A survey of multiple factors influencing the selection of IT Governance

structure on multinational telecommunications company in Indonesia

Noor Alamsyah
Master Degree of School of Electrical Engineering and Informatics
Institute of Technology Bandung
Bandung, Indonesia
Email:alamsyah.noor@students.itb.ac.id

Abstract
Developing
Information
Technology ( IT ) Governance within an
organizations has alway been challenging.
This is particularly the case in
telecommunications companies that have
achieved growth through mergers and
acquisitions. When the acquired companies
are geographically located in different
regions than the host enterprise, the factors
affecting this integration and the choice of
IT governance structure are quite different
than if this situation does not exist. This
paper, surveys different factors that affect
the choice of IT governance structures in
telecomunnications companies that growth
through mergers and acquisitions in
developing countries such as Indonesia. It
examines proposals for building a
conceptual framework to achieve ideal IT
governance structure for multinational
telecommunications
companies
in
Indonesia.
Keywords--- IT governance, mergers &
acquisitions, telecommunications industry.
INTRODUCTION
In order to improve the competitive
power and business performance on a wide
scale and global, many telecommunications
companies are expanding outside their own
countries , including Indonesia as their
destination .Over the last 10 years, more than 3
telecommunications companies established in
Indonesia. As a consequence of this expansion,
the role of IT in each company change
significanly where now IT holds a wider role
in the achievement of overall business strategy
with a focus to provide full support to
exchange all sorts of information related to the
achievement of business goals, not only
between departments , but also between
countries and culture. As a result, we need a
design or IT Governance framework which
able to represent the dynamic and complex
business environment .

The traditional relationship of IT

providing support services to individual
departements within an organization has
evolved into one where IT now plays a broader
role in achieving the overall strategic goals of
the organization via a focus on global
enterprise-wide support. IT Governance in the
dynamic and complex business environment
has been pushed to the forefront of critical
issues facing the management of the
organizations.
IT Governance can be defined as
integral part of enterprise governance and
consist of the leadership and organizational
structures and processes thet ensure
organizations IT sustains and extends the
organizations strategies and objectives ( IT
Governance Institute). Three basic structures
of IT Governance within organizations have
emerged over the last two decades. These
structures essentially follow the basic concepts
of a centralized, decentralized, and
hybrid structure
that
represents a
combination of the two[1].
Centralized IT Governance has the
advantage of allowing an organization to
benefit from economies of scale and scope by
leveraging the planning process, the
acquisitions, and deployment of IT resources,
and control of wide standards and procedures.
In the decentralized structure, the
decisions regarding IT infrastructure and
application software development
and
deployment, as well as the management of IT
projects, are made at the divisonal and
business unit levels.
In the hybrid structure, the decision
regarding the overall of IT infrastructure are
made at the corporate level and decisions
regarding application deployment, as well as
the management of IT projects, are made at the
division and business unit levels, this structure
offers the organization to get the benefits of
both the centralized and decentralized

structure. There are multiple factors that may

affect the choice of IT Governance structures
in the context of multinational companies in
Indonesia.
Rest of the paper is organized as
follows. Section 2 discusses various factors
that may affect the choice of IT governance
structure. Section 3 presents various methods
of data collection procedure to support
integration process between host and
subsidiaries company. Section 4 concludes
with references at the end.
FACTORS INFLUENCING IT GOVERNANCE
A significant amount of the factors that
affect choice of IT Governance, the literature
suggests that the following categories of
factors are commonly recognized to be
influential on IT Governance: corporate
governance structure, goverment regulations
and policies, global and local market
competition and stability, organizational
culture, organizational IT competence, and
management predisposition.
Corporate Governance Structure
Corporate governance structure can
have a significant impact on the IT
Governance structures of organization. It is
argued that IT Governance and corporate
governance are related to such a degree that IT
Governance is viewed as subset of corporate
governance because successful enterprise will
need to be able to integrate the IS/IT
contribution with strategies, culture, desired
ethics of enterprise in order to gain business
objectives, optimize information value, and
capitalize on the utilization of technology.
Corporate governance usually focus
on the characteristics and roles of members of
the boards as well as the development of
process and organizational structures necessary
for facilitating achievement of corporate
strategies Organizational strucutures usually
has an impact on the choice of corporate
governance which in turn impacts the choice of
IT Governance.
B. Government regulations and policies
Government and regulatory policies
have traditionally heavily governed the
multinational companies both locally and
globally.Local policies in Indonesia, are also
quite different from their home companys
countries, partially attributable to the fact that
multinational companies have traditionally
been owned by the government of those

regions. The overall effect of the deregulation

process in multinational companies is the
removal of many traditional restriction.
This has resulted in much more
competitive markets by giving multinational
companies more leverage in priceing their
products and services, making use of new
technologies, and expanding into new markets.
The regulatory and policies at industry and
country level could significantly influence the
competitiveness of the markets in which
multinational operate and that in turn could
affect the IT structures and IT strategies of
these firms.
C. Global & Local Market Competition &
Stability
One of the main drivers of the
transformation
process
within
the
multinational companies is the need to be able
to compete for survival & growth, both locally
and globally. On the global scale, competition
for market share by forging new alliances
through merger & acquisitions may have an
impact on the governance structure chosen by
an organization, on the local level increased
competition as a result of lifting the restrictions
with regard to the number and monetary value
of foreign investments into local markets may
also have an impact on the governance
structure [5].
D. Organizational Culture
The collaboration and cooperation
often lead to modifications in the corporate
governance structures, which affect the IT
governance structures. Culture can be defined
as the collective programming of the mind
which distinghuises one group or category of
people from another [3].
There are several different levels of
cultural factors, including country and regional
cultures, industry cultures, and organizational
culture & subcultures. One of the factors that
affect organizational culture is the degree of
intervention from the state.
E. Organizational IT Competence
The level of IT competency possessed
by the host company in a multinational
company will affect the scope of any
collaborative activity. If the host company
doesnt possess high IT competencies, then
centralized IT governance structure will likely
not materialize. If the subsidiaries are weak in
their capabilities of planning and managing IT
infrastructures
and
applications,
a
decentralized IT Governance is less likely.

IT competency can be considered as a

special case of an organizations absorptive
capacity, which is defined as the ability of an
organizations employees to develop relevant
knowledge bases, recognize valuable external
information, make appropriate decisions, and
implement effective work process and
structure[2].
F. Management Pre-Disposition
Pre-disposition as it relates to IT
Division is largely influence by the
relationship between the CEO ( Chief
Executive Officer ) as senior executives and

the CIO ( Chief Information Officer ). The

relationship between the CEO and the CIO can
have significant impact on the successful of
use of IS/IT for strategic purposes[1].
The CEO should have global
understanding about businesss functions and
the CIO should have an understanding of the
value-adding potential of IT and make
aprropriate use of various IT oppurtunities.The
reporting of the CIO directly to the CEO
facilitated effective communications in order
to make appropiate use of IT within the
company.

Figure 1. Conceptual Framework Influencing the Selection of IT Governance Structure

VARIOUS METHODS OF DATA

COLLECTION

D.Semi-Structured/Unstructured Interviews
Conducted
initial
exploratory
interview with CIO of subsidiaries company.
Unstructured interviews conducted with other
employees

There are mainly 6 methods of data

collection procedure used to support the
integration process of multinational companies
: Literature review, Documentation, Archival
Records,
Semi-Structured/Unstructured
Interviews, Participant observation, and
Published sources[1].
A. Literature review
Reviewed existing literature on
corporate governance, IT governance, and the
trends within the telecommunications industry.
B. Documentation
Collected all relevant documentation,
e.g. proposals, progress report, and other
internal organizational documents highlighting
the integration and restructuring process.
C. Archival records
Obtained organizational charts as well
as results of a survey/questionnaire conducted
by a major consultancy firm.

E. Participant observation
The second author was in the unique position
of being a apart of the organization, thus
affording us the opportunity to obtain insights
that would not have otherwise been available.
F. Published sources
Newspaper articles, press release, and
other publicly available financial, statements
and filing by the company are also collected.
IV. Conclusion

This survey, discussed several factors

that had significant influence on the process of
expansion
of
multinational
telecommunications company, as well as the
corporate and IT Governance structure, such as
corporate governance structure, government
regulation and policies, global market
competition and stability, organizational
culture, organizational IT competence, and
management predisposition.
Data collection related to a set of
factors that affect the selection of IT
governance structure will support the
integration
process
of
multinational
telecommunications company. The result of
this future research will offer a conceptual
framework to identify and understand the
integration
process
for
multinational
companies that have grown through expansion
in Indonesia.

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