Enterprise Portfolio Management – back to basics

We usually talk about Enterprise Performance Management, lately, we’ve been hearing from clients about the other EPM: Enterprise Portfolio Management and how a focus on the right enabling technologies can improve businesses’ competitive advantage.  CIO’s, and other business leaders, have been talking about getting back to basics with I.T. and delivering a solid foundation from which the enterprise can serve clients, deliver value, and beat the competition.

There are a number of approaches to EPM: ROI, TCO, Benefit Weighting,
Strategic IT Portfolio Management, and they should all come back to maximizing the business benefit of Information Technology.

Look at this interview in the Wall St. Journal with Gerry Coady, CIO of Frontier Airlines Holdings where he talks about going from “a few hundred (I.T.) projects” to less than 30.  Mr. Coady says “we decided to focus on the few projects that really reflected the airline’s priorities, and those were to fly safe, to generate revenue, to take cost out and customer service.”  So back to basics: using I.T. to support & enable business strategic objectives and to give the business a competitive advantage.

So how do you actually go about prioritizing your current I.T. portfolio of initiatives given the current economic climate?

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Here is our foundational approach:

1. Assuming you’ve done a decent job of business analysis and requirements (from the bottom up, or from the middle), the first thing you have to do is engage the executive management team.  It’s the CEO and his or her direct reports who own the company strategy.  They’ve baked it, sold it to the board, and are responsible to see that it’s executed.  In too many of our clients we have seen a fundamental disconnect between what the C-suite thinks the strategy is and what the rest of the business thinks the strategy is.  We’ve also seen an alarming disconnect within the C-suite!  So get it down on paper, in a structured way (link to broadsheet), visible to all.
2. While you’re at it, take 2 hours with each senior executive and get them to tell you what drives value in the business from their perspective.  You’ll get the key value drivers from Marketing, Sales, R&D, Operations, HR, Finance and so on.  Collect those value drivers, their interrelationships and “geography” in the business (the intersection of what business function and what layer) in a methodical, structured way. Here’s a link to our method.  Link each value driver (KPI, metric, process) back to its corresponding strategic objective (directly or indirectly)
3. Consolidate all the viewpoints and create an enterprise value driver map.  Very quickly you will see two things: the most important drivers of value (they have the most touch-points with other drivers, they will connect to strategy, and they will have high materiality to the business), and you will see the gaps.
4. Overlay this value driver map with your current I.T. portfolio and with the processes they enable.  And while it’s CEO’s job to execute strategy, it’s CIO’s job to deliver systems that support and enable the people and processes that execute strategy.
5. A giant lightbulb will go off that shows where I.T. is actually aligned with the business and where it is not.

Here’s an example of a “back to basics,” realigned I.T. Portfolio priority list.  

The company’s new strategy is to laser focus on customer retention while maintaining margins (and keeping the lights on in this economy).

Their current I.T. project portfolio looks like this (simplified):

1. ERP Upgrade
2. Sales Dashboard
3. Business Process Improvement (workflow automation)
4. SOA
5. VoIP
6. Vendor Management System
7. Product Life-cycle Management System
8. Server Virtualization
9. Inventory management system upgrade
10. Enterprise Data Warehouse, phase II

 They also had these additional EPM governance criteria:

• Cut the total number of projects
• Rebrand the projects to be business/outcome focused
• Model the potential material impact of even a small improvement in financial results
• Sponsored by one business executive
• I.T. and the business sponsor are one the hook for the results

After going through our foundational approach, their new project portfolio looks like this (simplified):

1. Sales Effectiveness System (a dashboard that shows actual v. forecast revenue, size & velocity of the pipeline, lead conversion ratio trends, customer sat scores, and SG&A trends).  Impact: revenue growth, customer retention, sales margin.
2. Vendor Effectiveness System (a business intelligence system that reports and analyzes cost of goods sold, materials delivery times, total vendor spend with corresponding discounts, and contract terms at risk).  Impact: COGS, Customer Sat, and cash flow.
3. Inventory Effectiveness System (better visibility into the current inventory system, not just more transactional features, showing days in inventory, production times, shipping & storage costs, and on-time-delivery rates).  Impact: cash flow, COGS, customer sat, asset utilization.
4. Information Effectiveness Initiative (phase II of the EDW making sure the right information is in the warehouse, refresh rates are relevant, and ETL is automated).  Impact: improved information quality and support of #’s 1 to 3 above.
5. I.T. Cost Reduction (any/all of the SOA, VoIP, or Virtualization projects that exceed a specific ROI and speed to ROI).  Impact: reduce SG&A costs.

So the new portfolio isn’t just business/IT alignment, it’s business/IT fusion.  Pretty basic, eh?

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