Public And Private Sector IT Governance: Identifying Contextual Differences

Public and Private Sector IT Governance: Identifying Contextual Differences

Abstract

This paper highlights systemic contextual differences and the unique IT Governance issues that might arise in public and private sector organisations. Public sector organisations constitute a significant component of economic activity in most countries. Like their private sector counterparts, many public sector agencies are struggling to cope with reduced or inadequate IT budgets and are continuously looking for ways to extract maximum value from IT resources. While both sectors face similar managerial-level IT issues and challenges, we argue that there are systemic differences between private and public sector organisations suggesting that a one size fits all approach to IT Governance may not apply.

Keywords

IT Governance, Public and Private sector organisations

Introduction

IT governance is the structure of relationships, processes and mechanisms used to develop, direct and control IT strategy and resource allocation to achieve the goals and objectives of an enterprise. It is a set of formal processes aimed at balancing the risk and return aspects of IT investment to consistently add value to the organisation. IT governance is ultimately the responsibility of senior executive management. In a broader sense, IT governance encompasses developing the IT strategic plan, assessing the nature and organisational impact of new technologies, formalizing the IT decision-making framework, developing the IT skill base, aligning IT direction and resources, safeguarding the interests of internal-external IT stakeholders as well as taking into account the quality of relationships between stakeholders (Korac-Kakabadse & Kakabadse, 2001; ITGI, 2003, Kordel, 2004). Over the long term, IT governance structures help focus an organisation on the strategic value of IT and ensures that high-level controls are in place to achieve and sustain benefits (BearingPoint, 2003; ITGI, 2003). More countries are implementing legislative measures to ensure greater accountability from organisations (Ridley and Liu 2004), and more organisations are adopting formal governance processes that specifically address the governance of important business assets including IT. Consequently, IT governance has become an integral part of the corporate governance landscape (ITGI, 2003; Van Grembergen, De Haes & Guldentops, 2004; AS8015, 2005).

The emergence of online technologies has significantly impacted government capacity to provide services. However, while the Internet enables web-based delivery of a range of services it does not in itself improve a government’s capacity to perform. European studies show that this is especially so in modern public policy environments characterised by organisational disaggregation of political and administrative control from traditional public-sector governance structures (Baptista, 2005; Dunleavy & Margetts, 2000). In market-focused organisations, the board and senior management are tasked with the responsibility of implementing governance structures that ensure the efficacy of investment decision-making processes (Weill & Ross, 2004). However, for many public sector organisations there is a more complex set of accountability relationships in place that spans the electorate, the public service, the government, and the parliament. At the federal government level in Australia, Federal Ministers are ultimately responsible for managing their departments and overseeing delegated responsibilities with secretaries (MAB/MIAC 1993).

At the same time, public sector organisations are confronted by ongoing structural changes, not necessarily of their own choice, to how they function and relate to a country’s economy and its citizenry. These changes are in turn bringing about a re-evaluation of the appropriateness of governance structures, processes and relational mechanisms in the public sector (Edwards, 2002; Gowland & Aiken, 2005; Howard & Seth-Purdie, 2005).

This paper contrasts IT governance issues in the private and public sectors. Our analysis focuses largely on an Australian context and begins with a discussion on the defining characteristics of public and private sector organisations and then expounds more on the IT governance principles by differentiating between IT management and governance. The paper further highlights the implications of public and private sector differences to IT governance approaches. While surveys have shown that many managerial-level IT issues and challenges are similar (Ward and Mitchell, 2004), we argue that there are systemic differences between private and public sector organisations that impact governance.

Defining Public and Private Sector Organisations

The distinction between the ‘public’ and ‘private’ sectors is not straightforward. Rainey, Backoff & Levine (1976) attribute this ambiguity in classification to an increasing similarity of role, context and function of organisations in both sectors. This difficulty has become more noticeable with recent public sector reforms, privatization and corporatization activities (Peters and Savoie, 1998). Public/private classifications are further complicated by the diversity of organisational types and operating missions including Non-Government and Not-For-Profit organisations. Consequently, different approaches have been used to distinguish between the public and private sector organisations. For example, some investigators have used a denotative approach in which organisational activities are used to differentiate sector membership, while others have adopted a common sense approach which assumes that the reader knows the differences between sectors (Rainey et al., 1976).

Differences are also echoed in the extant literature. For example, many political science models rely on agency theory perspectives to understand political influence on public sector organisations. In contrast, organisational theorists almost exclusively study individual-level behaviour in private organisations without reference to the impact of polity on organisational goals (Pandey, 2006). This paper adopts a broad analytic approach that attempts to give a definition of the two sectors. However, we do not claim to provide absolute explanations of the differences and similarities between private and public sector organisations.

As shown in Figure 1, private and public organisations can be defined by the level of government or market influence on ownership and control. In our analysis, the private sector consists of entities which are for the large part not government-controlled. However, these entities can be either profit-making or non-profit-making. As a consequence, profit motive is used to highlight the distinction between organisational forms such as NGOs and charities with mutual organisations and public companies. Private sector non-profit organisations are formed for the purpose of humanitarian service or to undertake advocacy activities on behalf of community interest groups.

In contrast, public sector organisations are a collection of a nation’s administrative and economic institutions that provide services and goods for and on behalf of the government. It encompasses the sub-sectors of general government - mostly central/federal, state and local government units as well as government run for-profit corporations. Public sector organisations are generally reliant on government budgetary allocations for their funding (mainly government departments, controlled by Ministers and Government Departmental Directors/Chiefs) – these will be referred to as ‘public service’ or just ‘government’. It also includes ‘semi/quasi government’ organisations that are self-funded with some revenue flow from the sale of goods and services independent of government budgetary allocations. Examples include hospitals, nursing homes, registration boards, regulatory bodies of different types and statutory authorities. Although they may achieve a surplus, semi-government organisations do not usually make distributions to owners (Winston, 1997). Somewhat controversially, we have classified universities as just falling into the for-profit/private sector quadrant which largely reflects the historical independence and the increasing market-focus within the Australian higher education sector (Davis, 2005; Meek & Wood, 1997).

Figure 1: Profit Motive for Private/Public Sectors Organisations

IT Governance versus IT Management

IT management focuses on the internal effective operation of IT products and services, as well as the administration of existing IT operations. In contrast, IT governance is a higher level activity aimed at ensuring that IT activities are aligned with the present and future demands and goals of the business and its customers (Van Grembergen et al., 2004). Earlier approaches such as the Strategic Information Systems Planning (SISP) model first described by King (1988) focused on the achievement of effective ARE planning processes. While IT governance acknowledges the need for effective planning, it also emphasises the organisational mechanisms required to achieve IT and business alignment.

The formal conceptualization of IT governance is relatively new and emerged in the late nineties as a subject matter for academic research (see the works of Brown, 1997; Sambamurthy & Zmud, 1999; Peterson, O’Callaghan & Ribbers, 2000; De Haes & Van Grembergen, 2005). Before this body of work

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