IT Portfolio Management
Just as investors have portfolios of financial investments to address their multiple investment objectives, firms have portfolios of information technology (IT) investments. Four different management objectives guide firms’ investment in IT resulting in four different asset classes. Each of these asset classes has a different objective and a unique risk-return profile (slide: Risk-Return Profiles in the IT Portfolio). Just like any other investment portfolio, the IT portfolio must be balanced to achieve alignment with the business strategy and the desired combination of short and long term pay off. Many firms have adopted IT portfolio management to help with IT prioritization as it provides a strong business-oriented lens familiar to most executives.
MIT CISR research has found that firms invest in IT to achieve four different management objectives (slide: Management Objectives for Investing in IT):
- Strategic (to gain competitive advantage);
- Informational (to provide management information);
- Transactional (to process transactions and cut costs); and
- Infrastructural (to provide shared services and integration).
Just like any other investment portfolio, the IT portfolio must be balanced to achieve alignment with the business strategy and the desired combination of short and long term pay off. Portfolios must also be reweighed when economic conditions or strategies change. We have identified the average and top performing firms’ IT portfolios in several industries and the statistical relationships between IT investment patterns and a wide range of firm performance measures including growth, profit and asset utilization. We continue to collect new IT portfolio data yearly and refine our understanding of the impacts of each asset class on firm performance (slide: Rethinking IT as an Investment Portfolio).
- Book: Leveraging the New Infrastructure: How Market Leaders Capitalize on Information Technology, HBS Press, 1998.
- Journal Article: “Generating Premium Returns on Your IT Investment” in MIT Sloan Management Review, Winter 2006.
- Video: A Primer on IT Portfolio Management published on April 02, 2009.
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