microsoft solutions forum

8/11/2019 Microsoft Solutions Forum

http://slidepdf.com/reader/full/microsoft-solutions-forum 1/12

Professor Peter Weill

Microsoft Solutions Forum 2004:

Managing the IT Portfol io: Getting more value

from IT investments.

Monday,

September 6, 2004

© 2004 CISR MIT Sloan—Weill

1

Managing The IT Portfolio:Managing The IT Portfolio:Getting more value from IT Investments

Microsoft Solutions Forum 2004Microsoft Solutions Forum 2004


Director, Center for Information Systems Research (CISR)

MIT Sloan School of Management

Phone: (617) 253-2348, Fax: (617) 253-4424

[email protected]; http://mitsloan.mit.edu/cisr

Monday, September 6, 2004Monday, September 6, 2004


2

MISSION

ISSION

• Effective IT Governance

• Architecture-Driven Business Strategies

• Infrastructure as Variable Cost

• The IT Portfolio — Benchmarks & Performance

• NSF Project on IT Impacts

• Business Models & IT Investments

• Assessing IT Architecture Outcomes

• Managing IT-related Risk

2 2–2 3 TOPICS

Contact Information:

3 Cambridge Center, NE20-336

Cambridge, MA 02142

Ph. 617-253-2348, Fax 617-253-4424

E-mail [email protected];

http://web.mit.edu/cisr/www

CISR gratefully acknowledges the support and contributions of its Research Patrons and Sponsors

MIT Sloan Center for Information Systems Research (CISR)

Center for Information Systems Research

•• Founded in 1974; CISR has a strong track record ofFounded in 1974; CISR has a strong track record of

practicepractice - -based research on how firms manage &based research on how firms manage &

generate business value from ITgenerate business value from IT

•• Research is disseminated via electronic researchResearch is disseminated via electronic research

briefings, working papers, research workshops &briefings, working papers, research workshops &

executive education programs includingexecutive education programs including CISR SummerCISR Summer

Session “Current Issues in Managing IT” Session “Current Issues in Managing IT”

http://web.mit.edu/cisr/SS03http://web.mit.edu/cisr/SS03

– BT Group

– DiamondClusterInternational, Inc.

– Gartner– Hewlett-Packard Co.

– IBM Corporation

– Microsoft Corporation

– Tata ConsultancyServices—America

CISR Research Patrons

– Intel Corp.

– International Finance

Corp.

– Merck & Co., Inc.

– Merrill Lynch & Co., Inc.

– MetLife

– Mohegan Sun

– Motorola, Inc.

– National Kidney

Foundation (Singapore)

– Nomura ResearchInstitute, Ltd. (Japan)

– Pasco County, Florida

– Pfizer Inc.

– PFPC, Inc.

– Qwest Communications

– Raytheon Company

– State Street Corp.

– TRW Automotive, Inc.

CISR Sponsors

– Aetna Inc.

– Allmerica Financial Corp.

– Allstate Insurance Co.

– AstraZeneca

Pharmaceuticals, LP

– Banknorth, N.A.

– BiogenIdec

– Campbell Soup Co.

– Care USA

– Celanese

– ChevronTexaco Corp.

– Det NorskeVeritas

(Norway)

– eFunds Corp.

– EMC2

– Gillette Co.

– Guardian Life Insurance

Co. of America







Monday,

September 6, 2004


3

Rethinking IT Investments as IT Portfol ioRethinking IT Investments as IT Portfol ioBased on proven and familiar principles of financial portfolioBased on proven and familiar principles of financial portfolio

managementmanagement

Four Management Objectives for Investing in ITFour Management Objectives for Investing in IT

Creates an IT portfolio with four asset classesCreates an IT portfolio with four asset classes

Each asset class has different risk return profilesEach asset class has different risk return profiles

The role of senior management is to align the ITThe role of senior management is to align the IT

portfolio to strategy and balance for risk and returnportfolio to strategy and balance for risk and return

Top performing enterprises can get up to 40% moreTop performing enterprises can get up to 40% more

valuevalue — — IT PremiumIT Premium

– – DiagnosticDiagnostic



4

What’s in the IT Portfol ioWhat’s in the IT Portfol io

Source: drawn from Weill and Broadbent, SIM and CIOSource: drawn from Weill and Broadbent, SIM and CIO

IT Portfolio Total IT investments including all technology,

services, outsourcing and people dedicated to IT

—broken into asset classes. Can view as flow

(i.e. annual spend) or stock (i.e. accumulated

spend).

IT PortfolioIT Portfolio Total IT investments including all technology,Total IT investments inc luding all technology,

services, outsourcing and people dedicated to ITservices, outsourcing and people dedicated to IT

——broken in to asset classes. Can view as flowbroken in to asset classes. Can view as flow

(i.e. annual spend) or stock (i.e. accumulated(i.e. annual spend) or stock (i.e. accumulated

spend).spend).

IT Programs Groupings of projects linked to business goals.IT ProgramsIT Programs Groupings of projects linked to business goals.Groupings of projects linked to business goals.

IT Projects Set of activit ies creating outcomes

to a budget and timetable

IT ProjectsIT Projects Set of activities creating outcomesSet of activiti es creating outcomes

to a budget and timetableto a budget and timetable

IT Activities Core IT capabilities (e.g., specify, code, acquire,

test, manage, design, integrate, negotiate, etc.)

IT ActivitiesIT Activities Core IT capabili ties (e.g., specify , code, acquire,Core IT capabili ties (e.g., specif y, code, acqui re,

test, manage, design, integrate, negot iate, etc.)test, manage, design, integrate, negotiate, etc.)








Monday,

September 6, 2004


5

Management ObjectivesManagement Objectives

for Investing in ITfor Investing in IT1.1. Reduce cost of doing businessReduce cost of doing business

-- Transactional ITTransactional IT

2.2. Provide better informationProvide better information-- Informational ITInformational IT

3.3. Gain competitive advantage or major innovationGain competitive advantage or major innovation-- Strategic ITStrategic IT

4.4. Provide shared base IT capabilityProvide shared base IT capability-- IT InfrastructureIT Infrastructure

Any project may be a combination Any project may be a combination

Source: Weill & Broadbent “Leveraging the New Infrastructure: How market

leaders capitalize on IT,” Harvard Business School Press, 1998



6

INFORMATIONAL STRATEGICINFORMATIONAL STRATEGIC

TRANSACTIONALTRANSACTIONAL

INFRASTRUCTUREINFRASTRUCTURE

( ) = public sector

Source: Weill & Broadbent “Leveraging the New Infrastructure: How market leaders capitalize on IT,”

Harvard Business School Press, 1998. Percentages reflect data collected in 2001/02 from 140 firms.

Increased salesCompetitive advantageCompetitive necessityMarket positioning

Business integrationBusiness flexibilityReduced marginalcost of BU’s ITReduced IT costsstandardization

Increased controlBetter informationBetter integrationImproved qualityFaster cycle time

Cut costsIncrease throughput

(Innovation)(Major Change)(Facilitation)(High Value Added)(Interact with customers)

Rethinking IT as an Investment PortfolioRethinking IT as an Investment Portfolio-- asset class, risk and return, strategyasset class, risk and return, strategy

20%20%13%13%

54%54%

13%13%








Monday,

September 6, 2004


7

Publicly Available Infrastructure

(e.g. Internet, Telcos, Industry Nets)

Publicly Available Infrastructure

(e.g. Internet, Telcos, Industry Nets)

Shared / CentrallyCoordinated

Shared / CentrallyCoordinated

BusinessUnit 1

BusinessUnit 1 Business

Unit 2Business

Unit 2

• Order processing• Customer portals• Product configuration• Knowledge management

• Order processing• Customer portals• Product configuration• Knowledge management

• Vendors• Telecommunications service providers• Industry services

• Vendors• Telecommunications service providers• Industry services

Source: P. Weill, M. Subramani & M. Broadbent, “Building IT Infrastructure for

Strategic Agility,” MIT Sloan Management Review, vol. 44, no.1, Fall 2002.

The New Infrastructure has Multip le LayersThe New Infrastructure has Multiple LayersWhere to locate infrastructure & systems capabilities?Where to locate infrastructure & systems capabilities?

• Shared & standardapplications

• Customer self serve• PC/LAN service

• Shared & standardapplications

• Customer self serve• PC/LAN service

• Electronic mail• Large scale processing• Shared customer

database

• Electronic mail• Large scale processing• Shared customer

database

Firm-Wide InformationTechnology Infrastructure Firm-Wide Information

Technology Infrastructure

GG

RR

A A

VV

II

TT

YY



8

IT Portfol ios In Different IndustriesIT Portfol ios In Different Industries


3 Source: Leveraging the New Infrastructure: How Market Leaders Capitalizeon

Information Technology, Peter Weill & Marianne Broadbent, HBS Press, 1988.4 Services include Professional, Scientific and Technical Services, Health Care

Services, Social Assistance, Accommodation and Food Services

1 MIT CISR Survey of 256 enterprises for 2001/20022 MIT Sloan CISR study (Weill & Ar al) based on a stud y of 140

firms in 2002 using data from previous 3 years. NSF GrantNumber IIS-0085725

Information

(15)

Strategic

(5)

Transactional (40)

Infrastructure (40)

Util i t ies(18) 6.1%

Resources (3)1.9%Go v’ t ( 73) 8. 6%

IT Investment 1993–973

(54 businesses over 5 years)

Firm-wide $IT as a Percentof Expenses

(Two year averages)

(Number of Firms)

% of Total IT Outsourced 20012

IT Investment2

(Number of Firms)

Manu-

facturing

3.4

(53)

16

(98)

22% 14%

52%

12%

21% 12%

54%

13%

WholesaleRetail,

Transport

Retail 2.5

L og ist ic s 6.2

(8+10)

23

(21)

17% 17%

52%

14%

All

8.1

256

16

140(140)

16% 14%

57%

13%

20% 13%

54%

13%

Information&

Services4

Health Care 5.2

Professional

Serv ices 5.7

Te lecomm 6.5

(5+18+6)

13

14(14)

26% 11%

45%

18%

Financial

Services

15.4

(40)

(7)

15

13% 13%

13%

61%

12% 20%

14%

54%







Monday,

September 6, 2004


9

IT PortfolioMix of

Investments

IT PortfolioMix of

Investments

$IT compared toindustry avg. as %

of expenses orrevenues

$IT compared toindustry avg. as %

of expenses orrevenues

IT is 10-20%lower thanindustry average

IT is aroundindustry average

Average % o fRevenues &Expenses

IT is 10-25%higher thanindustry average

20% 15%20% 13%

13% 5%

14% 17%

Cost FocusCost Focus Balance Cost & Agi lit y

Balance Cost & Agi lit y

Average Firm Average Firm Agi lit y Focused Agi lit y Foc used

Business StrategyBusiness Strategy

Synchronize InformationSynchronize Information

Technology Portfolios to StrategyTechnology Portfolios to Strategy

42%

40%50%

15%

58%

11%

54%

13%


Source: P. Weill & M. Broadbent “Leveraging the New Infrastructure: How market leaders capitalize on

IT,” Harvard Business School Press, June 1998. (Based on a study of 54 businesses in 7 countries over

five years and 140 firms studied in 2001/02.)


10

Increased salesCompetitive advantageCompetitive necessityMarket positioning

Business integration

Business flexibilityReduced marginalcost of BU’s ITReduced IT costsStandardization

Cut costsIncrease throughput

Increased controlBetter informationBetter integrationImproved quality

• 25-40%Return

• Higher ROA

• Low Risk

• 25-40%Return

• Higher ROA

• Low Risk

• 50% Fail

• Some Spectacular Successes

• 2-3 Year Lead

• Premium Pricing

• Higher RevenuePer Employee

• More Sales FromCustomizedProducts

• 50% Fail

• Some Spectacular Successes

• 2-3 Year Lead

• Premium Pricing

• Higher RevenuePer Employee

• More Sales FromCustomizedProducts

Source: P. Weill & M. Broadbent “Leveraging the New Infrastructure: How market

leaders capitalize on IT,” Harvard Business School Press, June 1998 and analysis of

147 firms using data from 1999-2002. All relationships are statistically significant.

/

Information Technology Portfol io &Information Technology Portfol io &Business ValueBusiness Value-- performance of the 4 asset classesperformance of the 4 asset classes

20%20% 13%13%

54%54%

13%13%

• Shorter Time ToMarket

• Premium Pricing

• Superior Quality

• Faster Cycle Time

• Larger Margins

• Shorter Time ToMarket

• Premium Pricing

• Superior Quality

• Faster Cycle Time

• Larger Margins

• More Infra

Higher Growth

• Less Infra

Higher ROA

• More Infra

Higher Growth

• Less Infra Higher ROA

INFORMATIONAL STRATEGICINFORMATIONAL STRATEGIC

TRANSACTIONALTRANSACTIONAL

INFRASTRUCTUREINFRASTRUCTURE








Monday,

September 6, 2004


13

Why Some Firms Achieve MoreWhy Some Firms Achieve More

Business ValueBusiness Value2.2. Integrating Information Technology with Business PlanningIntegrating Information Technology with Business Planning

Executive management consideration of the information andExecutive management consideration of the information and

technology implications of their business strategies.technology implications of their business strategies.

Regular high level briefings on the implication of informationRegular high level briefings on the implication of information

technology industry developments.technology industry developments.

Accountabilities for achieving strategies which were clear and Accountabilities for achieving strategies which were clear and

documented.documented.

Articulation of the respective roles and responsibilities of bus Articulation of the respective roles and responsibilities of businessiness

and information technology management in achieving effective andand information technology management in achieving effective and

efficient systems and delivering business benefits. Managers wer efficient systems and delivering business benefits. Managers wer eenamed and held accountable.named and held accountable.

+8-8 0



leaders capitalize on IT,” Harvard Business School Press, June 1998.


14

3.3. The Role of Organizational Politics & Polit ical TurbulenceThe Role of Organizational Politics & Polit ical Turbulence

Exhibit a strong sense of community, a feeling of shared interesExhibit a strong sense of community, a feeling of shared intereststsand purpose and cooperation, amongst managers.This is reinforcedand purpose and cooperation, amongst managers.This is reinforced withwithreward systems and incentives that are based on a balance of fir reward systems and incentives that are based on a balance of fir mm--widewideand local measures.and local measures.

Why Some Firms Achieve MoreWhy Some Firms Achieve MoreBusiness ValueBusiness Value

Capture relevant data in one business area and willingly sharedCapture relevant data in one business area and willingly shared ititacross the firm. Cross functional and business opportunities areacross the firm. Cross functional and business opportunities are

actively sought to improve service and reduce costs.actively sought to improve service and reduce costs.

Encourage cooperation via cross functional teams, secondmentsEncourage cooperation via cross functional teams, secondmentsand movement of personnel.and movement of personnel.

+8-80










Monday,

September 6, 2004


15

4.4. The Role of User SatisfactionThe Role of User Satisfaction

Symptoms of problems are:Symptoms of problems are:

Lack of confidence in the reliability and completeness of informLack of confidence in the reliability and completeness of inform ationationin the systems.in the systems.

Lack of a sense of relevance and accuracy of the information inLack of a sense of relevance and accuracy of the information in thethesystems by the systems users.systems by the systems users.


Business ValueBusiness Value

A poor level of support provided to those using the systems. A poor level of support provided to those using the systems.

Particular problem areas are often slow or less than helpful helParticular problem areas are often slow or less than helpful hel ppdesks and slow or illdesks and slow or ill--prepared visits from technical personnel.prepared visits from technical personnel.

Limited user understanding often stemming from inadequate orLimited user understanding often stemming from inadequate or

poor quality training.poor quality training. Users feeling that the attitude and responsiveness of those whoUsers feeling that the attitude and responsiveness of those who

provide support for systems is begrudging and unprofessional.provide support for systems is begrudging and unprofessional.

+8-8 0





16

5.5. The Role of ExperienceThe Role of Experience

Redesign, simplification or reengineering of business processesRedesign, simplification or reengineering of business processesbefore a cent is spent on information systems.before a cent is spent on information systems.

Maximize the reuse of business process and information systemsMaximize the reuse of business process and information systemscomponents.components.

Every new information technology project that is not infrastructEvery new information technology project that is not infrastructureurehas a business person as champion with clearly identifiedhas a business person as champion with clearly identified

deliverables and responsibilities of the business and technologydeliverables and responsibilities of the business and technology

provider.provider.

Why Some Firms Achieve MoreWhy Some Firms Achieve MoreBusiness ValueBusiness Value

Infrastructure investments are treated separately from investmenInfrastructure investments are treated separately from investments ints in

applications to take account of their shared nature and long lif applications to take account of their shared nature and long lif e.e.

Innovative use of information technology in the business units iInnovative use of information technology in the business units i ss

encouraged by the information systems group even if firmencouraged by the information systems group even if firm--widewidestandards are not always followed. Integration can be achievedstandards are not always followed. Integration can be achievedlater if successful.later if successful.

+8-80


Source: P. Weill & M. Broadbent “Leveraging the New Infrastructure: How marketleaders capitalize on IT,” Harvard Business School Press, June 1998.







Monday,

September 6, 2004


17


Business ValueBusiness Value

-21 -40

-1 -20

19 0

40 20


IT Premium Count


18

Recommendations for ActionRecommendations for Action“ Top Ten Leadership Principles”“ Top Ten Leadership Principles”1.1. Integrate the information technology portfolio with strategy proIntegrate the information technology portfolio with strategy process.cess.

2.2. Take a portfolio approach to information technology and balanceTake a portfolio approach to information technology and balance riskriskvs. return.vs. return.

3.3. Determine the required service levels and outsource commodityDetermine the required service levels and outsource commodityservices to save costs while retaining architecture responsibiliservices to save costs while retaining architecture responsibility.ty.

4.4. Appraise, justify and manage infrastructure separately. Appraise, justify and manage infrastructure separately.

5.5. Actively manage IT Premium. Actively manage IT Premium.

6.6. Start with lower risk transactional systems.Start with lower risk transactional systems.

7.7. Agree on indicators of business value and responsibilities for c Agree on indicators of business value and responsibilities for costsosts

and benefits.and benefits.

8.8. Do post implementation assessments to track costs and benefits.Do post implementation assessments to track costs and benefits.

9.9. Understand and manage information politics.Understand and manage information politics.

10.10. Implement transparent governance processes.Implement transparent governance processes.* Source: P. Weill & M. Broadbent “Leveraging the New Infrastructure: How

market leaders capitalize on IT,” Harvard Business School Press, June 1998








Monday,

September 6, 2004

19

SupplementarySupplementary SlidesSlides


20Source: P. Weill & M. Broadbent “Leveraging the New Infrastructure: How market leaders capitalize on IT,”

Harvard Business School Press, June 1998.

Tracking the Impact of InformationTracking the Impact of InformationTechnology InvestmentsTechnology Investments

Revenue growth

Return on assets

Revenue per employee

Time to bring new product to mkt.

Sales from new products

Product or service quality

Infrastructure availability

Cost per transaction

Cost per workstation

Time to implement anew application

Cost to impl ement anew application

InformationTechnology $

Time

D i l u

t i o n

o f I T

I m p a c t s

BUSINESS UNIT FINANCIAL BVBUSINESS UNIT FINANCIAL BV

BUSINESS UNIT OPERATIONALBV

BUSINESS UNIT OPERATIONALBV

BUSINESS UNITIT APPLICATIONS BV

BUSINESS UNITIT APPLICATIONS BV

FIRM-WIDEIT INFRASTRUCTURE BV

FIRM-WIDEIT INFRASTRUCTURE BV

BusinessBusiness

ManagementManagement

ITIT

ManagementManagement

Sample Value MeasuresImpact Sought Responsibilities

Dilutionof Impact

C

Dilutionof Impact

A

B Dilutionof Impact

InformationTechnology $

BV = BUSINESS VALUEBV = BUSINESS VALUE








Monday,

September 6, 2004


21

Portfolios of Top Performers are DifferentPortfolios of Top Performers are Different11


Information

Strategic

Transactional

Infrastructure

1 MIT Sloan CISR study (Weill & Aral) based on a stu dy of 140 firms in 2002 using data f rom previous 3 years. NSF Grant Number IIS-0085725.2 Average in dust ry adju sted p ortf olios of t he top 1/3 p erfor mers o n ROA, % Margin & Revenue Growt h.3 IT as % of Net Sales (3 year average)/Industry average IT as % of Net Sales (3 year average).

Information

& Services All2Finance,

Insurance

Wholesale

Retail,

TransportManufacturing

All Firm s[N=140]

25% 11%

47%

17%

20% 13%

54%

13%

12% 20%

14%

54%

17% 17%

52%

14%

21% 12%

54%

13%

3 Year Relative IT Spend3 +11% +4%-10% +7%+3%

Top Performers[N=49]

27% 9%

47%

17%

20% 13%

54%

13%

11% 19%

12%

58%

18% 13%

56%

13%

25% 11%

51%

13%


22

RiskRisk--Return Profiles in the IT PortfolioReturn Profiles in the IT Portfolio

Type of ITType of IT

StrategicStrategic

InfrastructureInfrastructure

InformationalInformational

TransactionalTransactional

Abi lit y to reduce r isk & Abi lit y to reduce r isk &increase return through betterincrease return through better

IT premium (ITP)IT premium (ITP)Risk Return CharacteristicsRisk Return Characteristics

Strong ITP significantlyreduces risk of failure

High risk, huge potentialupside and 50% failure rate

Strong ITP increasesinfrastructure capability and

flexibility for a given cost

Moderate risk due to long lifeand business and

technical uncertainty

Strong ITP providesmanagement process t o

capitalize on the information

Moderate risk due to difficu ltyof acting on information to

create business value

Strong ITP marginallyreduces risk

Lowest risk with solidreturn of 25-40%

Increasing

Risk

Source: P. Weill & M. Broadbent Leverage the New Infrastructure: How market leaders capitalize on IT ,Harvard Business School Press, June 1998.


IT Premium = enterprise’s ability to gain above industry average returns from IT by better managementIT Premium = enterprise’s ability to gain above industry average returns from IT by better management







Monday,

September 6, 2004


23

MISSION

ISSION

• Effective IT Governance

• Architecture-Driven Business Strategies

• Infrastructure as Variable Cost

• The IT Portfolio — Benchmarks & Performance

• NSF Project on IT Impacts

• Business Models & IT Investments

• Assessing IT Architecture Outcomes

• Managing IT-related Risk

2 2–2 3 TOPICS

Contact Information:

3 Cambridge Center, NE20-336

Cambridge, MA 02142

Ph. 617-253-2348, Fax 617-253-4424

E-mail [email protected];

http://web.mit.edu/cisr/www

CISR gratefully acknowledges the support and contributions of its Research Patrons and Sponsors

MIT Sloan Center for Information Systems Research (CISR)


•• Founded in 1974; CISR has a strong track record ofFounded in 1974; CISR has a strong track record of

practicepractice - -based research on how firms manage &based research on how firms manage &

generate business value from ITgenerate business value from IT

•• Research is disseminated via electronic researchResearch is disseminated via electronic research

briefings, working papers, research workshops &briefings, working papers, research workshops &

executive education programs includingexecutive education programs including CISR SummerCISR Summer

Session “Current Issues in Managing IT” Session “Current Issues in Managing IT”

http://web.mit.edu/cisr/SS03http://web.mit.edu/cisr/SS03

– BT Group

– DiamondClusterInternational, Inc.

– Gartner– Hewlett-Packard Co.

– IBM Corporation

– Microsoft Corporation– Tata Consultancy

Services—America

CISR Research Patrons

– Intel Corp.

– International Finance

Corp.

– Merck & Co., Inc.

– Merrill Lynch & Co., Inc.

– MetLife

– Mohegan Sun

– Motorola, Inc.

– National Kidney

Foundation (Singapore)

– Nomura Research

Institute, Ltd. (Japan)

– Pasco County, Florida

– Pfizer Inc.

– PFPC, Inc.

– Qwest Communications

– Raytheon Company

– State Street Corp.

– TRW Automotive, Inc.

CISR Sponsors

– Aetna Inc.

– Allmerica Financial Corp.

– Allstate Insurance Co.

– AstraZeneca

Pharmaceuticals, LP

– Banknorth, N.A.

– BiogenIdec

– Campbell Soup Co.

– Care USA

– Celanese

– ChevronTexaco Corp.

– Det NorskeVeritas

(Norway)

– eFunds Corp.

– EMC2

– Gillette Co.

– Guardian Life Insurance

Co. of America

microsoft solutions forum

Documents