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Dividing, Measuring and Conquering?
Our survey reveals six different levels of portfolio management practice:
Level 1: Basic IT asset record-keeping (13%). The focus here is on what the portfolio contains (i.e., what is out there, and what do we have in terms of hardware, software and people resources?).
The primary challenges facing IT leaders operating at Level 1 is time management (there is no time to count the stuff), data management (there is no standard process or mechanism for aggregating the data) and political management (there is no structured forum for informed resource allocation discussions to take place).
Levels 2, 3 and 4: Demand management (67%). Practitioners at these levels generate reports detailing where and how IT spending takes place as well as how staff time is allocated and whether resources are kept or retired. They use these reports for the following activities:
- To control costs (Level 2). These practitioners are trying to get the portfolio under control. Here portfolio management manifests as the IT budget process.
- To enable and empower the business (Level 3). The focus is on giving the lines of business what they want. For Level 3 organizations, the most common words to describe activities are "empowering" or "enabling" the business. Portfolio management manifests as the IT strategic planning process.
- To redesign business processes (Level 4). These practitioners focus on giving the lines of business what they need, so at this level portfolio management is all about data- and fact-driven economic redesign of entire business processes. The most common words to describe activities here are "optimization" and "consolidation."
The massive complexity of contemporary IT can be radically simplified by focusing on these three E's:
Entry: how and which technology enters the organization.
Extraction: how technology operates to create value for the enterprise.
Exit: how technology exits the enterprise.
CIOs who empower and enable their businesses through Level 3 portfolio management can measure how they allocated time and/or resources to the three E's. Insightful CIOs recognize that one of the great benefits of portfolio management is that it helps identify what organizations should stop doing.
As André Mendes, chief integration technology officer at PBS in Alexandria, Va., explains, "Portfolio management for us includes a substantial focus on the elimination of separate databases, orphan programs and individual data islands. It also means the elimination ... of legacy applications running on nonsupported systems. Continuous culling of the deciduous trees in our software assets."
Level 5: Enterprise-wide resource optimization (16%). While comprising less than one-fifth of the sample population, Level 5 companies report the largest number of experiments or new practices. As one CIO put it, "We are still learning how to do it."
Portfolio management at Level 5 companies includes not just IT-based initiatives but all corporate initiatives. Enterprises at this level confront decisions such as choosing between funding a day care center for employee children at headquarters or a network upgrade for Latin American manufacturing. To make such decisions rationally requires that everyone from IT and business is aligned concerning goals. Thus, Level 5 enterprises are evolving a common language and method for representing the anticipated future-period value, risks, resources required, interdependencies and timing associated with all major initiatives.
Bankruptcy judges offer a surprisingly robust source of data on Level 5 portfolio management. In bankruptcy situations, all spending is analyzed, sequenced and prioritized centrally under the watchful eye of the bankruptcy judge. Bill Seltzer, now retired as the CIO of Office Depot Inc., credits his work with bankruptcy judges during the 1990s-era turnaround of Revco drug stores (now CVS) for his world-class feel for portfolio management. The sensitivity to resource allocation enterprise-wide is what Level 5 is all about.
Level 6: Ecosystem-wide optimization of nondifferentiating activities (4%). Enterprises at the top level turn their attention to driving costs out of not just their own operations but the operation of the entire industry. Level 6 behavior is present in portions of the financial services industry (e.g., credit card companies), and Wal-Mart is probably the best-known Level 6 player.
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