Portfolio Selection of IT Service Products – Case Study

1. Portfolio Selection of IT Service Products – Case Study Antti Vikman 25.8.2009

2. Structure • Background • Research problem • Theory • Company related part • Synthesis - Deriving the model • Model testing • Conclusions • Questions

3. Background • This Master’s Thesis deals with portfolio management of IT services in a case company • The case company is a local site of a large, multinational information technology company • In this company a lot of investments have been wasted due to poor portfolio selections • This had become a clear problem that needed to be solved

4. Research problem • Creating an evaluation method that can be utilized in the selection of the IT service products in the case company

5. The goal of this study can be divided into sub-goals: • To provide an overview of portfolio management and to identify the common portfolio management and selection methods and tools • To identify the case company’s current IT service portfolio management procedures and problems related to them • To identify a suitable portfolio selection model for the case company based on both theoretical and empirical findings • To test the model and its suitability in practice in the case company

6. Structure of the study

7. Theory • Product selection and portfolio management are critical challenges to senior management • Decision-making, prioritization and reprioritization, strategic alignment and realignment, allocation and reallocation of resources are the ongoing processes of portfolio management • Poor decisions and practices in this area may have harmful consequences for the whole business

8. Results from absence of portfolio management

9. Portfolio management • Goals: • Value maximization of the portfolio • Strategic alignment of the portfolio • Balancing the portfolio • Right number of products in the portfolio • Different methods: • Scoring methods and checklists • Financial methods • Strategic methods • Visual charts • Different tools emphasize different concerns

10. Popularity of different methods • Popularity does not necessarily equate to effectiveness

11. Company related part • IT service product selection in Finland is made non-systematically and merely based on the decision-maker's personal know-how • No kills are done regarding new service products and rather all of them have been chosen into the portfolio • Many wrong choices have been made that have caused a lot of wasted investments • Need for a systematic way to evaluate the products

12. Synthesis • The model for evaluating the case company’s IT service products was developed by the author • Literature and research on portfolio management was reviewed and considered, the case company’s current portfolio management practices were studied, and a sales manager was consulted • The author customized the model to fit the case company's strategy, environment and current service product evaluation processes • After the initial model was developed, it was refined based on discussions with the sales manager to accomplish the final model

13. The created model • The purpose of the model is to assist the case company in the business analysis of standardized IT service products chosen from a global level offering • The model lists factors that affect the selection of the service products and should thus be evaluated • The created model contains three consecutive stages: a checklist and a scoring model with qualitative and quantitative elements • The evaluation model will be used primarily by the two product line leaders and business managers in the service organization

14. The checklist • The checklist including must-meet questions is used for initial harvesting • The must-meet questions: • The service product is strategically in alignment: the service product lies within the boundaries of the case company’s strategy and vision. • The service product clearly brings value for customers. • Existence of market need for the service product: the market exists and is growing. • The service product is deliverable: it is reasonably likely that the product can be delivered. • There are no major barriers in selling the service product. • No showstoppers: absence of killer variables at this point. • The product is financially / commercially attractive: it is reasonably likely that profits can be made.

15. The scoring model • Includes eight factors • The qualitative elements in the scoring model: Business Strategy Fit, Value for Customer, Market Potential, Fit for Existing Capabilities, Delivery Feasibility, Sales Feasibility, and Risks • The quantitative part of the model, Financial Reward, is given more weight in the scoring than the other elements • Every sub-characteristic is graded on a scale 0 - 10 • The total score for each factor component is calculated by averaging the individual scores • The outcome of the service product evaluation is the sum of the scores from the eight factors • A high score indicates that the product is attractive and potential to be taken into to the case company's IT service portfolio

16. Factor 2: Value for Customer

17. Factor 8: Financial Reward

18. Summary Scores: Product Attractiveness Score

19. Model testing • Eight IT service products from the global service portfolio of the case company were evaluated using the created evaluation model • The cases were chosen to represent a cross-section of the IT services in the case company • Both products that already existed in the portfolio and products considered to be taken into the portfolio • The service products were scored by the sales manager, who executed the testing individually • Due to confidentiality issues, accurate financial values cannot be revealed. In this study the financial aspect is therefore covered using only rough values.

20. Results of Initial Harvesting

21. Results of Scoring

22. Results of Scoring

23. Requirements for a good portfolio management method

24. Recommendations for Scoring • Evaluate several products simultaneously to compare the products to each other • At least a few persons evaluate the products • The existing portfolio should be reviewed every once in a while in order to drop misfits from the portfolio • Recommendations can also be given concerning the single factors and characteristics • The model should be reviewed and updated annually or periodically to ensure that the model maintains its relevance as a tool to the case company • The factors and characteristics can be easily changed as required and weights can be easily added to the different factors

25. Conclusions • The contribution of this research is more practical than scientific • The results indicate that the created model is a truthful, efficient and useful method for service product evaluation and selection in the case company • As an additional result, the study gives indications about the fit of the evaluated service products into the case company’s portfolio • Utilizing this model the case company can better succeed in portfolio management and secure its competitive advantage on the market • The created model was tested in the case company only -> difficult to evaluate whether the results are valid in other organizations • Only one evaluator -> straight conclusions cannot be drawn about the results of the evaluation • The created model will be implemented in the case company, which can be seen as an indicator of the usefulness of the study and feasibility of the results.

26. Further Research • Benchmarking the different methods used for portfolio management in different organizations • The differences in evaluating new service products and reviewing products already existing in the portfolio • How should the whole portfolio management process be handled including the creation of products, gathering of information and selecting the right products into the portfolio? What is the connection between these factors and how should they be integrated to support each other as much as possible? • How can scores and other information from evaluation be further used for other purposes, e.g. for evaluating the efficiency of the delivery or for focusing investments? • The implementation of a portfolio management model or the portfolio management practices

27. Questions?