Portfolio Selection of IT Service Products – Case Study

Antti Vikman

25.8.2009

Structure

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

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

Research problem

Creating an evaluation method that can be utilized in the selection of the IT service products in the case company

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

Structure of the study

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

Results from absence of portfolio management

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

Popularity of different methods

Popularity does not necessarily equate to effectiveness

2,7

13,3

5,3

26,6

40,4

20,9

37,9

40,0

64,8

77,3

0 20 40 60 80 100

Checklist

Scoring model

Visual charts

Strategic approach

Financial Methods

Popularity (%)

Dominance (%)

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

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

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

The checklist

The checklist including must-meet questions is used for initial harvesting

The must-meet questions:

1. The service product is strategically in alignment: the service product lies within the boundaries of the case company’s strategy and vision.

2. The service product clearly brings value for customers.3. Existence of market need for the service product: the market exists and is

growing.4. The service product is deliverable: it is reasonably likely that the product can

be delivered.5. There are no major barriers in selling the service product.6. No showstoppers: absence of killer variables at this point.7. The product is financially / commercially attractive: it is reasonably likely that

profits can be made.

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

Factor 2: Value for Customer

Factor 8: Financial Reward

Summary Scores: Product Attractiveness Score

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.

Results of Initial Harvesting

Results of Scoring

Results of Scoring

0

1

2

3

4

5

6

7

8

9

10

Busi

nes

s S

trat

egy

Fit

Val

ue

for

Cust

om

er

Mar

ket P

ote

ntial

Fit to E

xist

ing

Cap

abilitie

s

Del

iver

y Fea

sibility

Sal

es F

easi

bility

Ris

ks

Fin

anci

al R

ewar

d

Factor

Score

.

Service Product 1

Service Product 2

Service Product 3

Service Product 4

Service Product 5

Service Product 6

Service Product 7

Service Product 8

Requirements for a good portfolio management method

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

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.

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

Questions?