Portfolio classes for the greater recession

In an economy that doesn’t move forward easily if at all, the traditional classes in portfolio planning aren’t enough. A Governing Board needs to establish a mix designed to deal with a long period of malaise.

That would be now, in case you missed the past five years. Organizations have made many one-time moves to try and buttress results: there’s been ever more offshoring, outsourcing and shifts in locales of operation.

Those games are playing out. Now we actually have to get serious about an environment that’s slow on growth and fast on cost rises.

The traditional portfolio divisions used by IT were a very few percent dedicated to transformation, a larger block of money (upwards of 1/5 of the total) to growing the number of capabilities in the portfolio, and the balance used to run, operate, maintain, replenish and handle compliance issues in the existing portfolio.

Top-flight organisations also set goals to shrink the portion absorbed by the “handle what exists” block, trying to get it down to 65-70% of total needs.

“Handle what exists” has a tendency to grow over time and slowly absorb much of the other spending. Vendors raise licence fees, labour costs rise (if not via salaries, then via benefits costs or government mandates), minor changes get more expensive as skills fall out of the mainstream, to take but three examples.

Today the Governance Board has to have a fourth category: one directed at the explicit reduction in “handle what exists”.

Projects here will be getting older software up to date, removing mods as the changes are made (otherwise retrofitting them is a permanent expense to the organisation). Other projects reduce duplication in the portfolio (mergers, acquisitions and departmental systems turned into corporate assets create these, as do vendors by expanding the range and reach of their products). Some products will be replaced because the local labour market is moving against them: I recall one enterprise that had a heavy investment in Visual Basic, but other organizations in their city did not use the product, and so finding contractors when needed was becoming expensive and problematic.

The goal here is to shrink the cost of the asset portfolio over time through a conscious and deliberate program of reinvestment. Decisions as to whether to use an outsourcer or -as-a-service cloud provider thus take on a much-improved economic profile before locking in a contract.

The other major thing that needs doing is to put more money into the “transformational” category — what some would call R&D (wrongly, in many cases) — and less into “growing functions” in the traditional sense.

Here, what the Governing Board is moving toward is getting out of process myopia. The “growth” category reflected more use cases or reports, typically. It assumed the client organization in the enterprise for whom the work was being done knew what they wanted and could therefore provide requirements.

Who knows how to handle the analysis of external information? Who knows what’s relevant in a social media analytics program? Who can say where the next value opportunities lie?

Who, in other words, can recognise the need (and specify) a Sony Walkman before anyone ever thought of the idea of a device on your belt that played music while you walked?

The “transformation” part is less about traditional IT R&D — trying out new technologies — and far more about trying to put together prototype solutions. These can be used for areas of enterprise differentiation (which will in almost 100% of cases be a matter of home-grown code, not a package: you are solving problems for which there’s no market, yet!), testing concepts, working with the client community to refine ideas.

The enterprise in a time of economic turmoil punctuating grinding periods of slow to no growth can afford to do without small expansions on what exists. It cannot afford to do without finding ways to leapfrog into new markets, new opportunities or new ways to sustain products at good price points.

Left ungoverned, enterprise planning will continue to put up a backlog of “growth” projects, ignore “transformation”, fail to invest in reducing “handle what exists” and thus drive the cost point higher with no value generated. It’s what we know how to do, and what our processes are designed to do — because economic growth masked the effect.

That’s why enterprise Governance of IT matters: to change what we know how to do.

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About passionateobserver

I am a passionate observer of our society, the economy, and politics. Mostly I don't like much of what I see, so I write as a concerned citizen. To the fray, I bring a background in the philosophy of history, a lifetime's reading, a work history in information technology management, consulting and education.
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