Professor T. Ravichandran: Investment Portfolio Mix

By BTM Institute Staff Writer  |  Posted 2008-10-16 Print this article Print

T. Ravichandran, an associate professor at Rensselear Polytechnic Institute's Lally School of Management and Technology, has been studying what influences IT technology investment as a process in depth, along with teaching courses in IT value creation, IT strategy, and supply chain management. In fact, his latest paper, published by the Journal of Information Technology and Management, is called "A Comprehensive Investigation on the Relationship Between Information Technology Investments and Firm Diversification."

Q. How do IT organizations go about selecting their investment portfolio mix?

Portfolio picking has become common among IT organizations. CIOs clearly understand the risks the involved in making IT investments, even in proven technologies where implementation risks might delay projects. CIOs need to balance the portfolio of investments based on risk tolerance (some high risk and some low risk), and also based on potential payoff. Some investments might have a simple implementation for systems that will take cost out of some processes.

Q. Are CIOs looking at a portfolio mix of investments for innovation, exploitative, and explorative initiatives?

Many IT organizations understand that they can enable innovation, particularly when it comes to innovating with the services. Even product companies derive a substantial component of revenues through services, in addition to the products. IT enables many service innovations. In industries that primarily deal with information, such as banking or insurance, IT enables most new product innovations, especially for e-commerce. Even if you make products, such as cell phones or automobiles, IT still drives those organization's distinct service components.

The need to drive new services, experiment with new ideas, or to create new business models to go after new business opportunities factor into how CIOs pick their portfolio of investments to keep the capabilities of their IT infrastructure current. There, however, might not be direct correlation between investments that enable these innovations and experimentation and exploration and risks. For example, carrying out a new business portal might not involve substantial risk because it might use simple proven technologies.  In contrast, upgrades to the infrastructure to deliver information in a new way might require sophisticated, expensive technology. The element here might be higher.

I'm not sure how companies balance these different investment elements. I haven't seen a nice methodology that allows companies to look at portfolios, which have experimentation, exploration, and exploitation on one side, versus service returns on the other side. The damages from the risk on service returns vary differently from the damages from the risk on exploitation.

The BTM Institute (www.btminstitute.org) brings together the academic, corporate, government and thought-leadership communities as a multi-disciplinary research think tank to address the need to integrate business and technology.

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