IT Savvy firms achieve greater return on investment than their counterparts. A key reason is IT Portfolio Management.

1. IT Portfolio
Management
in 10 Slides
Alfred Essa
http://alfredessa.com
alfred.essa@gmail.com

2. Three Fundamental Questions
Did we spend the right amount on IT?
Did we spend it in the right places?
Did we get the right return on investment?
IT portfolio management addresses
three fundamental investment questions.
http://alfredessa.com
Source: MIT Center for Information Systems Research (CISR)

3. Golden Rule of
IT Portfolio Management
Strategic
Analytical
Transactional
Infrastructure
“Invest and track total IT dollars as asset classes. ”
key concept
http://alfredessa.com
Source: MIT Center for Information Systems Research (CISR)

4. Four IT Asset Classes
Infrastructure IT: Provides the foundation of shared IT services, used by
multiple applications.
Transactional IT: Supports core business processes through automated
transactions.
Analytical IT: Provides data, intelligence and analytics for managing the
enterprise.
Strategic IT: Supports entry into a new market, develops new products,
capabilities, and innovations.
http://alfredessa.com
Source: MIT Center for Information Systems Research (CISR)

5. Why do IT Portfolio
Management?
Firm Setting, Profitability,
Input Innovation
IT Savvy
Firm
IT Savvy Firms achieve above average returns and innovation
from their IT investments.
http://alfredessa.com
Source: MIT Center for Information Systems Research (CISR)

6. Different IT Assets
Deliver Different Value or Return
Market
Asset Class Lower Cost Profit Innovation
Value
average changes
in performance
Infrastructure
- - +
the year after Transactional
+
investment Analytical
+
Strategic
+
1 = Profit is Measured by Net Margin = Income Before Extraordinary Items/Total Sales.
2 = Innovation is measured by Sales from Modified and Enhanced Products/Total Sales and Sales from New Products/Total Sales.
3 = Market Value is measured by Tobin’s q - the Market to Book value of company stock, in the same year the investment is made.
http://alfredessa.com
Source: MIT Center for Information Systems Research (CISR)

7. Risk Profiles of Asset Classes
Sample
Asset Class Risk
Allocation
Transactional Lowest 29% effective portfolio
management balances
risks vs return of asset
Analytical Low 14%
classes
Infrastructure High 46%
Strategic Highest 11%
http://alfredessa.com
Source: MIT Center for Information Systems Research (CISR)

8. Diversity of Asset Classes
we apply the
principle of
diversification
for managing
IT investments
In 1952, Dr. Harry Markowitz, Nobel Laureate and pioneer of portfolio
management, showed that a diversified portfolio of high- and low-risk investments
yields a higher return than a portfolio comprised of solely high-risk investments or
a portfolio of only low-risk investments
http://alfredessa.com
Source: IT Portfolio Management Step-by-Step by Bryan Mazlish, Robert Handler

9. Sustaining vs New
IT savvy firms try to
maximize investments
ew
N in new, strategic initiatives
Strategic
Analytical
ng
ini
Transactional
sta
Infrastructure
Su
Peter Weill, Senior Research Scientist & Chairman
MIT Center for Information Systems Research
“The more you spend on new business initiatives the better the
performance of the firm, growth and profitability.”
http://alfredessa.com
Source: MIT Center for Information Systems Research (CISR)

10. Summary
IT Governance
Decisions
Execution Investment Alfred Essa
Technology Portfolio http://alfredessa.com
Strategy Management
“IT Savvy firms use portfolio management, in concert with governance
and technology strategy, to maximize return on investment and to
enable innovation.”
http://alfredessa.com