How to focus investment for competitive advantage.
The challenge of portfolio management has been summed up in the extensive research conducted by the former CIO of the US Department of Defense, Paul A. Strassmann. He demonstrated there is no relation between information management per employee and return on shareholder equity. He also showed there is no relation between profits and annual IT spending. Thus, the key decision of portfolio management should not center on how much to spend but on what to spend on. The goal is to create a portfolio management approach in which “decisions on whether to invest in IT are based on potential return, and decisions to terminate or make additional investments are based on performance, much like an investment broker is measured and rewarded based on managing risk and achieving results.”
The challenge for any CIO, but particularly one faced with the requirement to create more value rather than just to cut costs, is to develop a balanced portfolio that allocates IT funding in a targeted, controlled and measurable way.