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IT Management and Business Strategy

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You have been appointed Information Technology manager of a company in which IT systems are viewed as expensive and misaligned with the business strategy. Recent IT implementations have overrun their budget and schedule, and the company's board is considering outsourcing its IT support function. In addition, an important merger with a competitor must take place in the near future, if at all possible. Fears have been expressed that the IT systems of the competitor company may not be compatible with your own company's Systems.

Describe how you could achieve and maintain alignment between IT systems and the business strategy, using Portfolio Management techniques.
Show how you could use Gate Methodology to ensure that new IT projects would be delivered on time and to budget.
Describe the risks of IT Outsourcing and suggest ways to overcome these risks.
Show how you would carry out a Due Diligence exercise to investigate the board's fears of incompatibility between the merging companies.

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Please refer to file response attached. I hope this helps and take care.

1. Describe how you could achieve and maintain alignment between IT systems and the business strategy, using Portfolio Management techniques.

Portfolio Management techniques (i.e., a portfolio of new product development projects) to achieve the following goals:
· Maximize the profitability or value of the portfolio
· Provide balance
· Support the strategy of the enterprise

As the technology manager, Portfolio Management is the responsibility of the senior management team of an organization or business unit. Together as a team, which might be called the Product Committee, we would meet regularly to manage the product pipeline and make decisions about the product portfolio. Often, this is the same group that conducts the stage-gate reviews in the organization.

A logical starting point is to create a product strategy - markets, customers, products, strategy approach, competitive emphasis, etc. The second step is to understand the budget or resources available to balance the portfolio against. Third, each project must be assessed for profitability (rewards), investment requirements (resources), risks, and other appropriate factors. (http://www.npd-solutions.com/portfolio.html).

The weighting of the goals in making decisions about products varies from company. But organizations must balance these goals: risk vs. profitability, new products vs. improvements, strategy fit vs. reward, market vs. product line, long-term vs. short-term. Several types of techniques might be used to support the portfolio management process:
· Heuristic models
· Scoring techniques
· Visual or mapping techniques

The earliest Portfolio Management techniques optimized projects' profitability or financial returns using heuristic or mathematical models. However, this approach paid little attention to balance or aligning the portfolio to the organization's strategy. Scoring techniques weight and score criteria to take into account investment requirements, profitability, risk and strategic alignment. The shortcoming with this approach can be an over emphasis on financial measures and an inability to optimize the mix of projects. Mapping techniques use graphical presentation to visualize a portfolio's balance. These are typically presented in the form of a two-dimensional graph that shows the trade-off's or balance between two factors such as risks vs. profitability, marketplace fit vs. product line coverage, financial return vs. probability of success, etc.

The chart shown below (see http://www.npd-solutions.com/portfolio.html) provides a graphical view of the project portfolio risk-reward balance. It could be used to assure balance in the portfolio of projects - neither too risky or conservative and appropriate levels of reward for the risk involved. The horizontal axis is Net Present Value, the vertical axis is Probability of Success. The size of the bubble is proportional to the total revenue generated over the lifetime sales of the product.

While this visual presentation is useful, it can't prioritize projects however. Therefore, some mix of these techniques is appropriate to support the Portfolio Management Process. This mix is often dependent upon the priority of the goals.

Aligning business strategy and IT systems

One recommended approach is to start with the overall business plan that should define the planned level of R&:D investment, resources (e.g., headcount, etc.), and related sales expected from new products. With multiple business units, product lines or types of development, we recommend a strategic allocation process based on the business plan. This strategic allocation should apportion the planned R&D investment into business units, product lines, markets, geographic areas, etc. It may also breakdown the R&D investment into types of development, e.g., technology development, platform development, new products, and upgrades/enhancements/line extensions, etc.

Once this is done, then a portfolio listing can be developed including the relevant portfolio data. We favor use of the development productivity index (DPI) or scores from the scoring method. The development productivity index is calculated as follows: (Net Present Value x Probability of Success) / Development Cost Remaining. It factors the NPV by the probability of both technical and commercial success. By dividing this result by the development cost remaining, it places more weight on projects nearer completion and with lower uncommitted costs. The scoring method uses a set of criteria (potentially different for each stage of the project) as a basis for scoring or evaluating each project. An example of this scoring method is shown with the worksheet below.

Weighting factors can be set for each criterion. The evaluators on a Product Committee score projects (1 to 10, where 10 is best). The worksheet computes the average scores and applies the weighting factors to compute the overall score. The maximum weighted score for a project is 100.

Either the development priority index or the score can then rank this portfolio list. An example of the portfolio list is shown below and the second illustration shows the category summary for the scoring method.

Once the organization has its prioritized list of projects, it then needs to determine where the cutoff is based on the business plan and the planned level of investment of the resources available. This subset of the high priority projects then needs to be further analyzed and checked. The first step is to check that the prioritized list reflects the planned breakdown of projects based on the strategic allocation of the business plan. Pie charts such as the one below can be used for this purpose.

Other factors can also be checked using bubble charts. For example, the risk-reward balance is commonly checked using the bubble chart shown earlier. A final check is to analyze product and technology roadmaps for project relationships. For example, if a lower priority platform project was omitted from the portfolio priority list, the subsequent higher priority projects that depend on that platform or platform technology would be impossible to execute unless that platform project were included in the portfolio priority list. An example of a roadmap is shown below.

An example, of this overall portfolio management process is shown in the following diagram (see http://www.npd-solutions.com/portfolio.html).

Finally, this balanced portfolio that has been developed is checked against the business plan as shown below to see if the plan goals have been achieved - projects within the planned R&D (i.e., your would be IT Investment instead) investment and resource levels and sales that have met the goals.

With the significant investments required to develop and invest in new products ( in your case, IT systems) and the risks involved, Portfolio Management is becoming an increasingly important tool to make strategic decisions about product development and the investment of ...

Solution Summary

This solution describe how to achieve and maintain alignment between IT systems and the business strategy, using Portfolio Management techniques and how to use Gate Methodology to ensure that new IT projects would be delivered on time and to budget. It also explains the risks of IT Outsourcing and suggests ways to overcome these risks. finally, it explains how to carry out a Due Diligence exercise to investigate the board's fears of incompatibility between the merging companies.