At the end of my last post, I mentioned IT Portfolio Management, but I didn’t explain what that was or explain how it can help you manage your transition to the cloud. In this post, we will explore this topic a bit further.
IT Portfolio Management (http://en.wikipedia.org/wiki/IT_portfolio_management) is a topic that’s been around for some time. There are many flavors of this from different universities and think tanks. The fundamental concept is that IT is a business investment. And like any good investment your IT portfolio should be managed. This implies that you have some form of portfolio diversification to manage long term risk. For our purposes, it is the risk management aspect that comes into play when we discuss cloud.
There are a great number of ways to do IT Portfolio management. As I’ve previously mentioned, I’m a big fan of the work being done at Cranfield School of Management in the UK so I’ll use their version here.
As you can see in the diagram above, Cranfield breaks IT investments up into four quadrants: High Potential, Strategic, Key Operational and Support. We break them down in this order because it is not unusual for investments to move through the portfolio in this order. The quadrants are defined by contribution to the business’ future on the X axis with the higher future value being on top and then dependence on the current solution on the Y axis with higher current dependence on the left. The idea is that you can take all of your IT investments and chart them against these two axes. You’ll then get your own breakdown of IT investments. As an exercise, think about all the IT projects your team is working on. How would your business users chart those activities against
the chart above? Are you working on mostly “Key Operational” tasks? Here’s a hint: It’s super hard to raise top line revenue if you are not working on the top half of this chart.
Here’s an example of how IT investments can work through this chart. Let’s think about ATM’s. At one time, long ago, ATM’s were a futuristic technology. Large banks thought about investing in this new technology but they were not sure if customers would accept the idea of working with a machine to get their cash instead of talking to a person. This made them a “High Potential” technology because they had potential but their value was unproven. Then, over time ATM’s became a bit more common and people really liked them. The banks who had aggressive ATM deployment programs gained significant business advantage over their rivals. Thus, the technology moved from “High Potential” to “Strategic.” The business became very dependent on the ATM’s. Fast forward a few years and ATM’s become ubiquitous. Every bank has one. You have to have an ATM to become a bank. Thus, ATM’s become “Key Operational.” There is very little future business advantage to be had, but you were completely dependent
on them to run your banking business. Fast forward a bit more and now we have the internet. Banks are repeating the same cycle with online banking which is now somewhere between “Strategic” and “Key Operational” for most banks. To some degree, this reduces their reliance on ATM networks. Some online banks (like ING here in the USA) have no physical presence at all. No ATM’s. Thus, they become “Support” technologies. They’re great if you need them but you may outsource the function if you can
get it for cheaper someplace else. This is not to say that ATM’s are in the “Support” box for every bank. For some, they are still “Key Operational.” These decisions are derived from the business, not from IT. If you work for a bank who’s core strategy is growing their brick and mortar business you will probably answer this question differently than if you work for a bank that has zero physical footprint.
“Above the Line”
Sometimes the analysis of IT project portfolios comes down to a simple question: “Are you operating above the line?” That is to say, are you working on things that increase business advantage for your business in the future? Are you on the top half of the chart above? Naturally, IT is tasked with “keeping the lights on” and all of those other operational issues. I am not suggesting that an IT organization can survive completely above the line. Not at all. The goal here is balance. I’m not even saying that it’s 50/50. In my experience, 10% of IT spend “above the line” can produce huge results in the long term.
What the heck does all of this have to do with cloud? Well, I’ll tell you.
The reality is that it’s super difficult for a bunch of technical folks in IT to create projects above the line. Unless you’re very lucky or very good, you probably don’t have the business acumen to do this on your own. This means partnering with the business and pushing IT decision making down as far into the operational groups as you can manage. Naturally, this requires a robust platform that provides self-service, “infinite” scaling, rapid elasticity, etc. See where I’m going? Private clouds provide the ideal platform for these types of “out of the box” or “future looking” activities. Because they’re super flexible, they can easily support new applications, databases or requirements that are not well understood. In effect, your private cloud can become your strategic sandbox for all those “above the line” activities.
Something to think about. No?