Faced with conflicting pressures to leverage IT for competitive advantage and shareholder value, while keeping a lid on IT budgets, CEOs are increasingly turning to IT portfolio management, which applies the techniques of financial management to technology investment. Using these techniques, tech-savvy CEOs are better able to channel scarce business and IT resources into initiatives that do the most good, according to John Stone, a partner with New York-based Foundation Ventures, an investment bank specializing in technology companies.
"By creating a common vocabulary of risks and benefits that business and IT stakeholders can understand and embrace - along with the right set of incentives and a means for objectively measuring results - portfolio management can be a valuable framework [that] CEOs can put in place," Stone says.
Portfolio management fits within a larger framework of governance measures that include organized bodies of senior executives. Many technologically aggressive companies are taking the further step of appointing a technology representative, or even subcommittee, to the board. "CEOs find this a very effective means of getting the right visibility for what tend to be the largest investment areas, as well as for the risks associated with technology," says A.T. Kearney's Haas.
Through both institutional and less formalistic means, the challenge for the CEO is to understand "what their IT investments and assets are compared to other like companies, and to understand where that investment is going and what it takes to get the right return," Haas adds.
A.T. Kearney recommends a three-stage "discussion model" for the CEO to interact with the CIO and other senior executives involved in technology decision-making. The three stages, or focus areas, are operational excellence, which looks to core IT infrastructure; business process excellence, which focuses on optimizing functions such as claims management, underwriting and distribution through IT; and a third layer concentrating on using IT to drive innovation through the development of breakthrough products and services, Haas explains.
"Companies tend to treat all IT assets the same," Haas asserts. "They tend to resource projects and procure services the same across those three layers when they should be treated uniquely and should have different investment profiles, different benefit hurdles and different payback periods associated with the different categories."
As much as CEOs need to understand how to properly evaluate technology investment opportunities, they also need to evaluate the liabilities of core legacy systems. "These antiquated systems, which are hard to replace and expensive to maintain, are at the core of their businesses," Haas says. "Those become a substantial infrastructure risk for companies, and CEOs need to understand the risks they are exposed to there."
In the end, one of the surest signs of a tech-savvy CEO is an understanding not only of the potential of technology but of its limits, according to IBM's Klein. Today's technology has tremendous potential for changing business today, and it's the capacity to manage that organizational change that is the key to success. "The more tech-savvy CEOs recognize that while technology is a major part of the equation, it's by no means all. Many CEOs who have grandiose plans often find themselves less successful because they can't accomplish the degree of change that they envision," he says.
Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio