Strategically Decoupling Your Second Tier Portfolio (Part 2)

In yesterday’s post, I introduced the concept of a tier 2 portfolio, and how the concept of strategic coupling works in a tiered portfolio.  This post continues that discussion with an overview of a decoupled portfolio.

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A decoupled portfolio means that IT understands where the business is going, and instead of reacting to that, makes plans hand in hand with the business to achieve those goals.  In a decoupled portfolio, the IT organization identifies a series of strategic drivers that guide investment programs to support the business.  These investment programs, in turn, provide the governance framework to a series of projects that better position IT to deliver effective, efficient services to the business.

Some characteristics of a decoupled portfolio are that:

  • IT is proactively identifying what the business will need, and preparing those capabilities in advance.
  • These proactive efforts end up being bundled into programs, where each program is designed to enhance specific capabilities.
  • As a secondary benefit of bundling efforts into programs, IT is better positioned to invest in options assessment, i.e. to invest in alternatives analysis to determine the optimal approach to developing a specific capability.  The budget for such efforts may be attached to the program as opposed to waiting for business funding.
  • There is significant investment in shared platforms to support business projects.  Coordinated investment replaces piecemeal investment in shared platforms.

The Role of Programs in Decoupled Environments

In the absence of a defining business program structure, a decoupled portfolio naturally lends itself to the bundling of projects into logical programs defined by IT.  These programs, in turn, provide a structure to the IT portfolio that enables it to both define funding priorities, and to approve these priorities within the program – thus providing a more agile governance structure.

The challenge inherent in this rebundling of IT project work is that it necessitates a reassessment of the traditional IT funding model.  In a tightly coupled IT environment, each project is owned by a business unit, and hence funding is easy to determine.  In a decoupled portfolio, more investments tend to be made in an entire platform – that is then leveraged by multiple business units to achieve economies of scale.

Thus, as IT organizations move to this decoupled model, a new funding model is necessary – either splitting the costs equally across business units, or more logically, moving to a transaction based costing model.  This is the inevitable result of moving away from a coupled IT portfolio.

Yes, but……

Of course the issue with any framework is that it is overly simplistic.  I’d no sooner finished writing this post when I started poking holes in it.  For example, if tier 1 portfolios are defined in terms of what makes us a profit, and tier 2 portfolios support the people that provide the tier 1 services, then where does new product development (NPD) fit in?  In alignment with the proposed framework, NPD is another tier 2 portfolio that is designed to generate the grist that goes into the tier 1 portfolio and makes a profit.

The entire tier 1 and tier 2 thing may be a bit of a hazy line at some times.  For example, what if I have an IT consulting shop that shares resources between internal and externally facing projects?  Are those projects all one portfolio?  Do I have two portfolios?

I’ll defer to later posts for clarifying that question.

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Strategically Decoupling Your Second Tier Portfolio (Part 2)

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