Information technology alone does not create any value. The quality of its integration as a whole within the Enterprise’s strategy does. Considering the value of individual IT related projects could hinder the optimization of the overall investment allocation. To address this weakness, techniques such as Project Portfolio Management (PPM), have been introduced in IT for several years now, but failed to deliver the expected results.
Back in October 2001, Scott Berinato wrote a lead article in cio.com magazine : “Using Project Portfolio Management to demonstrate IT value” , suggesting to leverage Schlumberger’s experience and implementing a 5 steps process: “1 – Put all your projects in one database, 2 – Prioritize the projects in your database, 3 – Divide your project into two or three budgets based on the type of investment, 4 – Automate the repository, 5 – Apply Modern Portfolio Theory to IT”. All this, will “help align IT, manage value and get you a seat at the big table”. That sounds good, doesn’t it?
Although the approach deserves important credits in term of introducing more discipline in the selection of IT related investments, we can observe that it does not meet completely the original expectations. I see three major drawbacks to this proposal:
- We have witnessed during the years 2000’s, important buzz around PPM, and lobbing from key vendors and analysts to promote off-the-shell solutions. These solutions were essentially targeting IT communities, with limited penetration in the other functions of business. I assisted a couple of years to a vendor’s event stressing the importance that CIOs should convince their management to use the product inside the business community. Although the commercial approach can be critized, it reveals the true nature of the problem. The proposed PPM concept was approached with the goal to resolve an IT issue not to optimize value for the company.
- We all practiced the everlasting debate of IT projects versus business projects, and know how inter-related Information Technology is with process and organization. Trying to separate them thru a specific focus on their investements is leading inevatably to a loss of value for the company.
- The concept of modern portfolio theory proposed by Harry Markowitz in the 50’s has an underlying complex mathematical framework that could overcome the targeted benefits. However the concept stays interresting to balance risk of investment to optimize value of a porftolio. One of the key problem as today is that there is no simple proposition to leverage this theory in the business world (versus financial market). Some attempts were made with the introduction of the “Real Options Theory”, but continue to fail on its promises. If you are interrested in this subject, I recommend here the reading of “Real Options: Managerial Flexibility and Strategy in Ressource Allocation” by Lenos Trigeorgis.
PPM is still an interresting proposition, but have a tendancy to isolate the IT function by focusing on its “own” projects, and fails short in term of optimizing the related investments by absence of a simple available model.
There is a certain confusion with leaders, using PPM, between investment strategy and its optimization. They are often confronted with the delicate exercice of prioritization of initiatives and amounts to allocate to different value propositions – What should it be, based on the strategy? This confusion is often exhacerbated by the quality of the governance process in place. The importance to separate the formulation of an investment strategy in changes, that must be conceived as a whole (all functions of the Entreprise) from its relative optimization is critical.
I will come back in the coming weeks with specific posts on this subject. So stay tune….