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CIOs must be proficient at change management. What was once perceived as simple changes can have profound impacts on processes, partners, and integration points. CIOs rely on change management as an essential tool in the governance framework and in all areas of the IT portfolio. The impact of change management ranges from a single change that has no impact on other assets to changes that impact the homeostasis of external and internal conditions (corporate, business unit, and divisional levels). Change management and configuration management provide the common threads to maintain alignment, communication, and coordination in a heterogeneous ecosystem.
For leading CIOs, their engagement with IT portfolio management does not stop when projects are completed and their corresponding assets are in production. In fact, 75% of the top IT executives indicated that they conduct postimplementation audits.6 Governance is full life cycle. Failing to do full life cycle IT portfolio management is akin to using investment portfolio management to acquire investments, then never looking at their performance again. Portfolio theory mandates that investments are proactively monitored, adjusted, and disposed of in accordance with investment objectives and tolerance for risk. Portfolio theory also mandates that interdependencies between components in the portfolio are identified and managed.
Thus, to further the investment portfolio management analogy, an effective CIO has the responsibility as the IT portfolio fund manager to monitor external
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conditions, recognize relationships between investments (which are often inverse), and balance the portfolio accordingly. If interest rates are expected to rise, an effective investment portfolio fund manager moves resources from bonds to cash quickly; after the rates rise, the investment portfolio manager reallocates from cash to bonds. Likewise, if the economy is expected to sour, it might be prudent for some IT portfolio fund managers to pull back on investing in systems, conserving cash. When the economy is expected to improve, the IT portfolio adjusts, investing capital in systems to support the expected release in pent-up demand, factoring in delivery times. One of the reasons the notion of on-demand or variable-priced computing resonates is that it supports the IT portfolio fund managers’ requirement for rapid reallocation of computing resources.
IT will continue to increase in complexity, and the CIO’s role will continue to evolve. Regulatory changes, globalization, access to unprecedented amounts of quality information, skepticism over silver-bullet solutions, and corporate memory will temper ill-thought adoption of unproven technological solutions. Corporate and IT governance will be the mechanisms by which this tempering occurs. Prescient organizations will adopt flexible and meaningful governance structures to incorporate new solutions into their IT portfolio and effectively contend with legacy solutions (i.e., those systems that fail to provide sufficient value to justify their supporting costs, or those that can be replaced by something with a more significant return).
Increasing Demand for Return on IT Investments
The third and final area of change that occurred both during the dot.com bust and the post-Enron era is the insatiable demand for return on investment. CIOs are tasked with two sets of expectations from shareholders, both with implications on return on investment:
1. Short-term expectations/goals for revenue and profits
2. Long-term expectations/objectives of the company for growth
In many companies, IT solutions expected to generate strategic/operational value or to simply be on time are failing to adequately deliver. Instead, the board is seeing costly overruns, investments not linked to the business objectives, scope creep, missed deadlines, and expected value falling short of planned objectives. Stakeholders are demanding greater levels of information, control, and accountability to ensure that limited resources are being optimally allocated and investments are being properly channeled to maximize returns. Many board members are looking more closely at investments made in security, business continuity, disaster recovery, infrastructure, and networking capabilities. Return on IT investments is
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being measured not in yearly increments but rather on a quarter-by-quarter basis (some on a month-to-month basis), with payback from investments expected to occur at a very accelerated pace. In 2004, a survey determined that 50% of organizations are planning to actually hold sponsors and IT accountable for attaining benefits originally outlined in their business cases. In prior years, less than 10% of organizations actually checked business cases for IT projects after their implementation.
Sarbanes-Oxley is just one data point toward a global expectation that organizations not only act with integrity but also have the controls in place around processes and information (or processing of information) to support integrity. Meeting this expectation will have a positive financial impact on the organization. According to Peter Weill and Jeanne W Ross, “Firms with superior IT governance have at least 20% higher profits than firms with poor governance.”7 Stakeholders and customers alike will reward organizations capable of demonstrating excellence. In a study performed in 2002, a McKinsey Quarterly article showed that investors are willing to pay large premiums for companies that have sound governance practices.8