Tuesday, July 31, 2012

Program Management of IT Investments

Every single IT investment that goes into the company falls into the following simple categories.

Does it ...
1) ...DIRECTLY increases revenue (increased economies of scope, market penetration, deepening of wallet share)
2) ...DIRECTLY clamps down on expenditure (increased  economies of scale, cheaper components/raw material)
3) ...INDIRECTLY do one or more of the above  [(economies of scale+scope)/no. of derivation]
4) ...reduces immediate risks (customer retention, early warning from direct market exposure etc.)
5) ...immediately improves your brand presence and internal culture
6) ...immediately improves efficiency (which can fall under c), however to be specific, efficiency that comes at a cost)
7) ...immediately improves agility  (again, can be part of c))

Of the 7, no. 5) is the hardest to achieve as well as the most sustainable.

Unfortunately, all investments suffer from 2 hidden costs
a) it requires tender loving care... a transaction cost for upkeep, monitoring and management  (from Williamson, 1985 and Coase, 1937)
b) it can be contraindicative to other invested activities.

For example:-

Investing in risk management solutions eat precious time that could be allocate for other duties, or worst, creates bureaucracy which kills 6) and 7)
Investing in agility means reduced control, thus increasing risks.
Investing in 1) increasing economies of scope usually means higher expenditure on high value skill sets or a particular tool. While clamping down on expenditure with low value commodity components means lowered quality.

So do select well, and understand how the numbers impact one another. Consolidation and efficiency for the sake of doing it leads to a stoic, detached organization from the customer. The key is still -> does all of the 7 activities add value to the customer, and is it worth it?

Sometimes companies self sabotage themselves by undertaking 2 activities that are from 2 opposite ends of  each other. Implementation lethargy kicks in and the company wonders why they haven't achieved the intended goal.

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