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6 steps to plan and prioritize IT investments

A recent article in Computerworld is titled IT investments deliver profits, study finds. I guess we shouldn’t be surprised by that, nobody would invest in IT if they didn’t get a return for their investment. The article reports the findings of research published in MIS quarterly which found that:

 

  • The effect of IT investments on sales and profitability is higher than that of other discretionary investments, such as advertising and R&D
  • Most of IT’s impact on profitability is accounted for by IT-enabled revenue growth
  • A $1 increase in IT expenditures per employee was associated with a $12.22 increase in sales per employee
  • There is no evidence for the effect of IT on profitability through operating cost reduction

The authors of this research also wrote a summary of their paper in The Impact of IT Investments on Profits, in MITSloan Management Review.

 

I have recently seen a number of other articles about how important it is for IT to invest in technology of one sort or another, and how this will deliver value for the business, for example IT Spending: Innovation Talk Vs. Survival Walk in Information Week and In the cloud era, let's start calling IT what it is: 'Innovation Team' on ZDNet.

 

Everyone seems to agree that we need to invest in IT to grow the business, but I have seen very little advice on how to identify the right investments to make. This is where IT service management can play a part. Processes such as strategy management, service portfolio management and demand management can help you to identify and prioritize the best investment opportunities, but it is really important to approach these the right way.

 

Here are some practical steps you can follow to carry out a review of your service portfolio:

 

1.   Ensure you have a good understanding of your overall strategy

 

You must have a clear understanding of what you are trying to achieve as a service provider before you can analyse your service portfolio. Make sure you know

  • The vision and mission of your organization
  • Which customers and markets you are going to work with
  • What will make you distinctive or special to those customers or markets
  • Your very high level objectives and critical success factors

This governance work is an important foundation to everything else that you do as a service provider.

 

2.   Understand customer outcomes

 

Listen to your customers. Forget about IT services and talk to your customers about their business. For each customer, make sure you understand:

  • Their vision and mission
  • Their objectives and critical success factors
  • Their business processes
  • The outcomes that are important to them

Create a list of all the important customer outcomes, and then ask:

  • How critical is each outcome to the customer?
  • How well do they currently achieve each outcome? (Don’t think about IT during this step)
  • How effective is IT support for this outcome?

I often use a simple 1 to 5 rating for each of these three factors, to provide a simple way of comparing and analysing the results of this work.

  

3.   Review existing services

 

Create a complete list of your existing IT services. If you already have a service catalogue then this step will be easy, otherwise you will have to do some discovery work to identify what services are being delivered.

Create a cross reference between existing services and customer outcomes. I usually use a spreadsheet for this, with outcomes across the columns and services down the rows.

When you can see the relationships between existing services and customer outcomes, combined with information about the criticality of each outcome and how well it is being met, you will find it very easy to identify:

  • Opportunities for new services that could create significant value for your customer(s)
  • Services that don’t contribute to any required outcomes, which should be retired (zombie services)
  • Services with overlapping functionality, which might benefit from rationalization
  • Services that are not making a good contribution to customer outcomes, which may need to be renewed or replaced

 

4.   Prioritize portfolio changes

 

You should now review all of the opportunities you have identified in terms of:

  • Criticality of associated business outcomes, and how well these are met
  • Cost of each new or changed service
  • Urgency in relation to business changes and opportunities
  • Risks of making the change, and risks of not making the change

This will result in a prioritized list of potential changes to your service portfolio, based on risks, costs and benefits.

 

5.   Document the service portfolio

 

Document the current and future state of the service portfolio, including information about the outcomes supported by each service. Ideally this should be a visual representation that is easy to share with other people.

 

6.   Next steps

 

Communicate the portfolio to your stakeholders, identify business sponsors for the changes that are needed and create business cases to support the investment required.

 

If you want more ideas about how to start thinking strategically, then read some of my other blogs:

Learn more about HP Consulting Services and how HP can help you shift your focus from operation to innovation.

 

For more info about me and what I can do for your organization, see my profile at our Technology Services Experts page.

 

Follow me on Twitter @StuartRance

 

 

 

Come to HP Discover2012. Explore strategies and technologies that shape next decade of IT. Register now http://bit.ly/TSRegs

 

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Comments
| ‎04-23-2012 04:53 PM

I think it is assumed in your post, but the role of having expectations, metrics and then adjusting based on what you've learned can't be overestimated. 

 

Now that environments are flexible and relatively unstable, recognizing when a shift is occuring or the results do not align with expectations significantly increases and orgnaizations responsiveness.

Stuart_Rance | ‎04-23-2012 05:19 PM

Charlie,

 

Thank you for your response. For me the key point about expectations and metrics is that they must be based on really understanding what your customers value, and how their business processes create value for their customers.

JoshuaBrusse | ‎04-24-2012 02:35 AM

Hi Stuart....spot on...very well written and you nailed all the important steps. I especially like the fact that you write about customer outcome because that does label it correct and makes us think and work outside the box. The only thing you haven't actually addressed how you prioritize between customers. E.g. in a bank...who has the highest priority...direct banking or wealth management? I often find that “the loudest” gets the most and that’s not necessary the best investment.

 

What is not mentioned also, because it’s of the topic, but nevertheless very important to get in place is the connection between business investment portfolio, IT service portfolio (application portfolio) and program portfolio so we really govern the investments.

 

Last but not least we need to include enterprise architecture as this will tell us if it is uberhaubt smart to invest in the technology we had in mind to support the services…

Stuart_Rance | ‎04-24-2012 06:51 AM

Joshua,

 

Thank you for this reply, I fully agree with all your points. The link between service portfolio management and enterprise architecture is especially interesting, and would be worth a blog post all to itself - you could probably write a whole book on just this one topic!

tjlongo | ‎04-25-2012 05:06 PM

I am in the middle of the book Benefits Management: Delivering Value from IS and IT Investments (John Ward, Elizabeth Daniel), which presents a straightforward framework and supporting tools to relate business objectives, investment benefits, business changes, and IS/IT enablers.  Though I have yet to reach the chapter on portfolio management, I expect it will be a satisfying read if it matches the quality of the first few chapters, and the approach in the book complements your post very nicely, Stuart.

Stuart_Rance | ‎04-25-2012 07:24 PM

Terry,

 

Thank you for this, I guess that is yet another book that I will have to find and read then.

 

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