Structure in Threes: IT Investment Strategy Lessons

This week as I continue to research IT Strategic Planning issues for a series white papers I’m writing I’m noticing more gaps in the average IT organization’s planning approaches.  Despite more sophistication in technology, the planning efforts are still rather primitive.   Many IT Planning organizations spend significant time on the technology requirements, functions and interactions; which they should.  However, when it comes to the effects and benefits to the business which they serve, these functions come up fairly short still.  The average business case just little more that a primitive ROI based upon very weak assumptions.  It is not wonder why CFOs and Controllers are tightening the screws on IT projects and considering outsourcing and cloud alternatives.  A few organizations I’m aware of are looking at eliminating their IT function entirely and moving everything to the cloud.

Review of prior Portfolio Management R&D at IBM

This coming week’s agenda is to develop the optimum means for presenting the Modern IT Portfolio Management process to executives and managers.  During the initial portfolio management R&D for business investment at IBM an interesting reaction was observed.  Executives and Managers disliked operating on models with more than two to three factors, preferring two factor matrices with binary values.  This was rather interesting observation in that each Stakeholder when surveyed asked for multiple factors to be evaluated.  However, in practice only a couple of factors are examined for consideration.  These factors typically center around near term monetary consideration.   optimal portfolios with high risk.  Thus other factors or strategies should be considered which infers a more complex matrix of considerations.

Lessons learned from Venture Capitalists

Venture Capitalists (VCs) evaluate investment candidates based upon returns like other investors, however, other factors are often used to classify and filter opportunities.  These are often used in what has been called a stage-gate process.  This is a series of smaller decisions that in effect gate weaker opportunities out of the pool of candidates.  This makes the decision not a single yes/no but a series of yes/no decisions.  The other aspect of a VC‘s investment process is the core to the portfolio management concept; multiple independent investments.  Typically this is accomplished by VCs teaming with other VCs enabling them to make smaller bets but spread amount a larger group of opportunities.  This strategy reduces risk by eliminating the eggs all in one basket approach.  The final strategy many venture capitalist used to mitigate risk is employing a variation of options theory.  Employing this strategy, VCs will often stage release of funds based upon a business venture’s ability to meet specific goals.  If a venture does not meet these goals the VC has the option to discontinue funding and cut their losses or potentially take a more active role in the management of the venture.

Other Research

Other areas of investment research under current study for this practice include:

  • Stock Brokerage [reviewing interview notes]
  • Investment Bankers
  • Insurance Actuaries
  • Natural Resource exploration enterprises
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About briankseitz
I live in PacNW in a small town and work for Microsoft as a Enterprise strategy and architecture SME. I enjoy solving big complex problems, cooking and eating, woodworking and reading. I typically read between 4-8 business and technology books a month.

One Response to Structure in Threes: IT Investment Strategy Lessons

  1. Thanks for sharing your thoughts about binary option trading strategies.
    Regards

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