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Evolving Portfolio Management Practices
Our industry has migrated through three major eras of portfolio management behavior. In the first, the vendor-driven era, vendors constructed and determined the IT portfolio. CIOs were essentially told what to buy and when to do so.
In the second, the analyst/media/consultant-driven era, control over the portfolio still resided outside of organizations and within high-prestige subscription research firms, the ad revenue-engorged trade press and the consulting industry, which had a self-interest in conspiring to convince companies to buy into larger and ever more grandiose projects.
Next came the CFO/regulator era, which served as a palliative to the excesses of the previous two. Control shifted from outside the enterprise (people telling you what you should buy) to within it (people telling you what you can buy). And in fact, some enterprises may never evolve beyond this stage.
Those that do, however, will find themselves in a critical, exciting era of portfolio management: the IT leader-driven era, which will be characterized by a range of portfolio management-related practices and procedures.
The vast majority of midmarket IT executives responding to our survey (85%) consider themselves at Level 2, 3 or 4 regarding their portfolio management practices. One entertainment industry CIO follows a well-thought-out approach in which portfolio management is organized around three levels of business processes cross-referenced with application investments. "We analyze the results, seeking leverage and opportunities to eliminate duplicity," he said. "It started by looking primarily at the application portfolio. We then performed an exercise of categorizing applications by a quadrant defined by unique and differentiating [activities] and their contras. This was informative but did not reveal the opportunities. The epiphany was the cross-reference of apps by business process. The first crack with OPEX [operating expenditures] was revelatory and led to numerous efforts to seek leverage and guide future investment."
For midmarket CIOs, moving forward with portfolio management is the most important and dangerous initiative on the immediate horizon. One does not wake up one day and just jump into portfolio management. The worst thing an IT leader can do is attempt to install automated portfolio management tools before establishing and road-testing decision-making policies, practices and procedures with business stakeholders. Transitioning an organization from Level 2 to Level 3 or 4 and beyond requires a form of cultural surgery, where the CIO transplants a new behavior into a political body. This new behavior must be integrated with and linked to existing management rituals such as strategic planning, financial planning and resource planning.
This is not an impossible task, but it is a difficult one. Further, it is part of a longer-term trend toward improved IT decision making. Enterprises will be at a significant competitive and service-level disadvantage if they don't have Level 4 or higher portfolio management practices in place by 2009.
Portfolio management is to IT what the microscope was to medicine or the telescope was to physics: the tool that enables us to move forward. Wrapped around the tool is the need for fundamental rethinking of how we manage technology. High-performance organizations are adopting a management version of the scientific method. Science depends on organized skepticism: that is, continual and methodological doubting. Portfolio management is a way to identify and discuss those doubts and then move forward without fear.
SURVEY METHODOLOGY: In a series of open-ended questions, 250 CIO Habitat e-mail survey participants were asked their opinions about IT portfolio management. The CIO Habitat Report research team then conducted phone interviews with approximately 100 survey respondents, who were asked to expand upon their responses. Approximately 85% of the respondents were IT practitioners, and 15% were senior decision makers in the vendor, outsourcer and consulting sectors. The sample for this survey was evenly split between midsized and large enterprises.
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