The Dualism of the IT Department: The Agency Problem and Uncertainty Reduction in Corporations
Journal of Management and Financial Sciences, Volume VII, Issue 17, 2014
23 Pages Posted: 14 Feb 2015
Date Written: September 1, 2014
The relationship between corporation owners and top management can generally be described in terms of the agency model. This situation usually has a negative impact on the company value. In such an environment, access to information, its processing and reporting, become critical. Therefore, it should also be noted that a similar principal-agent phenomenon is present between the CEO and the IT management which controls data availability. In this paper we discuss some issues associated with the role of Information Technology (IT) and the IT manager (CIO). There is an interesting duality: on the one hand the CIO is involved in the principal-agent problem and on the other - his responsibility domain is a basic tool for the organization in dealing with uncertainty and asymmetry of information. The CEO and other members of the C-suite should be more involved in information management (not just information technology) as well as the board enticing the managers in charge of IT to share company business objectives so as they can become conscious and active partners in growing the business value. Information flow, access and monitoring should be designed in a transparent way and understood by all members of the interdisciplinary management team so that the CEO should be able to require innovation, strategy supporting indicators and IT can be capable of influencing business enhancement. This is especially consequential if we take into account the progress in information technology and its changing role from process automation into business information management.
Keywords: Asymmetric and Private Information, Transaction Costs, Criteria for Decision-Making under Risk and Uncertainty
JEL Classification: D82, D23, D81
Suggested Citation: Suggested Citation