Term/Case study
Chapter 8
Managing the Portfolio of Business Applications
Outline
Conclusions from Various Portfolio Models
Classifying the Applications in the Portfolio
Reconciling Demand and Supply Issues in the Portfolio
Generic Application Management Strategies
Portfolio Management Principles Applied to the Application Portfolio
Aligning Development Approaches to the Portfolio Segments
The ‘Special Case’ of Enterprise Systems
Managing Application Portfolios in Multi-unit Organizations
SWOT:
Strengths Weaknesses Opportunities Threats
Classifying the applications in the portfolio
An application is Strategic if it does or will a) create a clear competitive advantage for the business or b) enable the achievement of specific business objectives and/or critical success factors.
It is Key Operational if it does or will a) overcome known business disadvantages in relation to competitors or b) avoid known or foreseeable business risks becoming major problems in the near future or c) enable the organization to comply with legal and regulatory requirements (that affect its ‘licence to operate’).
It is Support if it does or will a) improve the productivity of the business and, hence, reduce long-term costs or meet general statutory requirements (that do not affect its licence to operate).
It is High Potential if the impact it could have is as yet uncertain but could be of a Strategic nature.
Key questions for application portfolio investments
For support applications, the general objective is clear (why = efficiency) and what needs to be improved is determined by existing tasks and activities. The main question is how to do that successfully, in terms of the most cost-effective combination of business changes and use of IS/IT.
For key operational applications, the how question still has to be addressed, but in addition considerable thought may be needed to define specifically what has to be done, and to which business activities or processes, to avoid potential disadvantage (why we need to do it).
Both what and how questions need to be resolved in strategic applications, but in addition we need to clearly understand why we wish to do it in terms of the business strategy.
Generic Application Management Strategies
Parsons described five strategies
Centrally planned
Leading edge
Free market
Monopoly
Scarce resource
Strategies define different roles and responsibilities for the three key parties
Executive management
Line management
IS/IT specialists
Centrally Planned
Senior and executive management need to be fully aware of the application, due to its potential impact on the future business strategy
Most appropriate for strategic systems
Demands the close attention of senior management to ensure the objectives are met and the necessary resources are applied
Most strategic applications are likely to span a number of business areas
A ‘task force’ approach is best suited
Led by a senior business manager
Team will be dedicated, preferably full-time
High-quality business resources (people)
IS/IT skills and knowledge
Requires direct access to top
Team has the authority to decide both what the system will do and how, in business and IT terms, that will be achieved
Centrally Planned
Senior and executive management need to be fully aware of the application, due to its Although a dedicated team is attractive, it is often difficult to achieve successfully in many organizations
The people it requires are often the most valuable in their existing jobs and are not readily given up
However; it is a very effective way of achieving clear objectives in a tight timescale
The need for key people to be dedicated to project teams may also limit the number of strategic developments that can be undertaken at any one time
Leading Edge
Senior management of the organization believe that they should be able to gain some business advantage
Adopting technology that is ‘leading edge’ in the context of its industry
Willing to fund some experimentation to evaluate technologies and ideas
Accept that not all the experiments will succeed
Evaluation of IT/IS ideas should be in relation to some potential business idea or need and carried out in conjunction with the business
Lead may come through seeing a technology in use elsewhere that may be potentially
IT specialists need to be involved in the evaluation to provide an objective to counterbalance the persuasive pitch of an IT supplier
Leading Edge
Technology is ‘brand new’ to the organization
Confined to the high potential quadrant for evaluation
Very high risk to apply untried technology in any other segment of the matrix
The technology MAY have significant potential for the business
It MAY NOT
Proceed carefully
If there is no advantage to be gained, it is perhaps best to let others take the risks.
Free Market
Business problems are resolved by IS/IT solutions close to the problem
Strong motivation to use the application
Design solutions that fit the problem better in terms of need, cost and time
Business-driven innovation in the use of IT
Very attractive to strong line managers with clear targets and objective
Longer-term issues and costs of supporting the resulting systems are often overlooked in the drive to deliver short-term results
Long-term costs of such a situation can become unacceptable
The business overall may be prevented from gaining strategic benefits from IS/IT
Most effective in producing many of the support systems needed
Appropriate strategy for some high potential evaluations
Can be a dangerous and expensive strategy in the long term.
“Opposite” of free market
Influence of the centralized IT management of supply options will standardize on solutions
Provide integration of information and applications
Control the cost of technology to the organization
Most expedient and perhaps ideal option in each case MAY have to be compromised to enable the long-term best set of applications for the organization
Senior management must set the priorities to make best business use of the IT resource available or Increase the size of the resource.
Well directed in terms of business priorities
If users are competent in specifying their needs, high-quality, integrated and maintainable applications are procured or developed
Can be adopted for support systems, but may produce relatively high cost solutions where cheaper, less comprehensive options would have sufficed
Monopoly
Scarce Resource
A financial strategy
Controls organizational spending on IS/IT through a budget limitation
Those investments that provide the greatest financial return will get priority
Priorities based on selecting cost-effective solutions that deliver clear economic benefits
Pros:
Forces both users and IT to find the lowest cost solution, based on long-term economics
Encourages the buying (renting?) of packaged software
Outsource to companies providing the same or similar applications
More cost-effective to modify business practice to use available software
Scarce Resource
Cons:
Expenses tightly controlled against the agreed budget to ensure that the maximum net financial benefit is delivered
This approach tends to promote ‘point solutions’ to meet local needs, and militates against flexible or integrated solutions, which will always be more expensive.
Emphasis on purely economically justified use of IS/IT is very appropriate for support applications
May produce effective key operational systems in the short term
Increased longer-term maintenance costs
Increased costs of future opportunities derived from integration
Does not encourage innovative or speculative uses of IS/IT
Precludes many strategic investments
The Generic Strategies and Management Control
Boundary control
Objectives and constraints are clear
Allows the project team discretion about how best to achieve the required outcome
This matches the change requirements of the support segment
Correlates with aspects of free market and scarce resourcing
Diagnostic control
A clear, prescriptive control based on sound knowledge of what has to be done to achieve performance targets
Most appropriate for key operational projects
Implies similar levels of prescription as monopoly
The Generic Strategies and Management Control
Interactive control
Appropriate when there is a vision of the potential ‘end point’
Much to learn in order to define, scope and develop an appropriate solution, and belief system
Project team is expected to create a new and innovative application
Belief System
Probably the most effective combination for managing the balance of initiative required and the risks involved in deploying a leading-edge strategy in the high potential segment
Trust moderated by a degree of boundary control
Using Generic Strategies in Developing the Strategy
Generic strategies have two main uses in the process of developing the IS/IT strategy:
Diagnostic
A way of understanding and describing the current strategies being used
A clear way of expressing how applications and investments are actually being managed
Strong correlation between the application success and the strategies adopted
Failure can be simply explained: the wrong strategy was adopted
Formulative
Can be used to identify a migration path toward the mix of approaches
Allowing more freedom, using new technology or tighter, monopolistic control may be more appropriate in the short term
More rigorous scarce resourcing of support systems might release resources to be deployed on strategic systems.
Relating Approaches to IS Strategy Formulation with the Generic Implementation Strategies
Organization led planning
Cross-functional views of IS/IT
Centrally planned strategy for implementation would best maintain that strategic view
Can be a challenge to organizations who reach this level of ‘maturity’ in IS/IT planning to select a less centrally dominated implementation strategy for the many projects that would be better managed in other ways
Business led investment
Driven by the plans for the particular business areas
Leads to uncovering high potential opportunities and to strategic investments
Can lead to a applications that are actually support
Aligns closely with the free-market strategy
Organization can fail to realize the full benefits available and only localized, support-type benefits materialize
Relating Approaches to IS Strategy Formulation with the Generic Implementation Strategies
Systematic approach
Highly analytical and structured method
Consistent, quality-based, highly structured implementation process of the monopoly
Planning approach and implementation strategy are risk averse
Administrative approach
Main objective is budgetary control of IS/IT
May result in a scarce resource approach to implementation
Portfolio Management Principles Applied to the Application Portfolio
Applications and products have life cycles, and move around the matrix over time
High potential applications and wildcat products are both risk investments that can be of strategic importance or “star” products
As the application is becomes used across the industry, it becomes key operational
A star product should become a cash cow when the market matures
Applications may become of support value only
Portfolio Management Principles Applied to the Application Portfolio
Applications and products require investment funding
Cash generated by profitable products is reinvested in cash-hungry future products, including benefits, such as:
Skills, knowledge and experienced resources
Organizational capability to develop and manage complex business systems and the evolving IT supply chain
Management commitment to the use of IS/IT in the business
Data and information held in the existing applications is a potential source of advantage if exploited through its use in strategic applications
Applications and products need to be managed
Resources allocated in accordance with their business importance, not their technical or operational peculiarities
Management capability and resources are normally in short supply and need to be continuously reallocated
Dynamically matching the available resources and expertise to the evolving portfolio priorities is essential to maximize the business benefits and sustain investment success
High Potential (Wildcats)
Process R&D – not ‘product’
How to make, market, distribute and service the new product, not just achieve the ultimate in product design
A weakness in many firms is ‘over-engineering’ products – satisfying the designer rather than the customer
A similar problem exists in IS/IT – satisfying the technical professional, not the user
Minimal integration
While being evaluated, risky ventures should be separated from mainline activities
Cost control
Reinforces the need for non-integration to ensure that the specific financial implications can be assessed
Restricting the time allowed for evaluation
Strong cost-based management is the most effective control available
The ‘investment’ may have to be written off
It is better if these evaluations are funded from an R&D budget and do not compete with funds required for the rest of the portfolio.
Strategic (Stars)
Continuous innovation
What the application does and how it does it
Keep providing value as an integral part of the business
Improvements will be business driven
Based on the need to sustain or increase the perceived benefits or competitive advantages
Whether to spend more money will be a business manager's decision
High value-added and vertical integration
Business manager has to understand how the application can enhance the business process
Business manager has the capability to make further changes to increase the value created
Business control of IS/IT resources
Ability to satisfy the unique needs of the particular situation without prevarication or accepting lower value-added compromises
Key Operational (Cash Cows)
Defensive innovation
Investment should only be in response to changes in the business, or technology, that threaten to put the business at risk
Risk should be quantified to ensure that the expenditure involved gives a net benefit over time
Deciding on further investment requires a joint evaluation between users and IT professionals
High quality (Description focuses on problems of Low Quality)
Low quality will reduce the effective economic life of an application
Increased user costs for ‘workarounds’ to overcome application deficiencies
Increased IT ‘maintenance’ costs due to increasing numbers of problems
Effective resource utilization
Sharing resources and expertise to reduce the costs
Transferring the management from a dedicated development team to a general support group after implementation
Reduces the cost, improves quality control, and discourages continuing poorly justified ‘enhancements’
Allows opportunities to reduce costs further from general improvements in IT infrastructure capacity and capability
Support (Dogs)
Support applications, like dog products, are not critical to an organization's future therefore:
Disinvest/rationalize
Reducing the organization's commitments to applications
Using software packages
Provisioning from the cloud
Outsourcing their operation and support
Outsourcing the business processes themselves
Sustained quality and efficiency
Quality of the application should be maintained in proportion to the costs of failure and
Calculated risks should be taken
The general rule is to adjust the business activity to fit the package, not the other way round
The rate of enhancement to any application should reduce as it progresses around the life cycle
Justification for investment becomes more quantifiable
Financial evaluation becomes both more meaningful and more decisive in the key operational and support quadrants
Aligning Management Styles to the Portfolio
High potential applications
Require a similar, entrepreneurial, style to wildcat products
Champion the application through phases of doubt or decide to stop if the potential is not realizable
This mode of operation is very appropriate for the high potential situation, but is quite dangerous elsewhere in the portfolio.
Strategic applications
Require more nurturing, to gain organizational acceptance through demonstrated contribution to future strategy
A style of ‘developer’: someone who will build a team and develop the resources necessary to achieve the task objectives.
‘Organizational climber’ – someone whose career ambitions will be met by being related to the achievement of organizational success
Aligning Management Styles to the Portfolio
Key operational applications
Require a ‘controller’ who is risk averse, wanting everything to be done correctly and failure never to occur
Reducing risk to a minimum via strict adherence to procedure and standards
Building an organizational structure and mentality that is self-checking and control conscious
Support applications
Best managed by ‘caretakers’ - get their satisfaction from achieving ‘the impossible, with no resources, repeatedly’
A reactive, problem-solving approach
Planning and resource management are less important than getting the job done expediently and efficiently
A multitasking, flexible approach to achieving results that are not of any strategic impact
Management Styles (cont)
An entrepreneur is a free marketeer, who pays little attention to established procedure
A developer is a central planner, close to the organizational goals, who builds resources to achieve results
A controller is a monopolist, uncomfortable with anything outside his or her control
A caretaker is a scarce resourcer, proving that he or she can achieve as much with less!
The ‘Special Case’ of Enterprise Systems
Affect a large number of organizational processes and functions, standardizing and integrating information, processes and activities
Enterprise Resource Planning (ERP)
Customer Relationship Management (CRM)
Call Center Management
Supply Chain Management (SCM)
Policy Administration and Claims Management (in insurance)
Electronic Patient Records (EPR) in healthcare
Managing Application Portfolios in Multi-unit Organizations
Constrain in the support segment implies corporate scarce resourcing for applications that are not unique in any of the units
Control is suggested for key operational applications to reduce unnecessary diversity over time to enable both a reduction in costs through effective resource use and the development and sustaining of expertise in application operation and use
Capitalizing on strategic application success requires some (business) central planning across the units to determine whether and how the same benefits can accrue across the organization
Communication facilitation is probably best established at the corporate IT center, via a Project Management Office (PMO) or similar unit