The IT portfolio

Welcome to Week 2 where we will explore how different kinds of IT investments provide different types of business value.

Researchers at the MIT Sloan School of Management investigated IT investments across 640 key US companies (Weill & Aral 2006).

They identified four key types of IT investments that contribute to an ‘IT portfolio’ or investment spread. These include:

• Transactional investments: used to cut costs or increase throughput for the same cost. IT that processes and supports the basic, repetitive transactions of the firm. Uses underlying infrastructure services.
• Informational investments: to provide information for decision making and management control such as accounting, reporting, compliance, communication or analysis. Uses IT infrastructure and transactional systems.
• Strategic investments: used to gain competitive advantage by supporting entry into new markets or by helping to develop new products, services or business processes. Note what was once strategic, can become transactional or infrastructural (initially automated teller machines (ATMs) were a strategic IT initiative; they became transactional over time).
• Infrastructure investments: are the shared IT services used by multiple applications (such as servers, networks, laptops, customer databases). Depending on the service, infrastructure investments provide a flexible base for future business initiatives or reduce long-term IT costs via consolidation.

Thus IT portfolio theory is a sophisticated investment decision approach that permits an investor to classify, estimate and control both the kind and amount of expected risk and return (Adapted from Downes & Goodman 1991).

Beyond just automating and information

Thinking of IT investments as a portfolio or a balanced set of investments provides a comprehensive approach to different types of business value returns accrued from ICT investments.

_{Adapted from (Weill & Aral 2006).}

Your task

Pick one of the four IT investments types that most interests you and conduct further research.

Share one of the resources you find in the comments and discuss why you found it useful.

Remember to use our 3C philosophy this week in engaging with other learners – through Curious, Compassionate and Constructive feedback.

References

_{Downes, J & Goodman, JE (1991). Dictionary of Finance and Investment Terms, Barron’s Educational Series, NY.}

_{Peter Weill, S. A. (2006). Generating premium returns on your IT investments. MIT Sloan Management Review, 47(2), 39.}