How to Manage Technology Investments Strategically

Corporate leaders commit enormous sums to technology investment and often, despite reams of “business cases”, on a hope and a prayer that this money will actually buy solutions to their problems. Investments in information technology are particularly mysterious, because it is so new and constantly changing. Nevertheless, it now accounts for half of all capital spending. Spent wisely, business technology investment can make the competitive difference, but if mismanaged it can chew through a few hundred million dollars on the way to a write-off.

If technology investments are to be strategic and effective, it is critically important to recognize that an organization will need not just hardware and software but new business technology management capabilities as well. Although new technologies can and have transformed the business landscape, they alone are not sufficient for success. The organization must make complementary investments in its business processes and structures.

Technology alone is not an answer to anything; managing that technology together with the business is. A critical tool in making wise technology investments is the use of a portfolio. While most of you are aware of the portfolio concept, most companies have not successfully used it to significantly improve the return on their investment in technology.

In several cases, setting priorities on projects is politically driven based on who thinks what is most critical. Although not surprising, I would argue that by applying a portfolio and program management (PPM) capability, organizations can replace political contests with fact-based decision-making. The general principle that drives many companies towards a PPM approach is a simple one: An automotive company wouldn’t manufacture a car without first undergoing a comprehensive analysis and design process to determine if the car would sell; how much it would cost to manufacture; what price it should garner; what features and functionality it should have; how long it would take to produce; and so on.

A corporation shouldn’t decide to invest in a particular technology without following the same general rule.

Various terms with various definitions have been used to describe this concept. We use portfolio and program management to convey its holistic nature. I define PPM as the enterprise-wide focus on defining, gathering, categorizing, analyzing and monitoring information on corporate assets and activity to achieve business objectives.

PPM can unite an organization’s efforts at every level. It is a completely different way of seeing, assessing and planning the business. Portfolios can be developed far beyond the project level. They can include business models, markets, and partner companies’ knowledge. They should include people as well as physical assets and answer such questions as: Do we have the right people, with the right skills, in the right place to quickly adjust our business to take advantage of a new opportunity?

This use of portfolios is analogous, to a degree, to financial portfolio management. For example, in finance, where the concept of portfolio management originated, an investor identifies and categorizes all assets and collects them in a portfolio. This allows the investor to see various aggregated views of individual investments. The investor might see, for instance, that the portfolio is weighted too heavily in one industry, has redundant exposure to one type of security, carries a certain level of risk and promises a certain level of return. The investor can then set a strategy and construct a portfolio likely to achieve an appropriate balance of risk-return.

In much the same way, technology asset portfolios reveal what a company owns and business technology project portfolios can reveal what its various arms are trying to accomplish. It can thus decide which pieces of all this activity are more likely to support the enterprise business strategy.

The bottom line is that effective PPM can help a company better align business technology spending with current and future business needs. PPM creates information and insight to help executives and managers make such decisions as:

  • Defining business improvement options and scenarios;

  • Analyzing implications/impacts of potential initiatives;

  • Setting target allocations for investment categories;

  • Evaluating and making decisions on project requests;

  • Evaluating the health of technology assets;

  • Determining appropriate sequencing of major programs;

  • Managing risk mitigation across the enterprise; and

  • Identifying and resolving critical project-related issues.

PPM provides a centralized and balanced view of the payoffs of various projects that lays out the benefits and risks of each one, making it possible to select among them and create an optimal investment portfolio. Through a centralized view of all business technology projects, a good portfolio will make it easy to ensure that investments are well balanced in terms of size, risk and projected payoff. Used wisely, it will actually increase business technology’s value by exposing projects that are redundant or risky, while revealing how to shift funds from low-value investments to high-value, strategic ones.

PPM moves an organization toward the convergence of business and technology management in several ways: It creates a “single view of the truth” about a firm’s operations, and it generates a common vocabulary and set of metrics. It permits a comprehensive set of decisions to be made before action is taken, identifying and resolving conflicts. It allows strategic direction flowing down to meet suggested courses of action flowing up in a formal management process. PPM is, in fact, continuous: strategic planning informs portfolio managers, who reassess programs and projects based on that information and information on the status of IT assets, risks and financial performance likewise influences subsequent strategic planning.

PPM provides information that links business needs with business technology activities enabling a converged viewpoint that is simply focused on business outcomes, rather than advancing the interests of one group versus another. PPM allows an organization to get beyond the incomplete approach of computing the ROI of individual projects. With a portfolio viewpoint, the payback of a project can be evaluated within the context of many projects contributing to a business goal. The merits of individual projects are not seen in isolation but in consideration of their contribution to business capabilities that enable a strategy.

In forward thinking companies, business technology portfolios become inseparable from other portfolios — R&D, new products, and the like — and become just another component of a business initiative.

Faisal Hoque is an internationally known entrepreneur and author, and the founder and CEO of BTM Corp. His previous books include Sustained Innovation and Winning The 3-Legged Race. BTM innovates business models and enhances financial performance by converging business and technology with its products and intellectual property.