Enterprise Portfolio Management Better investment decisions, by integrating your business and IT portfolio s

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1 Enterprise Portfolio Management Better investment decisions, by integrating your business and IT portfolio s Powered by our partner:

2 Enterprise Portfolio Management Better investment decisions, by integrating your business and IT portfolio s. During difficult economic times such as these, people often blame the market for being the cause of disappointing sales. Sullen banks, fickle customers and heavy competition, for example. We won t deny it, but at the same time, there is still a lot of room for improvement in organisations. Boards of directors tend to focus on lowering costs. Although this is wise, the approach to doing this isn t always as smart. It is tempting to make 10% budget cuts across all of the divisions; after all, this generates money. However, this is not where the real gains lie. They are to be found in coordinating all the organisation s portfolios and creating good investment planning that is in line with these. This way, everything and everyone is geared towards achieving the business higher goal, and so much more can be accomplished. This is possible with Enterprise Portfolio Management (EPM). This white paper defines EPM, describes its importance, and explains how proper management of the portfolios within the enterprise delivers tangible top- and bottom-line benefits. Definition EPM is the ongoing, dynamic, and flexible use of information about the business to make better decisions. It combines selected subsets of information from existing management systems, organises it into intuitive portfolios, and establishes the relationships between the portfolios. It then presents all the information within the context of the enterprise s business and IT needs. Finally, it provides tools for the dynamic and interactive analysis of that information to unlock greater business value. The company has both business and IT portfolios. Business Portfolios 1. Business Goals and Strategies: This portfolio is the why behind all the decisions an organisation makes. Also known as the Business Context, it is made up of all the external business drivers, requirements, strategies, principles and goals that drive business decisions. This information may best be obtained through interviews with policymakers and higher management/ decision-makers in the business. 2. Business Architecture: This portfolio describes how an organisation executes its strategy to meet its goals. It includes the processes an organisation performs, the products and services it produces, and the capabilities and organisational structure through which it executes its strategy. While this information can sometimes be found in business process management or enterprise resource planning systems, it often also requires interviews with decision-makers.

3 Whitepaper /enterprise portfolio management IT-Portfolios 1. Applications: This is the software used by employees, customers and partners to interact with corporate data and to conduct transactions. This portfolio also includes the future plans, associated with each application. These represent the touch points between the business and IT and are used in many EPM use cases. Much of the information for this portfolio usually exists as tribal knowledge that resides in the heads of subject matter experts spread throughout the organisation. 2. Investments: Investments are translated into programs and projects which are proposed or financed by the organisation. This information is used in making decisions about spending and changes to current IT and business operations. Information for this portfolio may be drawn from existing Financial Management or Project and Portfolio Management systems. INFORMATION INVESTMENTS TECHNOLOGY GOALS & STRATEGY APPLICATIONS BUSINESS ARCHITECTURE Figure 1: The Enterprise Portfolios 3. Technology: These are the organisation s hard or physical IT assets as well as its catalog of technology standards, the status of each standard (whether it has been approved or denied), and the future roadmap for each standard. Most organisations have valuable information about this portfolio in their asset management tools or IT Service Management systems such as configuration management databases (CMDBs). 4. Information: This is all of the information assets that the enterprise uses in its operations, varying from financial figures and intellectual property, to data on customers, products, services, contracts and employees. Proactively understanding and managing these assets is critical to planning. It is also essential to understanding how this information relates to other portfolios, especially the Business and Applications portfolios. This information often resides in master data management or existing enterprise architecture modeling tools.

4 Corporate objective EPM therefore aims to ensure that all of the business portfolios, strategies, process and architecture are linked to the IT portfolios, projects, applications and investments in order to improve the contribution to the achievement of the corporate objectives, mission and vision. Although this may seem very logical, it is not that easy to achieve. Large organisations in particular tend to be too divided. The separate divisions each try to optimise their own processes, but do not work harmoniously among one another on the same, higher organisational ambitions. For example, the business invests in applications that make use of old technology, whereas IT wants to phase out these very applications and work in a more standardised fashion. On the other hand, IT might make investments in programs and related projects that do not make a direct contribution to the objectives which have been set and the strategies which have been formulated for the business. To survive, much less thrive, enterprises must: Reduce their costs to compete in uncertain economic environments that reduce their pricing power; Respond with agility to rapid changes in business conditions, customer preferences, delivery channels, and technology; Reduce their risk from system failures, regulatory non-compliance, security breaches, or natural or man-made disasters. These objectives may only be achieved on the basis of a clear understanding of all of the portfolios and the relationship between them, including the overlapping processes such as Business IT/Planning, IT Portfolio Governance, IT Change Management, IT Demand-to-Delivery, and IT Financial Management. Many organisations find it difficult, if not impossible, to gain this understanding. This is not due to a lack of information about their assets, processes, and portfolios, but because this information is locked up in silos. This makes it difficult to understand how the various types of information relate to each other, and to the IT and business processes. Enterprise Portfolio Management (EPM) liberates this information from your organisation s existing management systems and allows decision-makers to analyse it in a dynamic, flexible way. If the CEO, for example, can quickly see which geographies the business is expanding in, he or she can better decide which applications to upgrade and which to divest in order to deliver new business capabilities. If the CIO can quickly understand their investment portfolio, he or she can understand which applications are in the process of being modernised or retired by business units and thus avoid wasteful redundant efforts. Breaking the Silos Information about the enterprise portfolio has become siloed because IT organisations have implemented different management systems to serve a variety of IT functions. For example, data management tools track data and its quality, while separate IT Service Management systems track how well those systems deliver business services. Financial Management systems store information about levels of investment in IT, while Project and Portfolio Management systems track the status of projects. These systems can be categorised on a two-dimensional grid. The vertical axis ranges from operational to strategic, with the horizontal axis ranging from run the business to change the business.

5 Whitepaper / enterprise portfolio management STRATEGIC INFORMATION RUN THE BUSINESS CHANGE THE BUSINESS OPERATIONAL INFORMATION Figure 2: The IT Management Ecosystem While all systems may perform their functions well, all too often they cannot share information easily. Nor do they make it easy to quickly analyse and understand the complex relationships among different parts of the IT portfolio or between those portfolios and the associated IT or business processes. The dynamic and unpredictable nature of both internal and external business environments requires an Enterprise Portfolio Management (EPM) approach that gives decision-makers flexible, dynamic access to the subset of information they need to address specific challenges. EPM gathers this information from whichever existing systems can best provide it, as shown below: STRATEGIC INFORMATION RUN THE BUSINESS CHANGE THE BUSINESS OPERATIONAL INFORMATION Figure 3: EPM and the IT Management Ecosystem

6 EPM then provides business context and insight into how the elements of the enterprise portfolios interact across five critical processes: IT Portfolio Governance, which manages the risk, health, standards and compliance of IT assets. IT Demand to Delivery, which manages demand, funding, solution architecture, governance, and delivery. IT Financial Management, which includes budgeting, measurement, reporting, and forecasting. IT Change Management, which includes planning, executing, and monitoring changes to assure they support compliance, performance, and reliability. Business/IT Planning, which prioritises IT investments according to their business context, assesses gaps between needs and capabilities, manages a plan of action and measures, and aligns progress with requirements. How EPM Helps Simply organising data into the set of enterprise portfolios does not guarantee an organisation can reduce its costs, accelerate its entry into new markets, or ensure its regulatory compliance or business continuity. However, the proper analysis of these portfolios helps achieve all these goals. Through the six portfolios that characterise the enterprise, EPM provides a more complete view of the enterprise (from physical servers and storage through business processes to objectives and strategy) than decision-makers have today. A modern EPM solution allows real-time, business-focused what-if analyses that used to be impossible. A regional operations chief, for example, can quickly identify which applications in their region are candidates for retirement and understand the effect of this on his key business capabilities. The product manager for a new online health insurance marketplace can quickly identify which infrastructure and services would support that marketplace, and estimate the cost of ensuring their regulatory compliance. By describing how all these tangible and intangible assets relate to and interact with one another, EPM helps decision-makers do everything from eliminate redundant applications to evaluate acquisition targets based on the cost of integrating the two enterprises systems. From our experience with customers worldwide, we have determined that the following value drivers provide the greatest ROI: managing costs, managing risks, and increasing flexibility. 1.Reducing costs This means providing the same, or higher, level of service while reducing expenses. Such cost reduction allows the organisation to either retain or gain market share through reduced prices, or to increase its profits. Savings in managing everyday operations can also be applied to more strategic IT initiatives that allow the enterprise to offer new products, enter new markets, or gain a competitive advantage. Using EPM, this most commonly involves the elimination of redundant or unused applications and other systems, driven by an enhanced understanding of the application portfolio and how it supports the business. Standardising common technologies also helps organisations save money through volume purchasing, and by reducing the number of platforms they must manage and train their staff on. Successful cost reduction also requires, however, that decision-makers understand the

7 Whitepaper / enterprise portfolio management true role individual applications play in a complex, interconnected enterprise. This allows organisations to reduce costs through technology standardisation and consolidation without inadvertently eliminating critical systems. Reducing costs: case studies Trimming Apps Saves Aerospace Giant $50 Million per Year In the process of setting up major product programs and acquisitions, a major aerospace manufacturer had developed or added many redundant systems. The complexity and cost of these systems, and the opportunity to save approximately $50 million a year through consolidation, had come to the attention of the board of directors. Using EPM solutions, this aerospace giant drew information from its ITSM system to examine the alignment of its application portfolio to its technology portfolio to identify old and possibly risky applications. It also examined the alignment of its application portfolio to its business architecture in search of overlapping functionality. As a result, it reduced its application inventory by more than 50% from about 15,000 to about 7,000. Systems Vendor Cuts App Inventory 75% For many years, a global IT systems vendor had found it more important to scale to accommodate rapid growth than to stringently manage costs. When its growth slowed, however, the vendor found itself with an unwieldy collection of 9,000 applications. An aggressive Application Portfolio Management (APM) program allowed it to reduce its application inventory by 75 percent and its IT budget by several hundred million dollars. This effort utilised information from the vendor s Project Portfolio Manager system and allowed it to eliminate unnecessary maintenance on applications that would soon be retired. Paving the Way for M&A Implementing APM in the context of a wider EPM effort can also speed the time to cost savings. During the 2008 financial crisis, a leading European bank needed to quickly reduce costs in a newly acquired bank. This required drawing information from custom in-house repositories to identify functionally redundant systems, choosing which to use in the merged organisation, and resolving redundant artifacts such as conflicting customer descriptions. The use of EPM allowed the combined organisation to reduce its IT costs by 120 million Euros in less than a year, a quarter of the time required to integrate systems in other complex mergers. EPM Eliminates Need for New Data Center When a global financial services firm suffered unacceptable performance delays at an Asian customer service center, it suspected latency in its trans-pacific data links and prepared to build a local, multi-million dollar data center to fix the problem. By using an EPM tool, the firm analysed information from its ITSM system to understand which specific systems supported the problematic applications. It found that several hundred out-of-date desktops at the customer service center were to blame. Simply replacing those desktops rather than building a new data center solved the performance problems, saving the firm several million dollars. 2. Reducing risk This means reducing the likelihood or the severity of damage as the result of anything from natural disasters to security attacks or failures to comply with regulatory mandates. A new form of risk which EPM is very effective at addressing is what Gartner calls technical debt. This is the risk resulting from the backlog of deferred maintenance spending caused by reduced IT budgets in the wake of the financial downturn.

8 This reduced maintenance effort often means older, unsupported versions of critical applications such as databases that continue to run without the latest bug or security fixes. This risk reduced reliability, security, and supportability, as well as missed business opportunities if outmoded platforms cannot easily share data over modern delivery channels such as mobile devices or to Web services. Yet another area in which EPM can reduce risk is in disaster recovery and business continuity for the applications and systems that support an organisation s most critical processes. These processes include not only revenue generation or product creation, but compliance with regulations such as Sarbanes Oxley. Furthermore, a good application portfolio includes configuration and backup information essential to understanding and reducing risk. It also captures information about the location of customer or patient information that regulations require be stored in a particular geography, making it easier to ensure those regulations are satisfied. Risk Reduction: Case Studies Keeping a Critical System Running The use of EPM helped one IT technology and services vendor avoid what could have been a disastrous move away from the proprietary fault-tolerance computing hardware that runs its critical manufacturing processes. The customer planned to move off the hardware because its manufacturer had been acquired by a competitor. However, an EPM exercise showed that this proprietary system was so tightly interwoven in the vendor s business that the risk of migrating from it was higher than the risk of continuing to use it. As a result, the vendor instead negotiated a multi-year maintenance agreement with the system manufacturer, significantly reducing its own costs as well as its risk. Speeding Risk Management in Financial Services EPM is helping a large fund manager better understand and manage risks in the midst of unpredictable financial, political, and technology upheaval. This financial services firm processes close to $1.6 billion in trades every day while meeting strict industry and regulatory standards and policies. Its risk and compliance team had been using Microsoft Visio and Word to document critical business processes, identify process controls, and determine risks that those controls would address. For one process alone, the document was an inch thick. This cumbersome process made it difficult to maintain and manage risk across all the organisation s processes, verify which processes have controls, and determine which controls are manual vs. automatic. It also made it difficult to document process changes and determine whether proper controls were in place for those changed processes. After implementing EPM, the head of IT can run a technology risk report himself, at any time, getting answers within seconds that used to take weeks. 3. Increasing agilty This begins with the ability to increase (or reduce) the size of an organisation s IT infrastructure as business needs change. It also means being able to rapidly enter or leave new physical or virtual markets, change business models, or merge with or acquire other organisations. With IT and information assets interwoven so completely into the business, any change in the business goals and strategy portfolio quickly ripples through the other portfolios. Without the proper management of all the enterprise portfolios, it is impossible for an organisation to meet its business requirements as quickly and cost-effectively as possible.

9 EPM helps organisations respond quickly and effectively to change by providing the most accurate, detailed, and timely assessment of how their various portfolios interact. This gives decision-makers the broadest possible view of the combined business and IT portfolio that makes up the modern enterprise. Proper understanding of the application portfolio, for example, can help an organisation understand when it needs to invest more in selected applications to meet new market needs. Only by understanding which geographies the business is expanding in (from the goals and strategies portfolio) can managers know which applications, physical infrastructure, or cloud services they will need today and in the future. Increasing Agility: Case Studies EPM Improves Focus, Speeds Time to Market A global technology provider that had grown through acquisition found itself not only with excess IT infrastructure but also too many conflicting business models and processes. The organisation interviewed important decision-makers to identify a common desired operating model across its business units. That helped it identify and divest itself of businesses that did not fit this model, and thus were unlikely to deliver the desired top-or bottom-line results. By comparing potential acquisition targets with the model, this organisation can more quickly identify the true value of potential acquisitions. The resulting improvements in due diligence, evaluations, operations, and integration help the organisation know when to buy, build or partner. The result: improved use of capital, reduced operating expenses, and better identification and prioritisation of transformation opportunities. Project Reviews Cut From Two Weeks to Two Days By using a well-known EPM tool to manage its technical standards catalog, a global financial services provider reduced the time required to review and approve new projects from two weeks to two days. Information from the systems already in place for project portfolio management were used to determine how well projects were aligned with the required business capabilities. The time to market for new financial products and services was reduced by 30% as a result. Another major financial services firm sped the delivery of products and services by reducing, from six weeks to two days, the time needed to determine the cost of the IT changes required to offer a new financial product. This is a far cry from the days when, in some cases, the business had lost interest by the time IT could deliver such an estimate. Insight Yields Effective Action Complex organisations seeking to survive and thrive amidst unprecedented change must continuously reduce their costs and risk while increasing their agility. Achieving these goals across multiple businesses, systems, and markets requires a holistic approach to decision-making that spans applications, information, technology, investments, goals and strategies, and business architectures. By leveraging information about these portfolios already contained within legacy management systems, EPM enables business as well as IT managers to perform dynamic what-if analyses. The resulting insights reduce cost and risk while increasing the agility that separates the winners from the losers in today s economy.

10 Getting Started Gathering the data required for EPM may seem so overwhelming that some organisations never begin the process. Others feverishly try to gather all their data at once. Neither extreme works as well as a careful, consistent approach to EPM. When getting started, the most important guiding principle is to make sure the enterprise stays focused on the value the business seeks to achieve. In doing so, an organisation can be sure their data-gathering efforts are well scoped and the information collected is up-todate and accurate. This approach allows the EPM program to prove its credibility with measurable successes as the organisation s EPM skills and experience grow. What can we do for your organisation Visit Call +31 (0) consulting@logicalissmc.com