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Managing enterprise software is about managing a portfolio

In the latest of his Inside the Enterprise columns, Stephen Pritchard talks about portfolio management.

Stephen Pritchard

To meet their targets, professional investors create portfolios of shares. Within the portfolio, the fund manager picks shares with different performance characteristics, and manages each accordingly.

Much the same logic can be applied to business software. Some applications are critical and high performance, some more commoditised, and some lie somewhere in between.

Yet IT departments often run their applications, as if all are mission critical or core to the business. They assume that all applications have similar lifecycles. But just as the investor will hold some shares for short term gain and some for the long term, there are apps that need to run for decades - and those that run for just a few months.

This is an area that is being examined by the analysts at AMR Research, part of Gartner. According to AMR's Dennis Gaughan companies do tend to maintain the one size fits all approach to enterprise software, despite the fact that it adds to costs, increases complexity, and makes IT less responsive to change in the business. The answer is to manage different applications as different parts of a portfolio.

Analysts at AMR and Gartner have developed a straightforward - and workable - classification for enterprise software. This is based on the role of the app and its lifespan, as well as where it is most likely to run.

First there are "systems of record", transactional systems that control the business' financial functions. These could be accounting, sales, or enterprise resource planning (ERP). These systems usually run in house, and have a lifespan of decades.

Next there are "systems of differentiation", which go behond the core financials and help the business to stand out in the marketplace. This could be customer relationship management, salesforce optimation, parts of manufacturing or the supply chain or even marketing.

In the UK, Tesco's Clubcard loyalty system is a good example. These apps can be run in the cloud, and usually operate for three to 10 years.

The third tier of apps, and perhaps the most loosely defined, are "systems of transformation". These apps set out to change the business, or a part of it, can have lifespans as short as months, and are very likely to be delivered by external providers, including via the cloud. They are usually funded from business budgets. A lot of web or social media projects would currently fit this category.

AMR's point, though, rests less on the classification of the apps than on the need to manage them differently. There are lots of IT departments that spend too much managing non-critical or short life applications, as well as a few, no doubt, that neglect their core systems.

Viewing applications as a portfolio - with each picked for its strengths and managed accordingly - helps IT to work more closely with the business, and saves money.

Running a portfolio does, of course, take time, as any investor will confirm. But the results, in IT as in shares, are similar. Get it right and you will outperform the market.

Stephen Pritchard is a contributing editor at IT PRO.

Comments? Questions? You can email him here.

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