IT Portfolio ManagementStep-by-StepUnlocking the Business Value of Technology

Bryan Maizlishand

Robert Handler(for the META Group, Inc.)

John Wiley & Sons, Inc.

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IT Portfolio ManagementStep-by-Step

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IT Portfolio ManagementStep-by-StepUnlocking the Business Value of Technology

Bryan Maizlishand

Robert Handler(for the META Group, Inc.)

John Wiley & Sons, Inc.

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This book is printed on acid-free paper.

Copyright 2005 by Bryan Maizlish and META Group, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United StatesCopyright Act, without either the prior written permission of the Publisher, or authorizationthrough payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc.,222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600, or on the webat www.copyright.com. Requests to the Publisher for permission should be addressed to thePermissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030,201-748-6011, fax 201-748-6008.

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NOTE TO THE READER: Unless otherwise noted, all of the studies (including percentagesshown), and exhibits that appear in the book were either adapted from or are the originalmaterial copyrighted to META Group, Inc.

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Library of Congress Cataloging-in-Publication Data:Maizlish, Bryan.

IT portfolio management step-by-step: unlocking the business value of technology / Bryan Maizlish and Robert Handler.

p. cm.ISBN-13 978-0-471-64984-8 (cloth)ISBN-10 0-471-64984-8 (cloth)

1. Information technologyManagement. 2. Information technologyCosteffectiveness. I. Handler, Robert. II. Title.

HD30.2.M346 2005004'.068'1dc22

2004024583

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

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www.wiley.com

To my wife Robin, the love of my life, my best friend, and the voiceof sanity and reason in our householdthank you for your uncondi-tional support and providing the unwavering encouragement, confi-dence, and inspiration to write this book and achieve my dreams.Thank you to my children Jennifer, Evan, and Emily for bringing joyand happiness into my life, for your incredible patience in this journey,and for your wisdom and counsel in helping me keep things in per-spective. And, thank you to my mother, Sondra, for your wonderfuladvice throughout the journey.

Bryan Maizlish

Words cannot express the appreciation I have for my wife, Jennifer, myson, Charles, my daughter, Alexis, my two golden retrievers, and manyothers. The effort required to create this book took me away fromthem more than I had anticipated, yet they stood by me. Thank youalso to my parents, David and Claire, who, via nature or nurture, gaveme the fortitude to complete this project. It is to all my loved ones whosupported me in life that I dedicate this book.

Robert Handler

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Acknowledgments

IT Portfolio Management Step-by-Step: Unlocking the Business Value of Technologyis the result of 15 years of effort, beginning with our research on financial port-folio management and branching out to information technology (IT) portfoliomanagement. The content in this book was shaped and sculpted based on thestellar research from META Group, Inc., studies from academia, collaborationwith IT portfolio management software providers and consultants, and inputand feedback from leading practitioners. Thank you for your support, encour-agement, and counseling.

There are a few key individuals who deserve special mention. Without thesteadfast support of Richard Buchanan, CD Hobbs, Val Sribar, and Dale Kutnick,and their willingness to allow us utilize resources and key personnel, this bookwould have not succeeded. Also, a profound thank you to Mike Thomas, RolandWiltz, and Roger Mann, for providing a foundation that supported our inspira-tion and creativity. We are deeply grateful to these individuals for allowing us tofollow our passion.

We are very appreciative and truly humbled by the generous contributionsmade by the analysts at META Group. Their tremendous talent, intellect, profes-sionalism, and in-depth research and knowledge provided both content and spiritto our book. Many of these individuals supported our efforts on their own time.Thank you very much for your time, research, and perspectives. Their names,listed below as contributing authors to this book, are as follows (in alphabeticalorder):

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A special thank you to both Michael Booker and Dr. Peter A. Koen. MichaelBooker from Stage-Gate, Inc. provided insight and support for the Stage-Gate

processes discussed in our book. Dr. Peter A. Koen, Associate Professor at TheWesley J. Howe School of Technology Management, Stevens Institute of Tech-nology provided valuable input to the discovery phase or fuzzy front end ofinnovation sections of our book.

There were also many important contributions made by other individuals thatwe would like to thank (in alphabetical order): Shawn Bohner, Brad Boston(Cisco Systems Inc.), Michael Carlson (Xcel Energy), Casey Chaloux, Kim Cook(In-Q-Tel), Dennis Crowley (Cutter Consortium), Martin Curley (Intel Corpo-ration), Matt Dezee (Cisco Systems Inc.), Vince DiGennaro, Don DiNunno,Sabina Gargiulo (Institute for International Research), Ray Gogel (Xcel Energy),Mike Gruia (United Management Technologies), Ian S. Hayes (Clarity Consult-ing), Brian James (Mercury Interactive), Doug Laney, Rick Laubscher, KevinLaughlin (Cisco Systems, Inc.), Harry Lee (The Department of Treasury), DavidLindheimer, Gilman Louie (In-Q-Tel), Doug Lynn, David Perko (Teradyne Inc.),Dave Peterson (Mercury Interactive), Rachel Quercia (Pacific Edge Software),Sue Reber (ProSight, Inc.), John Reece (John C. Reece & Associates), MarnieRoss, Terry Ross (Pacific Edge Software), Karen Rubenstrunk, Jane Seago (ITGovernance Institute), Michael Slovin, Mitch Taylor (Cisco Systems, Inc.), RickTuroczy (ProSight Inc.), Herb VanHook, Kris van Riper (Corporate ExecutiveBoard/CIO Executive Board), Katherine Vogt (Corporate Executive Board/CIOExecutive Board), Gayle von Eckartsberg (In-Q-Tel), Dr. Sami Zahran (IBM),and Aaron Zornes.

We would like to thank Suzanne (Meier) Dvorchak for balancing her familylife and the editing needs of this book. Her insight, suggestions, and pragmaticapproach helped bring many concepts together. Also, special thanks to BarbaraKoning, who went into overdrive in providing many of the graphics. Thank youfor your personal attention and collaborative support.

viii acknowledgments

Phil AllegaWille Appel Melinda-Carol BallouAndreas BittererScott BittlerLouis BoyleRichard BuchananMichael BuchheimBrian BurkeEnrico CamerinelliDavid CearleyMichael Doane

CD HobbsDale KutnickCarole McPhersonGeorge ParasAl PassoriJonathan PoeWissam RaffoulElizabeth RocheDr. Howard RubinVal SribarTim WestbrockBarry Wilderman

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We are very appreciative toward Ron Nelson for taking time out of his busyschedule to write the outstanding Foreword to our book.

Our editor, Tim Burgard, and editorial support from Helen Cho and Kim Nirdeserve special praise for supporting this book, teaching us the art and science ofthe English language, and tolerating our often strong opinions. Thank you for see-ing the value of IT portfolio management, and for guiding us through the pub-lishing process.

We should note that as this manuscript went to press, META Group had agreedto be acquired by Gartner, Inc. The merger was expected to be completed earlyin the second quarter of 2005, approximately when IT Portfolio Management wasscheduled to be published.

We are also deeply grateful to our families who endured the long hours andcollaboration that went into this book and supported us all along the way. ToRobin Maizlish and Jennifer Handler, our heartfelt love and gratitude cannot beexpressed with words. Through it all, we built a strong and enduring friendship.

Also great thanks to our children who were remarkably understanding of thetime and commitment it took to write this book. Thank you Alexis Handler,Charles Handler, Jennifer Maizlish, Evan Maizlish, and Emily Maizlish. You kidsrock!

Most of all wed like to thank you, the reader, for supporting this effort. Wehave deep respect for you, the change agents, who must do one of the most diffi-cult things there is to doexercise positive change in the face of often extremeresistance. We did our best to put together something that was useful to thechange agents, providing context, a usable approach, and lessons learned, but weknow that effecting positive change in any organization is usually no small task.Thank you.

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Foreword

In the information age, knowledge provides a competitive edge that no businesscan ignore. The challenge, however, is that with all of the hype, complexity, andconfusion around information technology (not to mention a healthy dose ofjargon) it is often difficult to distinguish between good and bad technologyinvestments. Thats problematic, or at least it should be, because informationtechnology is the central nervous system of most organizations, providing thetools to act rapidly to changes in the business environment. If the informationtechnology is optimized, the organization can thrive, even in the most chaotictimes. Optimizing information technology investments is not an optionit is abusiness mandate.

Information technology investments currently account for the majority of cap-ital expenditures within many companies; therefore it must be treated with at leastthe same due diligence rigor as any other capital investments. A sound business casemust exist; it must support the strategy of the organization; and it must support, andin many ways adhere to, new legislation.

We are increasingly expected to provide accurate information to multipleshareholder and stakeholder groups at light speed. But that should not be a justi-fication for throwing caution to the wind and spending whatever it takes toaccomplish that goal. Like any other investment, information technology must beactively managed throughout its entire life cycle, ensuring that both its initial andongoing costs do not exceed the benefits it provides. We cannot afford to treatinvestments in information technology as unmanaged operating expenses, as theyprovide far too many opportunities for value creation, cost savings, and relevant,

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timely, and accurate information that serve as seminal elements of competitiveadvantage.

IT portfolio management provides a sound and proven business approach tooptimizing investments in information technology. The investment portfoliometaphor provides a mechanism to govern investments in information technol-ogy that accounts for their value, risks, costs, useful life, and interrelationships.Much the way an investment manager dynamically manages a portfolio of finan-cial investments, business leaders must make intelligent buy, sell, and hold deci-sions around their investments in information technology to optimize revenueand growth opportunities, improve customer experience, and streamline opera-tions; when done properly, the productivity improvements and cost savings thatresult will positively impact the bottom line and allow us to fulfill our primaryobligation: driving shareholder value. For example, automated transaction pro-cessing through online order making and order taking has created opportunitiesto offer complex services through dynamically packaging new customized offer-ings, generating additional fees, and better meeting the customer needs of aglobal audience. The online travel business is a good example of how informa-tion technology has served as a powerful enabler, facilitating streamlined fee-for-service and inventory management models, and providing greater access topublished air, car, cruise, and hotel fares, and travel packages worldwide for bothleisure and business travelers.

With the growing investment in information technology and the profoundcontribution of information technology within many companies, it is imperativethat the interactions between risk, reward, and value for information technologyinvestments are proactively identified, evaluated, prioritized, and managed. ITPortfolio Management makes this case strongly and logically, providing evidence andcase studies to support this argument. IT Portfolio Management highlights theimpact of adopting this technique, from organizational change to governanceimpacts down to the bottom line. Many books present approaches to effectingpositive business change, but IT Portfolio Management presents the approach andprovides the steps required to transform an organization from ad hoc informationtechnology management to information technology optimization, replete withlessons learned. IT Portfolio Management is not a revolutionary approach. It is anevolutionary approach that works. The authors thoughtfully provide tools tomeasure your organizations abilities and to help it evolve over time to informa-tion technology excellence.

Following the guidance of this book, organizations can evolve into adaptivereal-time enterprises that thrive in a world of change. IT Portfolio Managementprovides an answer to every senior business leaders questions around the blackhole of the IT budget. IT Portfolio Management also provides answers to how IT

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professionals should breakdown the barriers and effectively communicate withbusiness leaders in their language. Maintaining a strong balance sheet, alignmentof assets, occupying and sustaining a leadership position, and achieving profitableand relevant return on investments cannot be separated from sound practices of ITportfolio management, and are the fiduciary responsibilities of leaders in an infor-mation technology era.

Ronald L. NelsonPresident and Chief Financial OfficerCendant Corporation

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