A Company should spend money on IT that directly supports its business strategy and its operational effectiveness, and should not spend money that doesn’t. The management need to follow a methodology to control IT budgets and investments and at the same time achieve business objectives and help increase bottom-lines. It takes effective planning process, appropriate resource decisions, and workable budgets and plans. All of these should work consistently and efficiently together in tandem with business strategy to have a positive impact on business bottom lines. Often company’s business strategy is disconnected from IT plans as the former doesn’t drive the latter. As a result IT projects do not cohesively support business strategies, and IT spending on infrastructure, projects and support doesn’t seem to add expected value to the investment that is made.
Challenges in Current IT Scenario
After the dot com implosion occurred and revenue growth slowed, the pipe line of new innovations exposed poor quality of IT investments, misalignment of strategy/objectives, and imbalance of aggregated risk. Companies no longer afford to ignore IT interdependencies, collective support issues, resource allocation to various projects as all these affect cost, risk and value.
The complexity, rapid changes and volatility in technology sector continue to proliferate, making technology investments increasingly risky and uncertain. So the changes can occur as a result of
· Adjustment of business needs
· Industry trends
· Economic shifts
· Customer and constituent demands
· Regulatory requirements
· Competition and business challenges.
In addition, Internal Challenges and Pressures include,
· Clearly defined and clearly communicated business strategic objectives
· Complexity of innovation
· Product VS Service focus
· Value chain partnerships
· Cost Reductions
· Responsiveness improvements
· Efficiency enhancements
Tools and Methodology for converting business strategy to IT portfolios
The main practices that should govern while linking the IT with business are
Business Managers need to find a way to translate business strategy into terms that give IT a clear direction on company’s strategic intentions. These establish main drivers for IT strategy; IT possibilities need to be explained in business terminology that in turn helps business in creating innovative and competitive strategy. Ultimately IT strategy is responsible for enabling and influencing business strategic intentions.
The IT initiatives, assets and Projects are to be prioritized and aligned in line with business strategic intentions.
Measures IT performance in ways that relate to the business: While it is easy to develop metrics in operational terms, but the need is to develop metrics to measure the impact on business. There is a need for common taxonomy to help IT understand the strategic intentions and manage accordingly to help business to understand the performance metrics -qualitative and quantitative - compiled by IT and other business units.
The effectiveness above practices is affected by how fast the companies can able to align with this new culture. Some kind of maturity models help companies to identify and overcome the difficulties and factors affecting the company’s ability to execute the above practices.
Role of Enterprise architecture
Enterprise architecture describes the structure of the company in terms of means of production, customer service, strategy and objectives and use of information technology. It provides models to portray component parts of a company and how they work together to fulfill company’s vision. It connects company’s business structure with information technology, and the technology architectures needed. Enterprise architecture includes information architecture, organization and business process architecture and Information technology architecture. Enterprise architecture guides the construction and development of business organizations and business processes, and supporting information systems. Proliferation of new technologies and innovations requires a disciplined approach to creating and maintaining Enterprise architecture. Client-Server communication, Web technologies, related communication networks enable distribution of information throughout the enterprise. Rapid information technology proliferation, incompatible application systems, multiple networks, islands of solutions, inaccessible data pronounce the need for an enterprise architecture that can respond to demanding and changing business situations. The framework is a simple and logical structure for classifying and organizing the descriptive representation of an enterprise. It is significant to both the management of the enterprise, and the actors involved in the development of enterprise’s systems. While the framework is focused the application oriented area of enterprise architecture, it’s scope include non-IT components such as people, processes, and time, making it an appropriate addition to the overall IT Strategy toolkit for CIOs. Enterprise architecture as-is model is used for knowledge management functions. The to-be model is used to represent as a target definition for use. These models are used to generate better projects. In this role, EA provides insight into what those projects should be, by doing gap analysis between the as-is and to-be architectures. The use of EA makes it a strategic planning tool - in the sense that the decisions of the to-be models, particularly the data and function models in Zachman term, represents strategic design for what the enterprise should look like. This needs to occur in response to business drivers and strategic intentions.
Business value of IT - Motivations for IT Portfolio Management
Critical capabilities for supporting the business value of IT include
· Prioritization and alignment with corporate vision
· Balanced investments across business units
· Pragmatic cost and risk control mechanism
· Rational decision making process
· Flexibility to reassess and re-balance priorities
· Adherence to mandated compliance and regulatory requirements
Since IT represents sizable portion of the budget spending, the IT became an important asset for any organization. Recent research shows that IT spending is currently (1.5% to 7% of gross revenue and represents greater than 70% of capital spending for most companies. IT investments often lack in careful and disciplined management, processes and performance measurement.
A key discriminator for Adaptive organizations is sensing the trends, changes earlier in the cycle and respond to the same with near real time precision. Some of the technologies that help in achieving the required agility are Web services, thin client architectures, composite applications, offshore IT outsourcing, SOA, on-demand computing, ubiquitous computing... The IT management role has evolved from managing the code development to integration management that is based on solid standards. Number of IT studies has indicated that there is a direct correlation between productivity and IT investments.
Broader Guideline to achieve of Portfolio Management the goals
· Creating and cataloging risk assessment
· Eliminating redundancies while maximizing reuse
· Scheduling personnel and resources optimally
· monitoring and measuring project plans
Methodology to achieve goals
There are three primary areas of IT Portfolio Management
1. Processes, Framework to plan, create, assess, communicate the execution of IT portfolio.
2. Tools to analyze the data, such as value, costs, risks, benefits, requirements, architecture and alignment to business strategy.
3. A common business taxonomy and governance that communicates and defines principles, policies, guidelines, criteria and accountability
Following are areas of concerns for various personnel in the organization
Market shares of business units, erosion of profits, Information quality, confused debate among different IT directors, slow implementation, disconnected IT islands at different business units.
Difficulties in IR ROI calculation, IT budget, declining in revenues, difficulties in interpreting finance data from various business heads
Slow time to market, competitors innovate faster, lack of business intelligence, and drop in sales
Maintenance and not innovation, lack of IT vision, lack of IT strategy, IT budget viewed as an cost (Not an investment)
Unavailability of data, Green screens, difficulty in using systems
Poor e-commerce linkage, lack of communication standards
Developing and evolving IT portfolio governance and organization
IT governance is the system by which an organization’s IT portfolio is directed and controlled. It describes the distribution of IT decision making rights and responsibilities among different stake holders in the organization and rules for making and monitoring strategic IT decisions.
The relation between IT portfolio management and IT governance is : IT Portfolio management provides framework, tools, language to support IT governance. It Portfolio Management also provides taxonomy between business and IT so that governance bodies can communicate effectively on portfolios, IT investments and risks, costs and values.
Governance is process designed to resolve ambiguity, manage short and long range goals and mitigate conflict between various departments. It is the systematic relationship between policy, processes and people enacted.
Steps to be taken for effective IT governance in support of IT portfolio management
· Organizations must understand their strategic and business objectives and assess its portfolio management maturity. Putting principles in place to steer appropriate behavior that align with strategy, investment objectives and tolerance for the risk.
· IT portfolio management should be leveraged to communicate the IT portfolio management
· IT processes should be cleaned up and standardized
· The existing business processes and IT activities that naturally need to be identified.
· These include Budgeting, program management, architecture group, quality, sourcing relationships etc.,
· Identify appropriate personnel
· Baselines for measuring the effectiveness of IT governance.. For example, project spending per revenue total IT cost per end user etc.,
· Assessing IT portfolio management process execution
· Human resource capabilities and core competencies
· Resource allocation
· Core capabilities
Based upon priorities and external conditions, portfolio management framework assigns weighting to criteria to the above factors. The weighting in most cases - depends upon external environment
IT Portfolio Management Maturity Model
Due to lack of infrastructure for real time reporting, performance measurement, business analytics and accepted governing principles, there is a need for model that evolves and matures as the management gets more insights into the collection of key data and and it’s usage in various stages of IT portfolio management. This capability maturity model allows organizations to benefit from it not only during rudimentary stages of IT portfolio management, but also helps in later stages as the model gets refined with the availability of quantitative as well as qualitative data. The various stages of IT portfolio management model are as follows...
Admitting --> communicating --> governing --> managing --> optimizing
Admitting --> communicating --> governing --> managing --> optimizing
SOA and its role in IT Portfolio Management
Service Oriented Architecture is a framework for integrating business processes and supporting IT infrastructures as secure standardized services that can be reused and combined to address changing business priorities. The goal of an IT portfolio is to deliver measurable business value while aligning and improving business and IT strategy. Portfolio management looks for opportunities for reuse and reduces redundancy. Also it requires near real time measurement of business processes and quick response from IT systems (or any other systems) so that the portfolio can be optimized and balanced to the changing and demanding requirements.
SOA helps organizations realizing the goals of IT Portfolio management, such as, Business-IT alignment, performance measurement, value delivery, risk management, effective risk and resource management. Over the time many business processes are implemented using IT systems, applications and products; many technologies are used to integrate these systems using various protocols; many new technologies like ubiquitous computing, messaging virtualization made the things complex labyrinth.
In order for organization to be agile and for IT portfolio management to be more effective, the role of SOA is a prominent one. SOA governance ensures various elements of the architecture function as expected and and maintaining a certain level of quality. A critical aspect of IT portfolio management and effective governance is the ability to track where resources are deployed across the organization, and determine the true cost of IT initiatives and associated risks. This comprehensive view is only achieved by managing IT like a business, leveraging systems to automate core processes and provide real-time visibility into key performance metrics
Planning aspects of SOA
To reduce the risk in adapting SOA in an organization, to fall inline with portfolio investment objectives and, at the same time, to ensure successful adaption of SOA we may consider following progressive levels of adaption. Each level may be mapped to the value investment categories as explained earlier.
Initial adaption: In this level, enterprises go through a technology validation and risk assessment that analyze technical and business impact from defined scope. These impacts can be later in actual implementations. This also involves early pilot testing of creating and exposing services from business operations conducted on existing or new applications. This gives early insights into capability to transform existing systems, non-functional requirement capabilities, and required organization structure.
Line of Business adaption: At this stage enterprise will identify the line of business and prioritize the processes where agility and flexibility offers increase in business value. At this stage we need to identify key metrics and critical success factors.
Enterprise Adaption: This level of adoption involves construction of business view of a service oriented enterprise, with complete Prioritization of projects based upon business value followed by architecture and implementation phases. Also, the enterprise activities need to be separated into different business domains and components that constitute the enterprise. At this stage, SOA governance council needs to be established with required power to empower, monitor and authorize the changes to services.
Enterprise and partner network adaption: At this level, there is a broad transformation of existing business models or deployment view of new business models involving not only the enterprise, but also it’s business partners, suppliers, or customers. For each of the business services and components, the road map follows the typical phases of IT project development with the established RUP phases for development (Inception, elaboration, implementation, and test production phases)
Governance provides an overarching structure to prioritize and then support the enterprise business objectives at strategic, functional and operational level. SOA governance functions under larger context of IT governance -which in turn functions as per the corporate policies and objectives. So SOA governance not only helps portfolio management to provide sufficient input on resources and infrastructure elements involved in the SOA engagement, but also provides feedback on functioning of business processes (IT implemented) in the form of metrics and views. Also SOA governance constructs rules, processes and organizational constructs needed for the effective planning, decision making steering and control of effective engagement to meet business strategic objectives. SOA governance thus takes the business architecture and architecture and portfolio as major inputs and prioritizes the services accordingly, and finally arrive at governance model.
Key SOA Governances processes include,
·Business component identification and Prioritization.
·Business exception fall back process.
·Architectural review and approval process.
·Architectural vitality process.
·Architecture communication process.
The standard for portfolio management Second Edition
IT (Information Technology) Portfolio Management Step-by-Step: Unlocking the Business Value of Technology
Service-Oriented Architecture (SOA) Compass: Business Value, Planning, and Enterprise Roadmap (developerWorks Series)