Following the Decision Trail of is Portfolios
[Sponsored article] Large firms often grapple with hundreds of simultaneous decisions relating to investments in information systems (IS). But the question of why some decisions are approved and others rejected, and how that relates to the firm’s IS strategy, has not been properly studied. A new study addresses that gap by developing a model and applying it to actual decision-making within a Fortune 50 multi-business operation.
At the heart of that work is the desire to determine the decision rationale (DR) for IS portfolio prioritisation and whether it accords with IS strategy.
“Incongruence between DR and a firm’s IS strategy is not only likely to be associated with allocation of investment in unsuitable IS initiatives, but also associated with firms missing out on key IS-enabled strategic business opportunities,” report the authors Prasanna Karhade, Michael J Shaw and Ramanath Subramanyam.
They therefore develop a profile of DR and analyse how this is applied under two types of strategies: a conservative IS strategy that is ultimately focused on the assessment and mitigation of risks, and an innovative IS strategy focused on exploring new opportunities.
They zoom in on three key features of DR: communicability, consistency and its risk appropriateness.
“A simple, communicable DR uses scarce resources – senior management’s time and attention – judiciously. The frequency with which decision rules are applied, in particular the number of decisions made using the same rule, represents consistency. And risk appropriateness relates to the right kinds of questions being raised and/or answered, based on the chosen IS strategy, before decisions are made,” they said.
Each strategy has different external and internal factors that will affect its DR. A conservative IS strategy is associated with a relatively stable external environment, a formal decision-making structure, and a risk-averse tendency in the quest for efficiency improvements. “These qualities are likely to result in an easily communicable, highly-consistent DR and focus on risk assessment and mitigation,” they said.
An innovative IS strategy is associated with a dynamic external environment, an organic decision-making structure, and risk-taking tendencies. “This is likely to mean a DR that is not easy to communicate, is not likely to be applied with a high consistency, and focuses on exploring opportunities,” they said.
These ideas were explored in two business units of the Fortune 50 operation, one that adopted a conservative IS strategy and the other an innovative one. The authors conducted face-to-face interviews with key members of the top management teams, were shown confidential documents, and were allowed to observe IS portfolio prioritisation sessions. Afterwards, they were told the decisions that were taken.
The input information to the decision was fed into a “decision tree” that broke the data down to 15 attributes relating to benefits, risk assessment and risk mitigation, and correlated these with the decisions made. This enabled the authors to derive a tacit understanding of the DR under each strategy.
The unit following a conservative IS strategy used a decision tree characterised by only five of the attributes – one benefit attribute, two risk assessments and two risk mitigations – and some 63 percent of decisions were made by applying just one of these. This supported the idea that a conservative IS strategy is highly consistent, easily communicable and focused on risk assessment and mitigation.
The innovators, on the other hand, were represented by six decision attributes – three benefits, one risk assessment and two risk mitigations – and only 40 per cent of decisions were explained by one main rule. Therefore, their DR was not easy to communicate, not highly consistent, and it focused on exploring opportunities.
The authors advised firm’s to pay heed to the differences because the right DR for there IS strategy could affect the kinds of initiatives they adopt. They suggested managers could more clearly understand their own DR by gathering the relevant information and developing a repository of decision rules to use not only when making decisions, but also managing portfolio lifecycles.
“Decision rules can tie information attributes to the decision outcomes. As various decision makers articulate their individual DRs in the form of rules, they develop a repository of decision rules. They can also compare their DRs, understand the point of view of others, and eventually agree upon DRs to apply when prioritising IS portfolios. Such collective exercises can enable decision makers to arrive at a set of rules that are collectively deemed non-negotiable,” they said.
By KARHADE, Prasanna P | SHAW, Michael J | SUBRAMANYAM, Ramanath
MIS Quarterly, Vol. 39, No. 2, June 2015