Portfolio proliferation

The authors propose that managers look at IT the way investment managers look at financial assets. IT portfolio management thinks in terms of IT asset classes and risk-return profiles

IT savvy firms think in terms of an IT portfolio. The portfolio will distinguish between the maintenance of existing systems and the development of new ones. IT savvy firms will have a higher proportion of their budget devoted to new systems (40 to 50% as opposed to a 20-33% average). The portfolio will also contain risk-return profiles for the projects. Just as financial portfolios have different asset classes so will IT portfolios. An IT portfolio developed at MIT’s Center for Informations Research (the authors work at this center) features four classes: strategic, informational, transactional and IT infrastructure.

Strategic investments focus on experiments and are therefore riskiest –the authors claim that about half of all such strategic investments fail. Informational IT covers internal (e.g. sales analysis) and external (e.g. product information for customers) communication as well as regulatory compliance. Transactional IT cuts costs or increases throughput for the same cost. Here we enter the domain of standardization with strong ROI based cases and low risk. Infrastructure investments provide new capabilities or cover preventive maintenance (like road rebuilding in the physical world…).

IT investments should be reviewed by asset class with management seeking the right mix of investment across classes and across risk profiles EMC, a $ 14.9 billion company specializing in storage systems, software and service, is the authors’ example of a company implementing such a portfolio –the 2006 portfolio showed balance with 23% in strategic IT, 20% in informational IT, 23% in transactional, 34% in infrastructure. The authors note that a quarter of Fortune 1000 companies have adopted such IT portfolio management