March 31, 2015 Leave a comment
Like financial investments using investment classes to allocate across the portfolio to attain sub-goals. Consider the Balance Portfolio strategy that many financial advisors have given to financial investors. In such strategies different types of investment are employed for sub-goals. At the highest goal one is attempting to achieve the maximum return for the level of risk an investor is willing to take.
In the IT domain, I propose the three types of investments are Innovation, Optimization and Operation. And like financial investment each has risks associated with the change and the risk associated with doing nothing (opportunity costs). These three classes represent the spectrum of significant change (innovation) to moderate (optimization) to maintaining the status quo (operation).
For businesses in previous decades changes to the market and ecosystem where slow. As such innovation to address these changes could be limited to only serious immediate threats and funds reserved to optimization which increased revenue streams or reduced cost. Operations was then second in priority as optimization could reduce operating costs.
As the years have progressed the rate of change in markets and the ecosystem have accelerated leading the need to adjust the balance of investment in the portfolio, first allocating more to optimization, innovation and reducing operational investments. Now as hyper competition has arrived, enterprises are again looking to change investment allocations to becoming more innovative. The issue arises in that further reducing operational costs may create areas of high risk due to the creation of single points of failure –which may not be known. This could place an enterprise at a point of catastrophic failure as the cascading effects of this single point of failure ripples through the corporation.
This underscore the need to balance investment goals with risk management in the IT arena.