The first step involves mapping business and IT assets into a portfolio
representation. Although achieving this perspective is valuable in itself,
the most value to be derived from this exercise is from using portfolio
representations as a communication tool among various parts of the business,
the IT group, and the executive office. Senior business executives have a
firm grasp of portfolio concepts, making this an effective way to bridge the
vocabulary gap between the IT organization and business management and
explain the key drivers of the IT budget. Specific software packages (e.g.,
ProSight) provide advanced portfolio visualization and communication
capabilities.
Portfolio assets can be categorized either along the lines of assets and
projects or higher-level concepts. One common higher-level concept is
categorizing IT investments according to their levels of necessity and risk:
– Core: Expenditures that are necessary to keep an organization running,
such as paying the power bill
– Non-discretionary: Expenditures that are necessary to support organic
growth, such as buying incremental storage for a billing system as
additional bills are generated
– Discretionary: Expenditures required to support basic business change,
such as supporting a new employee by purchasing a new computer, setting up
an e-mail account, enabling file and print capabilities, and accessing
relevant business applications
– Investment: Expenditures to support competitive differentiation, typically
to deepen market penetration, such as investing in additional retail outlets
in an existing market or a new application module that enables salespeople
to cross-sell additional offerings
– Venture: Expenditures targeting massive innovation, typically to broaden
reach into new markets, such as expanding business to an additional
continent, developing a new pharmaceutical product, acquiring a new line of
business, re-inventing a government agency, or completely changing out a
major business application suite
Of course, leading organizations customize their categorization criteria to
their unique circumstances. What falls in a venture category for a
conservative organization may be considered an investment or even
discretionary spending in a more aggressive organization.
This variation also occurs across the business disciplines within a company,
either business divisions/departments or functional areas (e.g., sales,
marketing, service, product development, finance, human resources). For
example, a company that has product differentiation as its core competency
might look at new product expenditures as discretionary or investment
portions of its portfolio, while an organization that focuses on operational
excellence might view any expenditure on product differentiation as venture.
User Action: IT organizations should inventory and classify their assets,
operations, projects, and other expenditures as a portfolio of investments.
Many organizations invested considerable resources in defining their IT
assets during the Y2K assessment and remediation efforts of the late 1990s,
and this data can be leveraged for the portfolio management effort.
The portfolio representation of IT investments should be mapped to the
business’s portfolio of investments. This value-focused and business-aligned
perspective on IT spending should then be used by IT groups to facilitate
communications with business decision makers and facilitate sound IT
spending decisions that will maximize the return on the enterprise’s IT
investment, both during economic expansions as well as restrictive budget
environments, similar to what the IT industry is currently enduring.
META
Group analysts David Cearley, Val Sribar, Howard Rubin, Dale Kutnick,
David Lindheimer, and Doug Laney contributed to this article.
Editor’s Note: This article is the first part of a two-part series on META Group’s IT and business portfolio management model. Click here to read Part 2.