AE Spot'On - Chris Potts - Enterprise investment: Combining EA and Investment Portfolio Management

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Welcome

Johan MerckxEnterprise Architect

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Enterprise Architecture is aboutEnterpreneurship and Engineering

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@chrisdpotts

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Enterprise Investment

Chris Potts

AE, Heverlee30th January 2014


What I Do

FRUITION

Author of The FruITion Trilogy

RECREATION DEFRICTION

Practitioner & Mentor

Speaker & Facilitator

Corporate Strategist - Enterprise Investment -

Working with people around the worldhelping them to succeed with their strategies

and to increase their value, contribution and influence


70% of projects fail*

*Does that mean 30% of projects succeed?

Enterprise Investment: How Are We Doing?


Some Projects Succeed, Some Don’t

-$150 million-$120 million

-$115 million

-$101 million


Some Projects Succeed, Some Don’t

+$919 million


The First Principle of Enterprise Investment

Investment is about scenarios and probabilities not certainties

Do you agree with this principle?



From Information Technology to Enterprise Investment

The Value Chain for Enterprise Investment

Enterprise Investment Culture

The Enterprise Investment Portfolio

End-to-End Process, Core Capabilities and Governance


From Information Technologyto Enterprise Investment


At the Heart of Every Strategy…

People

Money Technologies

Value


Fourth GenerationEnterprise Investment

Focus: Return on investments in business change

Foundation: Portfolio of investments in change

The Four Generations of Corporate Strategy for IT

Third GenerationIT Exploitation

Focus: The value people create by exploiting IT

Foundation: Investments involving IT

Focus: Cost and performance of IT services

Foundation: IT spending (core capabilities, projects, services)Second Generation

IT Efficiency

Focus: Architecture & standards

Foundation: IT roadmapFirst Generation

Technology

The FruITion Strategy®


The Value Chainfor Enterprise Investment



Achieving your goals for both structure and valueas risk-efficiently as possible


The Porter Value Chain

Enterprise Architecture?

Investment Portfolio Management?

Sourcing?

Strategy?

FIRM INFRASTRUCTURE

INBOUNDLOGISTICS

OPERATIONS OUTBOUNDLOGISTICS

MARKETING& SALES

SERVICE

SUPPORTACTIVITIES

PRIMARY ACTIVITIES

HUMAN RESOURCE MANAGEMENT

TECHNOLOGY DEVELOPMENT

PROCUREMENT

© Michael Porter


Supply(Internal/External – Cloud)

The Enterprise Investment Value Chain

Strategy

Structure Value

People Services Products

Enterprise Architecture

Investment Portfolio Management


Sourcing




Strategy

Structure Value





Sourcing




Strategy

Structure Value





Sourcing“CTO”

“CIO”


Enterprise Investment – Measures of Success

Enterprise Architecture Investments Management

Achievement of agreed design characteristics Success of structural investments

Influence on people’s strategies & plansImpact on portfolio productivity & efficiency

Impact on time-to-first benefit in projects

Achievement of agreed investment goalsPercentage investment by value type

Portfolio costs to P&LEach project: value milestones achieved

Contribution of ‘exploitation projects’

Sourcing

Supplier delivery to SLAs and Project MilestonesCosts to cash versus budgets

Business impacts of service disruptionsSupplier added value (over & above contract)

Mitigation of supply risks to agreed residual values



Investing in Stability, Investing in Change

Strategy

Stability Change

Goals

Outcomes

Operations Projects

Invest inStability

Invest inChangeAgents

of StabilityAgents of Change

Predictabilities Probabilities


Enterprise Investment – Investing in Stability and Change


Core tacticDiversify your investments

until no more diversity improves their risk-efficiency

Modern Portfolio Theory (1952)adapted for an enterprise’s investments in change

plus: Behavioural Economicsas evidenced by the Investment Culture


Enterprise Investment Culture


Why Culture is at the Heart of Strategy

“Culture eats strategy for breakfast”

Peter Drucker


Enterprise Investment Culture - Diagnosis



Dimension Prevailing Culture

Value Creation Consideredalways

Consideredlast Avoided Considered

first

Innovation Focus None Market Technical Internal

Investment Portfolio Inventory Bottom-up Non-existent Top-down

Targeting Outcomes Activities Outputs None

Exploiting Assets & Services Central Missing Peripheral Intended

Investment Strategy Random Strategic goals

Operationalgoals

Somethingelse

Sponsorship Accountable Nominal Absent Responsible

Project Management Deliveringchange

Time/cost/quality

ROIhypothesis

Deliveringvalue

Impact on Operating Costs Important Ignored Interesting Critical

Behaviour Towards Projects Controlling Influencing Undermining Not interested


Enterprise Investment Culture – Example Diagnosis




first






Operationalgoals

Somethingelse



Time/cost/quality

ROIhypothesis

Deliveringvalue




Comparing Investment Cultures (Example)


Does The Diagnosis Expose Any Paradoxes?

Do all the answers seem consistent with each other?






first






Operationalgoals

Somethingelse



Time/cost/quality

ROIhypothesis

Deliveringvalue




Enterprise Investment Culture – The “Perfect Diagnosis”




first






Operationalgoals

Somethingelse



Time/cost/quality

ROIhypothesis

Deliveringvalue








first






Operationalgoals

Somethingelse



Time/cost/quality

ROIhypothesis

Deliveringvalue




Enterprise Investment Culture – What to Keep, What to Change?




first






Operationalgoals

Somethingelse



Time/cost/quality

ROIhypothesis

Deliveringvalue




Enterprise Investment Culture – What to Target?




first






Operationalgoals

Somethingelse



Time/cost/quality

ROIhypothesis

Deliveringvalue




The Enterprise Investment Portfolio


Enterprise Investment – Promise and First Principle






Core tacticDiversify your investments

until no more diversity improves their risk-efficiency

Modern Portfolio Theory (1952)adapted for an enterprise’s investments in change

plus: Behavioural Economicsas evidenced by the Investment Culture






first






Operationalgoals

Somethingelse



Time/cost/quality

ROIhypothesis

Deliveringvalue




Enterprise Investment Culture – What to Target?




first






Operationalgoals

Somethingelse



Time/cost/quality

ROIhypothesis

Deliveringvalue




“Investment Portfolio” (Inventory)

Project Sponsor Capital €000 NPV €000

Apex 1 Tim Kahns 30,675 +49,376

Apex 2 Tim Kahns 46,230 +78,024

Redevelop Spartan Frances West 10,103 +36,200

CRMX version 3.6 Jerry Young 7,589 +22,017

V36 compliance Debbie Grant 31,120 +42,000

Web access to GRZA James Turner 12,974 +27,017

Refresh AOP and FFR Frances West 28,913 +48,384

Upgrade TRANSOP3 James Turner 62,252 +94,105

Building 21 Geoff Holden 96,048 +119,016

Firetop Phase 3 Julia Graham 4,456 +81,082

Firetop Phase 4 Julia Graham 1,940 +5,978

Replace WRKFLM Leo McKendrick 7.659 +15,377

OpCon Automation Miles Harrison 4,957 +6,790

Project Trio Trevor Dean 61,481 +113,967

QQT version 6 Frances West 41,468 +72,991

447,865


Building a “Bottom-Up” Portfolio: The Smartie Matrix

Change Projects

Value Types A B C D E F G H I J K L M N O

Revenue protection & growth

Cost control & reduction

Productivity & efficiency

Brand reputation

Customer delight

Employees satisfaction

Compliance

Survival


Primary value typeSecondary value types

Project Probability ParadoxThe higher the probability of approval,the lower the probability of success!


Enterprise Investment Portfolio (Live Projects)

Value TypeInvestment Goals

Projects Value Project Investment

P&L Cost impact

Probability

2014 2015 Implementation Investment

Revenueprotection & growth

+€125m +€150m

Project A +€13,5m 7,2 +3,9 High Medium

Project B +€131,8m 54,1 +12,6 Medium Medium

Project C +€11,2m 3,7 +8,1 High Low


-€50m Zeroincrease

Project D -€33,1m 11,5 -33,1 Medium Zero

Project E -€25,1m 2,3 -25,3 High High

Productivity & Efficiency

+0,5 +1,0Project F +0,31 9,7 -7,0 Medium Low

Project G +0,63 30,5 +28,5 Medium Medium

Brand reputation +5,0% To beconfirmed

Project H +3,0% 52,5 +7,6 Low Low

Project I +8,5% 74,6 +18,9 High Medium

Customer delight +0,25 +0,40Project J +0,21 41,6 +9,4 High High

Project K +0,16 33,1 +3,1 Zero Zero

Employees satisfaction +10,0% +5,0% Project L +12,5% 62,9 -3,0 High Low

Compliance Yes Yes Project M Yes 49,0 +8,8 High Medium

Survival Yes Yes Project N Yes 12,0 +4,5 High Medium

Enterprise Architecture Yes Yes Project O Yes 76,6 +11,0 High High

Investments and P&L costs are in € million, and includeboth actual costs and the cost equivalent of time 521,3 +48,0


What Do We Know About the Future?

Eur 000 2008 2009 2010 2011 2012

Revenues (Net Sales) 8,272 8,258 9,310 10,497 11,762

EBIT 779 834 1,118 1,249 1,345

Net Profits 401 441 613 683 735

Operating Expenses 2,103 2,109 2,412 2,807 3,166



€000 2008 2009 2010 2011 2012


EBIT 779 834 1,118 1,249 1,345

Net Profits 401 441 613 683 735




Revenues per €1 of Operating Expenses

3,6

3,7

3,8

3,9

?

EBIT per €1 of Revenues

0,00

0,05

0,10

0,15

?

€000 2008 2009 2010 2011 2012


EBIT 779 834 1,118 1,249 1,345

Net Profits 401 441 613 683 735



Enterprise Architecture Scenario Planning (Example Output)

Customers Processes Products & Services Organisation Technologies

De Facto Scenario

Innovation Incremental Step Change Incremental Breakthrough Breakthrough

Investment Low High High Medium Medium

Scenario A Innovation Incremental Incremental Incremental Step Change Step Change

Investment Low Medium High Medium Medium

Scenario B Innovation Breakthrough Breakthrough Step Change Incremental Incremental

Investment Low Medium Medium Low Low

Scenario C Innovation Step Change Incremental Breakthrough Incremental Step Change

Investment Medium Medium Medium Medium High

Scenario XInnovation ? ? ? ? ?

Investment ? ? ? ? ?




De Facto Scenario












De Facto Scenario












End-to-End Process Core Capabilities and Governance



Enterprise Investment Value Chain

Strategy

Structure Value





Sourcing


Enterprise Investment - End-to-End Process

Innovate Invest ExecuteExecute Exploit


Enterprise Investment - End-to-End Process

Innovate Invest Execute

Investor’s Perspective

Innovate Invest Execute Exploit

Implementer’s Perspective

Exploit


Enterprise Investment Process – Core Capabilities

High

Low

Asset & ServiceExploitation(Enterprise)

Operations Management

Project Management(Implementation)

Project Management(Investment)

Sourcing

Investment PortfolioManagement


Contribution& Influence


Investment Process


Enterprise Investments Board

Replaces “IT Governance Board”

Sets investment goals, constraints, priorities

Monitors aggregate performance of investments

Examines predicted impacts of investments on future operating costs

Scrutinises existing investments and steers their execution

Approves or reject new proposals for investment





P&L Cost impact

Probability



+€125m +€150m
























De Facto Scenario












Enterprise Investment Proposal

Completed and presented by whoeverwill deliver the benefits

Overall sequence of questions:- Primary goal, any secondary goals- Estimated costs - Preferred solution- Probability of success

Whose behaviours will need to change, and how, for the investment to succeed?

Specific people that success will depend upon

Timescale, end-backwards


In Conclusion


Enterprise Investment – Promise and First Principle





Enterprise Investment Value Chain

Strategy

Structure Value





Sourcing


Enterprise Investment Process – Core Capabilities

High

Low

Asset & ServiceExploitation(Enterprise)

Operations Management

Project Management(Implementation)

Project Management(Investment)

Sourcing

Investment PortfolioManagement


Contribution& Influence


Investment Process






first






Operationalgoals

Somethingelse



Time/cost/quality

ROIhypothesis

Deliveringvalue








first






Operationalgoals

Somethingelse



Time/cost/quality

ROIhypothesis

Deliveringvalue








first






Operationalgoals

Somethingelse



Time/cost/quality

ROIhypothesis

Deliveringvalue




Enterprise Investment Culture – What to Keep, What to Change?




first






Operationalgoals

Somethingelse



Time/cost/quality

ROIhypothesis

Deliveringvalue







P&L Cost impact

Probability



+€125m +€150m






















Summary

Enterprise Investment emerging from IT (but doesn’t have to)

Combination of Enterprise Architecture & Investments Management

Culture eats strategy for breakfast - diagnose, handle with care

Goals-driven and efficient investments portfolio

Enterprise Architecture framed by alternative scenarios


The End

Thank You

Have a Safe Journey

It's a metamorphosis

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