Competences needed to internationalize the IT Function 28 A Glance at Practice United Parcel Service (UPS), one of the largest multinational logistics enterprises in the world, is committed to offering integrated and globally standardized solutions to its global customer base. To achieve this, the company decided to apply a centralized governance structure, which moves most of the decision making to the executive levels of the organization. Senior management ensures that IT issues are incorporated into the strategic decision making processes and subsequently the CIO, who is a member of the senior management team, translates made decisions into IT standards, principles, and processes. The centralized governance approach allows UPS to maintain a high degree of strategic control at the executive level, while empowering decision making at the lower organizational levels by providing aligned guidelines and policies. As a result, UPS is able to generate desirable behavior among employees in regards to management and IT. Mapped to the aforementioned matrix, the following governance structure and decision making archetypes are present at UPS: Decision Domain IT Principles Business Monarchy Archetype IT Monarchy IT IT Business Architecture Infrastructure Application Needs X IT Investment X X X Federal X IT Duopoly Feudal Anarchy Figure 8 - IT Governance Matrix at UPS Source: Weill and Ross (2004) Once the decisions making structures, alignment processes and communication channels have been designed, it is time to implement them into the organizational structure and assign roles and responsibilities to specific individuals or groups in the organization. One approach to do so has been developed by Rau (2004) and shall be introduced as an example. According to the scholar, five major groups or individuals that are needed for effective IT governance: Assets and Competences needed to internationalize the IT Function 29 1. IT Governance Council: The council’s responsibilities are the provisioning of the overall strategic direction and the financial authority for all major IT projects. This is done by setting funding levels and approving the projects as well as monitoring the results. The governance council is typically composed of individuals from the executive level and other relevant senior representatives with high IT affinity. 2. Chief Information Officer: The CIO is the head of IT and thus the most important individual in the IT function. He or she is responsible for the management of production, IT customers and technological excellence. 3. Customer Services: Assisting the CIO in his or her responsibilities is the main task of customer services. This group is composed of account executives who know the exact technological needs of their customers and support the business strategic long-term orientation. 4. Project Office: The office is composed of project managers. The responsibilities of the project office are the development of standards and procedures for IT projects as well as to ensure compliance with governance guidelines. Furthermore, the monitoring and control of project progress is among their responsibilities. 5. Non-IT Roles: This group of individual is external to the IT domain and represents the business side of the organization. User Area Prioritization Teams support the IT governance council in prioritizing project funding. User Program Managers represent the user side in major IT projects and External and Internal Auditors serve as financial advisors to the IT governance council Even though the name of roles might differ from organization to organization, Rau points out that each role should at least to some degree be established and tailored to the specific needs of the organization. The tailoring process should include the consideration of the organization’s size and culture as well as the individual IT dependency. He adds that especially when establishing an IT governance structure from scratch, it is important to tackle this endeavor step by step rather than trying too much at once. Keeping these considerations in mind, Rau proposes a best practice design for IT governance incorporating the above roles and groups. In his suggested setup the IT governance council is the center of the IT governance, ensuring and empowering the compliance with strategic guidelines given by the board of directors. Especially in the early stages of the governance establishment process the CIO needs to be part of the council even though his or her influence might be reduced over time. The CIO’s task is to carry the council guidelines further into the organization. Hence, he serves as the link between the top management and the more operative levels of the organization, like the supporting project office as well as the customer services. The interests and needs of the Assets and Competences needed to internationalize the IT Function 30 business domain are represented by the non-IT roles influencing, supporting and controlling the council’s decision: Figure 9 - Best Practice IT Governance Design (Rau, 2004:36) This of course is a very basic approach for implementing IT governance into an existing organizational structure and its complexity often increases when aiming for global IT governance. One way to cope with increasing complexity, is applying global standards. One highly popular governance framework in that regard is COBIT. It serves as a comprehensive guideline for establishing IT governance processes as well as for increasing the value that IT contributes to business. COBIT stands for “Control Objectives for Information and Related Technology” and was initially released by the Information Systems Audit and Control Association in 1996 and since then continuously improved. The latest version COBIT 5 was recently published in 2012. The overall goal is to support organization to “create optimal value from IT by maintaining a balance between realizing benefits and optimizing risk levels and resource use.” (COBIT 5, 2012:13) and even though an organization might decide not to apply COBIT, the basic knowledge about the principles and goals of the framework should be available to the organization and be applied to the IT governance tasks at hand. Especially in regards to internationalization it can help to minimize the risks and maximize the positive outcomes. Now that the general concept of IT governance as well as different approaches to realize successful governance are understood, it is again time to apply this knowledge to the internationalization issue and the question “How to establish global IT governance?”. Assets and Competences needed to internationalize the IT Function 31 How to establish global IT Governance? To successfully establish global IT governance the author recommends a three step approach: 1. Apply the IT Governance matrix to organization When applying the introduced IT governance matrix to the organization one should first seek a general understanding, which decision domains can be applied to the organization. However, it is legitimate to assume that the five decision domains introduced by Weill and Ross cover the majority of decision faced by most organizations. In case of uncertainty, Weill and Ross provide a list of questions, which support a clear understanding of each decision domain (Appendix 8.3). The aspects of the governance matrix that certainly need more focus are the decision making archetypes. Against the background of internationalization it seems most appropriate to give local subsidiaries or organizational representations a certain degree of freedom in their IT decision rights, as it enables them to cater to local specifics. Therefore, management guidance should be provided but without over ruling every local decision. The governance archetypes most applicable to meet these requirements are hybrid approaches. Within the hybrid approaches the organization is then asked to make a decision towards centralization (federal) or decentralization (IT duopoly). However, it might also be that an organization decides that certain decision domains need to be handled very centralized e.g. IT principles, whereas others e.g. business application needs can be formulated decentralized at the local representations. 2. Introduce governance mechanisms Once the IT governance matrix has been developed and a common understanding of the decision rights has been established, it is necessary to introduce appropriate governance mechanisms to carry the matrix into the organization. In case the organization plans to follow a centralized or hybrid approach, which is recommendable for internationalization, the need for a clear organizational structure increases. This includes the insertion of individuals and groups as proposed by Rau. The more centralized the organization aims to be, the greater the influence of these roles. The same goes for the implementation of alignment process. The higher the intended influence of the board of directors and the IT governance council, the stricter the alignment needs to be. Lastly, formal communication channels need to be established. They are of particular importance in international organizations, because one-to-one communication is hardly possible and therefore clear communication channels have to make up for that Assets and Competences needed to internationalize the IT Function 32 short coming. It is important to ensure that these channels work top-down as well as bottom-up. 3. Carry the governance into the organizational structure Lastly, the decision rights and governance mechanisms have to be implemented into the organization. One way to do so is using the building blocks introduced by Rau and adjust them to organizational characteristics. This could result in a IT governance structure of the following: Board of Directors External Audit Internal Audit IT Governance Council Prioritization Teams Program Managers Corporate CIO Local CIO Local CIO Local CIO Project Office Customer Service Project Office Customer Service Project Office Customer Service Project Managers Account Executives Project Managers Account Executives Project Managers Account Executives Figure 10 - International IT Governance Design Here, in the context of internationalization, an additional structural layer has been introduced, which serves as a link between the local representations and the organization’s head quarter. The installment of a corporate CIO, who is senior to a group of local CIOs, could for example serve this purpose. In the above structure, the role of the non-IT roles is expanded to also include reporting to the corporate CIO.9 This goes beyond the responsibilities introduced by Rau. To support the introduced three steps, it can be beneficial to also consider the doctrine introduced by COBIT 5. Even though an organization might decide to follow their own approach, incorporating basic principles from the framework will tremendously increase the IT governance quality and performance. 9 The dotted lines connecting the program managers/prioritization teams, the senior executives and the local representations are symbolically. In practice each representation needs to have bottomup/top-down reporting processes in place. Assets and Competences needed to internationalize the IT Function 4.3 33 Global IT Infrastructure Global IT infrastructure is the next competence to be explored. It is typically combined of two areas: the managerial infrastructure and the physical infrastructure, often referred to as IT architecture. Whereas the first is closely related to the IT governance domain, which has already been covered in the previous section, the latter still needs to be examined in further detail. Hence, the following section will only briefly touch upon the managerial requirements of a global IT infrastructure before going into detail of how to establish a global IT architecture. One research approach that is catering to the managerial aspects of IT infrastructure has been developed by Sia et al. in 2010. To enable a successful global IT management and to support enterprisewide IT leadership the scholars recommend three structural elements. The first element that should be implemented are IT shared services, which consolidate common IT functions and provide them globally in form of a standardized services catalogue. This increases economies of scale and reduces unnecessary A Glance at Practice Microsoft has organized its IT infrastructure in such way that they established IT shared service centers in their headquarter in Redmond, in Dublin and in Singapore to provide IT services across the globe, which in turn allows close to 24/7 service provisioning. The company has furthermore created centers of excellence called the Corporate Solution Deliveries Group. This group is comprised of highly specialized IT application developers that are led by 40 solution directors who work duplication of IT resources. The second jointly with senior VPs to translate the busi- IT management element are centers of excellence, which are specialized business units that pool expertise physically ness needs into global IT solutions. or virtually across the globe and make them available to organizational units in need. Lastly, Sia et al. suggest the installment of value managers, whose task it is to maximize the IT value for a specific business unit. They thereby enable Also, Microsoft has an extended field IT structure covering 106 countries that are clustered into three regions (North America, Europe/Middle East/Latin America, and Asia). Each region is represented by an IT value manager mediating between the central IT requirement and the regional business needs. Source: Sia et al. (2010) communication from the management to the customers as and vice versa, thus supporting understanding on both sides. Sia et al.’s approach is supported by Weill et al. (2002), who likewise recommend the pooling of tasks and activities in service packages, which are then provided throughout the global organization. In their work they present ways how to develop IT infrastructure in such way that it allows strategy agility and caters to future strategic needs of the organization. They state that “the goal is to create a unified IT infrastructure that sup- Assets and Competences needed to internationalize the IT Function 34 ports long-term, enterprise wide strategies while being responsive to the demands of business unit strategies” (2002:57) and they conclude that “each type of strategic agility requires distinct patterns of IT infrastructure capability.” (2002:58). These patterns are formed by ten IT infrastructure service clusters and depending on the organization’s goals a combination of these clusters forms the organization specific IT infrastructure. In other words, they serve as the infrastructural building blocks. According to Weill et al., the following services clusters can be identified: Service Cluster Description Channel-Management Services Ensure the linkage to customers and suppliers through electronic channels. The goal is to integrate existing channels to provide a uniform picture of the organization’s relationship to external stakeholders. Security and RiskManagement Services Provide protection of organizational assets by implementing IT security measures like firewalls, data encryption and passwords. Communication Enable electronic communication with all external stakeholders. Services Services Collect, manage and analyze customer, product and processes data. ApplicationInfrastructure Services Provide standard application throughout the organization to support business units in their daily work. IT-Facilitiesmanagement Services Coordinate and build the physical infrastructure layers by providing services such as servers and new systems. IT-Management Services Coordinate and manage the IT infrastructure and its relationship with the business units. IT-Architecture-andStandards Services Comprise all governance policies that regulate the use of IT and how it supports future business. IT Education Services Enable and train all levels of the organization for the global use of IT. Research & Development Services Support the organizational search for new ways of how IT can contribute to the creation of business value. Data-Management Table 7 – Service Clusters Weill et al. found that the more services are established in the above clusters, the higher the organization’s strategic agility. They then connect the identified clusters with different types of business initiatives, identifying those clusters that are most important for achieving the business goals. They thereby distinguish between the organizations position on the value net, the type of exchange and the type of innovation. The value net describes the interconnections between the supply-side, the internally focused and the demand-side capabilities. The type of exchange distinguishes between business-to- Assets and Competences needed to internationalize the IT Function 35 business (B2B) and business-to-customer (B2C). Lastly, the types of innovation can be distinguished in product driven, market driven or a combination of both. The following figure illustrates the findings of Weill et al. and shows which clusters are of particular importance in regards to specific business initiatives. It furthermore summarizes, whether the clusters should be handled centralized (firm wide) or decentralized by the business unit: Figure 11 - Infrastructure Competencies & Business Initiatives (Weill et al., 2002:63) A different approach, which is more related to the physical infrastructure domain, is presented by Kettinger et al. (2010). They choose the organization’s maturity on conducting global business as their point of departure for developing a global IT architecture. They pose and answer the question how IT architecture can support the organization in expanding their business globally and increasing their maturity level. The scholars thereby distinguish between four approaches for operating globally: 1. The multinational approach: Aims to establish and maximize business flexibility around the world and to manage a portfolio of multiple business units. 2. The international approach: Uses standardization to transfer parent company knowledge to international markets, while maintaining flexibility in regards to regional infrastructure approach. 3. The transformational approach: Drives the usage and regionalization of processes further to create business standardization in the core processes and it establishes business units as strategic partners. 4. The global approach: Treats the global market as an integrated whole by maximizing standardization while maintaining the appropriate degree of standardization to be successful on a global scale. Kettinger et al. note that companies typically have to choose an approach which best fits their immediate needs and capabilities, with the ultimate goal to evolve towards the global approach. Depending on the chosen approach, the scholars identify four specific IT architecture configurations in which the integration and standardization of the archi- Assets and Competences needed to internationalize the IT Function 36 tecture increases due to growing organizational globalization maturity. The IT architecture itself is thereby comprised of two separate elements: enterprise systems and IT infrastructure. According to the scholars, enterprise systems include the horizontal and vertical systems that handle the information and knowledge related to core global business processes. They typically span across functional as well as organizational boundaries. IT infrastructure on the other hand “comprises the information, people and IT practices required for planning and operating the hardware, software and networks that enable the enterprise systems” (Kettinger et al., 2010:97). 1. IT architecture for the multinational approach: Characterized by flexible enterprise systems and IT infrastructure, which are specific to each business unit and/or country. Information is optimized for each location without sharing them across the corporation and local autonomy. Also, business flexibility is preferred over standardization and cost efficiency. This approach is very common for organically growing organizations, which aim to cater to the specific local needs and thus are focused on local growth. Hence, the IT architecture is largely decentralized and locally customized. 2. IT architecture for the international approach: In the international approach the organizations moves closer towards standardization. Whereas the enterprise systems remain locally customized, the IT infrastructure is increasingly standardized. However, the business units continue to claim their right to customize the infrastructure to some degree to the local requirements and to store information in local silos limiting global sharing to a minimum. Therefore the authority of the head quarter management is often reduced to persuasion rather than top-down directive. Hence, Kettinger et al. describe this type of IT infrastructure as a locally driven hybrid, combining the global infrastructure guidelines with the regional needs. 3. IT architecture for the transnational approach: Characterized by a globally standardized and corporate-wide IT infrastructure, in which information is tied to the organization’s core processes and thus made available across the corporation. This is achieved by allocating greater decision authority to the head quarter and by developing IT solution that cater and service to the regional as well as world-wide needs. However, for selected front office business processes, business units reserve the right to locally customize enterprise systems to their specific needs. Thus, this approach is defined as a business application hybrid combining local needs with centralized corporate enterprise system guidelines. 4. IT architecture for the global approach: Enables global business flexibility and standardization throughout the corporate IT architecture, in which key information are made available across the organization, allowing best practice Assets and Competences needed to internationalize the IT Function 37 sharing and transparency across the organization. Furthermore, the approach enables the organization to enforce a corporate-wide IT strategy implementation across all business units, following a very dominant top-down approach. Hence, the IT architecture is comprised of a global enterprise system as well as a global IT infrastructure. The figure below depicts the above described IT architecture configurations. The number in the bubble thereby corresponds to the above numbering: 1 2 BU 1 BU 2 BU 3 Enterprise Systems Locally Customized Locally Customized Locally Customized IT Infrastructure Locally Customized Locally Customized Locally Customized Enterprise Systems Locally Customized Locally Customized Locally Customized IT Infrastructure Locally Driven Hybrid Locally Driven Hybrid Locally Driven Hybrid Regional/Global IT Infrastructure 3 Enterprise Systems 4 Local/ Centralized Business Applications Hybrid Local/ Centralized Business Applications Hybrid Local/ Centralized Business Applications Hybrid IT Infrastructure Global IT infrastructure Enterprise Systems Global Enterprise Systems IT Infrastructure Global IT infrastructure Figure 12 - IT Architecture Approaches (Kettinger et al., 2010) Lastly, ITIL, a standard that supports the establishment of sound IT infrastructure, should not go unmentioned. It stands for “IT Infrastructure Library” and provides a collection of methods and procedures to design, implement, manage and enhance IT infrastructure. The overall goals are increasing customer IT satisfaction, improving service availability, realizing financial savings, and improving time to market as well as decision making (Cartlidge et al., 2007). Even though an organization might decide not to apply any of the above practices, a basic ITIL knowledge should be available to any organization and applied to its IT infrastructure. Especially in regards to internationali- Assets and Competences needed to internationalize the IT Function 38 zation ITIL can help to minimize the risks and maximize the positive outcomes by applying best practices. How to establish a global IT Infrastructure? Since most of the management aspects of IT infrastructure show great similarity to the IT governance domain, they have already been largely covered in the previous section. Hence, this “How to…?” focuses more on the successful establishment of the physical aspects of the global IT infrastructure. As the initial step for developing a new IT infrastructure management tasks and activities, which can be pooled in infrastructure services and standardized, should be identified. The organization should thereby follow either the clustering approach presented by Sia et al. (2010) or alternatively the findings made by Weill et al. (2002). The establishment of the service clusters will furthermore largely benefit from applying the ITIL standard as a supporting framework, because it reflects the entire service lifecycle from strategy development to service improvement. For the establishment of the physical IT infrastructure or IT architecture, the author recommends following Kettinger et al. (2010), who propose a three step approach: 1. Articulating the need for the Journey As with any challenging task, the scholars recommend the development of a vision, which defines the ultimate goal and allows comparing the as-is situation against the to-be scenario. The vision does of course not need to be as comprehensive as the vision for the entire internationalization endeavor; it is rather to be understood as a sub-vision to the overall vision. Having identified the gap between as is and to be, the transition between the two stages has to be outlined. To keep motivation among the workforce high, Kettinger et al. recommend framing short and long term activities and goals. This allows realizing quick progress, while maintaining momentum for achieving the long-term goals. 2. Managing the journey In the second step the actual journey towards a changed IT architecture has to be managed. The first thing to do in that regard is to mobilize a management team. Thereby it is important to consider the concerns of local managers, who often perceive the implementation of globally standardized IT architecture as a threat to their local authorities. This is particularly important when the organization still is in the early maturity stages of the globalization process, where a lot of the architecture is locally customized. The best way to face theses issues is to encourage an open dialogue between corporate and local managers. Assets and Competences needed to internationalize the IT Function 39 As with all big organizational changes, it is of great importance to support the architectural endeavor with sound change management, which enables managers to carry out the changes successfully. It furthermore supports the development of an informationoriented culture throughout the organization, which is getting increasingly important the further the organization matures towards the global approach. Without the ability and willingness to share information across business units high maturity levels are hard to reach. Lastly, the management of the architectural journey demands a shift in the balance of power. The more centrally managed the IT architecture gets, the more power needs to be shifted from the local business units to the head quarter. 3. Fine-tuning the journey In the last step, the implantation of the architectural changes needs to be fine-tuned. According to Kettinger et al., this involves the development of a global mindset, which means that HR policies need to be in place, which promote cultural diversity and shared values across business units and countries. In that regards it is key, that the new HR policies are neither implemented too early nor too late, as both would spook local managers. Hence, the timing is critical. Also, sharing best practices across the organization has to be encouraged, as it supports the innovation power of all local business units and holds the potential to reduce costs globally, because the wheel does not have to be reinvented at each location. Lastly, the profit and loss responsibilities as well as reporting lines have to be shifted. However, according to the scholar for some organization, it might beneficial to maintain local legal and reporting arrangements even though the organization has high globalization maturity.10 4.4 Global IT Project and Portfolio Management Once the IT function is spread across the globe with several international representations, it is important that projects are management sufficiently and prioritized according to their value contribution. Hence, another important competence needed to be internationally successful is a global project and portfolio management. Archer and Ghasemzadeh define a project as “a complex effort, usually less than three years in duration, made up of interrelated tasks performed by various organizations, with a welldefined objective, schedule and budget.” and when they are grouped and “carried out under the sponsorship and/or management of a particular organization” (1999:208) one usually speaks of a project portfolio. But why is project portfolio management (PPM) of such great importance? According to Larson and Gray (2011) there are three 10 A supporting set of questions to ensure that the above three steps are followed accordingly can be found in the Appendix 8.4. Assets and Competences needed to internationalize the IT Function 40 major reasons why a sound project portfolio management is of great meaning to the success of an organization: 1. The implementation gap: The high level strategic roadmap is typically developed by the top management and then passed down to functional managers for further detailing. However, the two levels often have a different understanding of strategic project prioritization; this lack of alignment is referred to as the implementation gap. 2. Organization politics: Summarizes the phenomenon that projects are often selected not based on sound facts and what is best for the cooperation but rather on what is best for the individual or group in charge. 3. Resource conflicts and multitasking: Refers to the issue that almost any project is limited by the amount of resources and personnel available, which will in most cases lead to conflicts. To overcome the above issues, Larson and Gray propose a three step approach for establishing a sound PPM: First a PPM system needs to be developed, it then has to be implemented into the organization and lastly it needs to be managed for future success. For the initial step a classification procedure to hierarchically rank project proposals needs to be established. To do so, Larson and Gray recommend differentiating between three types of projects: “Must-do Projects”, “Strategic Projects” and “Operational Projects”. Whereas projects of the first kind are required to meet regional regulatory conditions, the latter project types need to have sufficient economical or organizational impact. Hence, must-do projects ignore any type of selection criteria, whereas strategic and operational go through a selection process to identify beneficial projects. Typical selection criteria are (Larson and Grey, 2011): 1. Financial criteria: Two very common approaches are the payback and the net present value model. The first measures the time it will take to recover the project investment, whereas the latter uses the desired rate-of-return (discount rate) to calculate the present value of future cash flow. Despite the obvious benefits of these models, they fail to include project aspects which are difficult to quantify. Nevertheless they are preferred by most managers, because they deliver quantitative and tangible results. 2. Non-financial criteria: These selection criteria cover project aspects, which are difficult to grasp on a quantitative basis. Two common non-financial selection models are the checklist approach and the multi-weighted scoring model. The first assess proposed projects against a set of questions, which need to be answered satisfactory for the project to be considered for implementation. Obviously this is a very shallow selection process, which is why it is recommendable Assets and Competences needed to internationalize the IT Function 41 to complement it with the multi-weighted scoring model. Here, a project is assessed against a weighted set of criteria. Each criterion receives an additional score between 1 and 10 according to its strategic importance. The score is then multiplied with the assigned weighted criteria and cumulated: Figure 13 - Multi-weighted scoring model (Larson and Gray, 2011:41) After developing the basic PPM system, it has to be implemented and applied to the organization. To do so, processes have to be installed that allow relevant stakeholders to propose projects. As a rule of thumb Larson and Gray (2011) advocate that anyone should be allowed to suggest projects, when he or she believes that it contributes value to the organization. This should be done by a standardized request for proposal, which clearly states all key facts needed to rank and prioritize the project including costs, revenue contribution and estimated duration. The reported project contributions are then assessed against the minimum acceptance requirements. Once the project is accepted by the project office the implementation is set into motion. Lastly, the implemented PPM system needs to be managed properly and sustainability needs to be ensured. For that the senior management is asked to support the establishment of selection criteria with the necessary guidance and ensure alignment with the organizational strategy. Additionally, it is of great importance that the selection criteria used by the project office are consistent for every proposal. Other management responsibilities include the clear communication of approved projects, the current ranking of projects as well as the status of projects in progress. According to Larson and Gray, all this will encourage stakeholders to follow the standardized process and not to bypass the system. A portfolio selection framework putting all of the above into action has been developed by Archer and Ghasemzadeh in 1999. In their framework the two scholars distinguish between three stages of portfolio selection: Pre-process activities, main process stages and post-process stages. Assets and Competences needed to internationalize the IT Function 42 The pre-process activities comprise two major tasks, which in turn serve as the foundation for the main stages of the project portfolio selection. First the selection process has to be aligned with the overall business strategy, because it provides general guidelines as well as it determines the amount of resources that can be allocated to potential projects. Second, the project selection methodology needs to be established beforehand, to ensure consistent screening, evaluation, and selection of project proposals. The first step in the main stages of the selection process is the pre-screening of the project proposals for general alignment with the overall strategy and general feasibility. Similar to Larson and Grey, Archer and Ghasemzadeh point out that “must-do” projects need to be excluded from this step and bypass the project portfolio selection process. Any strategic or operational project that passes the first step is then transferred into the individual project analysis, where each project is screened in depth and assessed against a number of common parameters such as project risk, net present value and return on investment. The analysis results are then examined in the subsequent screening stage to eliminate any project that does not meet the requirements, which are defined in the selection methodology, such as the aforementioned return on investment or net present value. This step ensures that only a limited number of projects have to be considered in the next step of the selection process: the optimal portfolio selection. For this stage, Archer and Ghasemzadeh recommend a two step approach: In the first step, the qualitatively and quantitatively determined benefits of each project are considered. In the second step, the portfolio is optimized under consideration of softer aspects such project interdependencies and resource competition. This ensures that projects are not only chosen depending on their individual business value contribution, but also take potential project interplay into consideration. Ideally, the result should be an optimal project portfolio; however, the last stage allows that the project portfolio can still be adjusted by relevant stakeholders. In case major contradictions are revealed, projects can be looped back to the previous stage. In case no further changes need to be made, the project is pushed forward to implementation in the post-process stages. The post-process stages comprise the actual hands-on tasks: the project development as well as the phase gate evolution, which eventually result in successful project completion. Each project development is therefore split into work packages and divided by gates. Every time a gate is reached, the current project standing in assessed against the plan and all information is fed to the project database. In case of major deviations the project might be selected for a fundamental reevaluation in an individual project analysis. This ensures high implementation quality and optimal resource allocation. Assets and Competences needed to internationalize the IT Function 43 Figure 14 - Portfolio Selection Framework (Archer and Ghasemzadeh, 1999:211) Conducting projects in international surroundings requires the organization to consider potential project risks arising from environmental factors. As one will note, many of the following risks thereby show great similarity to the general risks of internationalization introduced earlier in this thesis. Thus, the following paragraph is kept comparatively short. According to Larson and Gray (2011), the most common risks in regards to international projects are: Risk Description Legal/Political Conducting projects in an international environment requires the organization to adhere to the local laws and regulations. However potential risks may also arise if laws are changed randomly, which can be the case in the politically volatile regions of the world. In that context, corruption is yet another legal/political threat often faced in such regions. Security Security aspects also require consideration when sending personnel to potentially unsafe foreign countries. Especially international terrorism and crime are two major risks, which need to be taken into account. Hence, risk management cannot be neglected. Geography The impact of geographical features should also be considered when expanding globally as it affects site selection just as much as the work performance of employees. Especially extreme weather conditions can pose extraordinary demands. Economic The economic situation of the host country is one key factor to the success of an international project. As mentioned in chapter 3, tariffs as well as fluctuations in exchange rates can have large influence on the economic efficiency. Infrastructure The connection to urban infrastructure needs to be ensured as well. Reliable power connections, transportation, technology as well as appropriate telecommunication channels need to be available to the organization and the employees. Assets and Competences needed to internationalize the IT Function Culture 44 Similar to chapter 3, Larson and Gray point out that local customs and cultures have great influence on the project success. The operating language and religion also have large influence. Table 8 – Project Risks Having introduced the general concept of global IT project and portfolio management as well as potential risks, it is time to turn the interest towards the obligatory “How to…?”: How to establish a global IT Project and Portfolio Management? The establishment of a sound PPM can be comprised in three steps: First, the project selection methodology should be defined, then a project selection framework needs to be implemented and lastly, to reduce potential local risks, an appropriate project site needs to be selected: 1. Define selection methodology For the first step it is recommendable to apply the “selection methodology” concept in a broader sense than initially intended by Archer and Ghasemzadeh. The methodology should comprise the entirety of assessment guidelines and requirements that need to be fulfilled by a proposed project. These guidelines need to be universally valid in the organization and applied to any project (except “must-do” projects). This ensures that every project has the same chance to pass the selection process. To structure the project selection and assessment it is recommendable to use questions of the following kind: Is the project in line with the overall business strategy? What is the business value of the project (minimum revenue contribution vs. costs)? What are interdependencies with other projects? Answering these questions, will help to understand the proposed project’s goal and allows ranking it against other proposals. 2. Establish project selection and management process Once the selection methodology has been defined it needs to be integrated into the actual project selection process and applied to projects. The selection process can thereby be largely inspired by the approach introduced by Archer and Ghasemzadeh. For this, the organization has to decide whether they want to split the screening process in three distinct steps, as proposed by the scholar, or if it is sufficient to combine it in one step. Independent of this decision, the overall project selection should always have a screening phase, a selection phase and an adjustment phase to ensure an optimal composition of the project portfolio. Assets and Competences needed to internationalize the IT Function 45 3. Site Selection To identify and reduce potential risks, each potential project site should be assessed against the aforementioned project risks and rated on a scale from 1 to 5 (1 = bad, 5 = excellent). Once all project sites have been rated, the category score is cumulated and the site with the highest overall score wins the selection process. Larson and Gray (2011) propose the a matrix of the following type to structure the assessment. Legal/ Security Political Geography Economic InfraCulture structure Total Site A 5 4 3 3 4 3 22 Site B 3 2 4 2 3 3 17 Site C 3 3 2 3 3 2 16 Figure 15 - Site Selection Matrix (Larson and Gray, 2011) In the above example site A received the best overall rating and should therefore be selected over site B in second place and site C in third. 4.5 Global Organization Enablement As repeatedly indicated in the previous sections, internationalization does not only affect the top management but also the operational levels of an organization. Hence, it is of great importance to enable the corporation as a whole for what is ahead. This includes skill development just as much as change management, both ensuring a smooth transition from as-is to to-be. Thus, this section examines ways how to enable a global organization by managing change and developing the necessary skill set to all levels of the workforce. 4.5.1 Change Management Without a doubt, going international poses a dramatic change to most organizations and therefore it has to be ensured that it is managed accordingly. One well acknowledged change management approach has been developed by Kotter in 1995 and revised in 2007. According to him, a successful change follows eight distinct chronological steps: First, one should establish a sense of urgency “to make the status quo seem more dangerous than launching into the unknown” (Kotter, 2007:98). Executives should examine the markets as well as potential competitors to identify potential dangers or major opportunities to establish a sense of urgency and to spark the overall will for change. After that, a powerful guiding coalition should be formed by gathering key personnel that has enough power to guide the change effort. This group ideally works outside the normal hierarchy to keep an unbiased mindset and it is ideally composed of individuals from all Assets and Competences needed to internationalize the IT Function 46 organizational levels. Kotter adds that for a truly powerful guiding coalition a critical mass has to be achieved to make their voices heard. In the next step a vision needs to be defined, which helps the members of the organization to understand the overall intentions of the change as well as the aspired future state (see also chapter 4.1.1). As introduced earlier, the vision needs to be accompanied by a strategy further detailing how the vision is to be realized. Subsequently, the vision has to be communicated, because change can only be successful if the majority of the organization pulls on the same string. Hence, it is critical to apply any communication vehicle available to reach the maximum of recipients. In that context it is moreover important that the guiding coalition serves as a role model and that they “walk the talk” (Kotter, 2007:100). In the fifth step the agreed upon actions need to be enabled; for this it is very important to remove all obstacles along the way that might hinder a successful progression of change. This includes changing the mindset of individuals that refuse to change as well as the old organizational structure. Furthermore, risk taking and unconventional ideas should be supported. This should be supported by creating short-term wins to keep motivation among employees high. It also includes rewarding employees that have contributed most to recent success. Organization members often become satisfied with what has been achieved and stop producing more change. To address the danger of declaring victory as soon as first improvements and wins become visible, it is therefore important to produce ongoing change. This will keep the motivation among employees high and support the overall change process. Lastly, the new approach has to be institutionalized. According to Kotter any change will only last when it becomes “the way we do things around here” (2007:103). Hence, it is important that the members of the organization recognize the correlation between the changes made and the achieved organizational success. Following the introduced process will allow facing the required changes that come along with the internationalization, while ensuring that the need for change is understood and supported by all levels of the organization. The question how to enable organizational change is answered in the following textbox: Assets and Competences needed to internationalize the IT Function 47 How to enable organizational change? To enable change throughout the organization the senior management is encouraged to follow an approach similar to the one introduced by Kotter: 1. Establishing a sense of urgency The goal is “to make the status quo more dangerous than launching into the unknown” (Kotter, 2007:98). One way to achieve this can be to conduct a market analysis and concluded that going global is the only way to maintain competitiveness over rival companies. A more positive twist could be to show potential development opportunities for the organization in international markets. 2. Forming a powerful guiding coalition The organization should identify a group of three to five individuals representing the core team. This team should be supported by a group of 20 to 50 individuals also committed to change, who ensure that a critical mass is achieved and their voices are heard (Kotter, 2007). A sense of urgency can help putting the guiding coalition together. 3. Creating a vision The creation of a sound vision has been introduced in chapter 4.1.1. However, Kotter adds that a good vision should be communicable within 5 minutes (2007). 4. Communicating the vision To ensure that the vision is understood throughout the organization, periodic communication should be implemented e.g. by weekly newsletters. To compensate the often limited outreach of written communication, it should be supported by unusual measures such as road shows, which can be used by senior executives to communicate on a more intimate and personal level. This helps underlining the top management support. 5. Enabling actions To reduce blockages in peoples’ heads it is recommended to seek personal contact, understand the individual intentions and find solutions. However, overcoming structural obstacles can be far more difficult. It could benefit from an unbiased external perspective, which is provided by new hires or consultants. 6. Creating short-term wins To keep motivation among employees high, the organization should plan for short-term wins and communicate them throughout the organization. The same channels used for communicating the vision can be used here. Also, extraordinary commitment among employees should be awarded e.g. by the monthly nomination of a change champion. Assets and Competences needed to internationalize the IT Function 48 7. Producing more change For the organization not to let up change and to declare victory too soon, senior management should constantly release new tasks which further push change, while acknowledging short-term wins and objectives achieved. 8. Institutionalizing new approaches Before calling the implemented change a success, the organization has to ensure that it has been incorporated into the corporate culture. A way to achieve this, could be utilizing the change champions awarded in the sixth step as cultural change agents, which service as role models for the rest of the organization.11 4.5.2 Workforce Enablement and Skill Development The step into an international environment does not only need be supported by senior management, but also rests upon the skills and abilities of the operational workforce. It is therefore of great importance that employees develop the necessary skills to strive in an international environment. According to Larson and Gray (2011) the following skills, experiences and traits are thereby of critical importance for international success and thus should be present or developed in employees: Skill Description Experience in working with other cultures Potential candidates for supporting the internationalization process should already be experienced in an international environment, as it reduces the familiarization period. Understanding of local customs In the vein of the above, key personnel should already have an understanding of the local customs in the target country, including religion, social etiquette and business protocols. Knowledge of local language Being able to understand and speak the local language is a huge asset to the organization. It allows an easier conduction of business and is often highly appreciated by the local partners. Relationship or family status: When considering candidates for the internationalization process, the relationship and/or family status needs to be considered. It will be easier for a single to commit to foreign assignment than for a family man. If an employee with a family is committed to working abroad, the organization has to ensure that the entire family is supported accordingly, including appropriate housing and education. Table 9 – Required Workforce Skill Set 11 An easy to read and entertaining guide how to apply Kotter’s eight steps has been published by Kotter and Rathgeber in their 2006 tale “Our Iceberg is melting”. The book tells the story of a group of penguins that have to face dramatic change as their iceberg is melting. Assets and Competences needed to internationalize the IT Function 49 Gathering and developing personnel that posses and fulfills the above requirements is major milestone to the internationalization process. The question how to identify and develop the right candidates shall now be examined in the following “How to…?”: How to enable a global workforce? One way to enable a global workforce is to follow a typical iterative approach composed of an as-is assessment, the determination of the gap between as-is and to-be skills and the subsequent roll out of measures to close the gap: 1. Assess as-is situation by formal screening process Larson and Gray suggest using a formal screening process to ensure a careful selection of personnel for international projects. Much of the required information might be deductable from human resources data available about employees, e.g. international work experience and language skills. Other aspects require a more personal screening approach. Hence, potential candidates should be interviewed by trained psychologist to identify character traits that prepare them for the challenges of internationalization as well as fields that need further development. 2. Determine skill gap (as-is vs. to-be) Once all potential candidates and their individual strengths and weaknesses have been identified (as-is), it is necessary to assess them against the skills needed for working in an international environment (to-be). The comparison will leave the organization with an individual gap for each candidate, which needs to be closed in the next step. 3. Roll out skill development To close the identified gap and to develop the missing skills, it is recommendable to follow a training approach as introduced by Larson and Gray (2011). Depending on the planned duration of the international stay and the time available for training, they propose three different approaches. The “information giving approach” uses lectures, books or films to teach the necessary skills and is best suited if there is little time or the foreign stay in comparably short. The “affective approach” is intended for a stay of medium length with 1 to 4 weeks of preparation time. It complements the first approach with role-playing and case studies and thus provides more extensive learning. The “behavioral/experiential approach” is the approach used for stay longer than a year and if there is a minimum of one month available for training. It uses assessment center and in-field experience to provide indepth knowledge. A Competence Framework for IT Internationalization 5 50 A Competence Framework for IT Internationalization The following chapter reflects on the research findings made in the previous two chapters and gives reasoning why the above research topics have been examined and how the author believes they fit together as one holistic framework for internationalization. To do so, first the actual framework is assembled using the introduced building blocks, before considerations about how to apply the framework in practice are addressed. 5.1 Assembling the Competence Framework Recalling the problem statement given in the introduction, the overall goal of this thesis is to identify ways how the IT function can effectively face the challenges of increasing internationalization, while at the same time serving as one important enabler for international corporate success. To achieve this goal, the author argued that the first step needs to be the formulation of a clear vision, which shall guide all future organizational activities and reduce total risk by subordinating every organizational action to one common target. Hence, in the framework the formulation of a vision shall serve as the inner core and heart. The framework core in turn shall be surrounded by a first layer, representing the logical step that follows the vision formulation: developing a strategy and specifying the vision in a tangible plan for achieving the goals. Having a sound strategy allows the organization to move forward in the internationalization process and it reduces the danger of facing internationalization risks and challenges unprepared. Once the vision and strategy foundation has been established, it has been shown that the organization needs to turn its interests towards four main competences most critical to international success. These competences carry the vision and strategy further into the organization and support the overall organizational change process. As introduced above, these are: 1. Global IT Governance: Provides defined global hierarchies, decision rights and guidelines, which increase the probability of international success and reduce misalignment and mismanagement. 2. Global IT Infrastructure: Allows seamless global data and knowledge exchange as well as global communication, by introducing IT infrastructural and architectural standards. It thereby allows reduction of cost and commercial risks. 3. Global IT Project and Portfolio Management: Ensures that the global portfolio of projects is managed for maximum success. It thereby supports all other competences, reduces total risk, and ensures that all projects work towards the overall vision. A Competence Framework for IT Internationalization 51 4. Global Organizational Enablement: Makes sure that all parts of the organization are enabled for the changes coming along with internationalization. This includes changes in the organizational structure as well as changed skill requirements for the workforce. Hence, successful organizational enablement helps reducing the exposure to international risk by raising the overall preparedness. All four competences build upon the formulation of a vision as well as strategy and are equally relevant; therefore, they shall be represented by a second layer, which surrounds the framework core and first strategic layer. The international environment is represented by one last outer layer: International Global IT Governance International Vision Global IT Infrastructure Global IT Project & Portfolio Mgmt International Strategy Global Organizational Enablement Environment Figure 16 - A Competence Framework for IT Internationalization 5.2 Important Considerations for Applying the Framework To take full advantage of the proposed framework and make use of it a few aspects need to be considered as shall be explained in the following. Even though fairly obvious, the reading direction of the framework needs to be from the inside to the outside to ensure maximum success. This implies that a vision needs to be established before the strategy, which in turn serves as the foundation for the main competences. Moreover, it is important to keep in mind that some of the above presented assets and competences only have relevance for organizations in the later stages of the internationalization process. Not all assets and competences are required in the ini- A Competence Framework for IT Internationalization 52 tial stages of the internationalization process. For example, an internationalization strategy is a necessary asset from the start, whereas the establishment of global IT governance or a global IT infrastructure becomes more relevant with increasing international maturity. Also, not every organization will be in an entrepreneurial stage where the organization is designed from scratch. Many organization already have some sort of as-is situation that needs be transferred into a desired to-be state, which raises the question “Can the framework support this endeavor?”. The answer is yes, the introduced methods and findings can be used to assess the current state and to identify fields of improvement. Thereby an organization might come to the conclusion that certain competences needed for internationalization are already fully developed and do not need to be improved. Hence, the framework is intended to serve as a library out of which the organization can choose methods most appropriate at that point in time. Lastly, it has to be noted that the framework might not be applicable to every organization. Even though the introduced concepts are quite universal and need to be in place in the majority of organization, some cooperation located highly specialized industries might have very specific needs, which cannot be fulfilled by the proposed framework. The size of the organization also plays a critical role, as shall be explained in further detail in the following section. Limitations and Future Research 6 53 Limitations and Future Research In order to give a holistic picture of the examined research area it is of great importance to reflect on possible limitations of this thesis and to give an outlook on possible future fields of research. Thus, this section addresses identified limitations and points into direction of future research. The fact that this work is entirely based on literature analysis without any infield research is one the most obvious limitations and might lead to conclusions and measures that sound valid on paper but are hardly applicable in practice. Hence, to reduce literature blindness and the assumption of a perfect world, one track of future research could be the application of the proposed framework in practice and the assessment of the results. Furthermore, due to the restriction of maximum characters allowed for this thesis, there has only been room for a relatively brief insight into most theories and best practices associated with the competences needed for internationalization. Thus, to be successful when internationalizing the IT function, one should complement the selection of literature in this thesis with further readings. Again due to character restrictions, there has not been a true distinction between MNEs, SMEs and Born Globals and their unique requirements. The author is of course aware of the fact that every organizational type has its own character and that measures, which work for a MNE do not necessarily work for a SME or a Born Global. Moreover, it needs to be mentioned that there also could have been a greater differentiation between the characteristics of industries. The IT function of e.g. a car manufacturer has different internationalization requirements than of an internet based business such as Facebook or Amazon. The internet crosses boarders by default and thereby easily enables internationalization, whereas the establishment of physical representation, which is needed for most industries, is a far more challenging task. Hence, a second track for future research could be the adaptation and assessment of the framework to one particular type of organization or industry. This would help sharpening the framework and lead to potentially better internationalization results of certain organization types. Conclusion 7 54 Conclusion As presented in the introduction, our business and cultural world is characterized by increasing global trade, traffic and knowledge exchange, which confronts today’s managers and employees with new tasks and challenges. Organizations are asked to be able to flexibly adapt to constantly changing realities as well as cultural differences. To be successful, managers must have the courage to follow new paths and leave established ways of thinking and doing business. All of this sparked the interest of the author and ultimately served as the point of departure for this thesis trying to answer the question “How to internationalize the IT function?”. One potential answer was found in an extensive literature analysis, which ultimately led to the establishment of a framework for internationalization and six distinct building blocks. To be globally successful an organization should: 1. Establish a compelling and inspiring vision 2. Formulate a sound strategy considering internal and external factors 3. Build the necessary global governance structure 4. Support the governance with an appropriate infrastructure 5. Rollout the new structures with a well defined project and portfolio management 6. Enable the organization and its members to strive globally Reflecting on these six steps one can conclude that even though the competences needed and the tasks performed for internationalization are largely similar to the general establishment of any successful local organization, there are still some characteristics that need to be considered when internationalizing the IT function. These characteristics are often difficult to grasp and rarely tangible, as they comprise cultural and religious customs as well as regulatory differences. 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