Case

MDCM, Inc. (B): Strategic IT Portfolio Management*

M. Jeffery and J. F. Norton

This case concerns a corporation whose information technology (IT) department was in poor shape and
could not support the company’s strategic business goals. The newly appointed chief information officer
(CIO) has been charged with upgrading the department with a major infusion of capital over a 3‐year
period. His committee has identified 12 possible projects to implement and now must prioritize and
schedule them given their inter‐dependencies, but within the limits of the increased annual budget for
the department.

The last month had been extremely busy for the senior executive team at MDCM, Inc. CIO Shawn Atkins
had been working with all senior vice presidents, business unit heads, and senior IT staff to complete a
thorough IT audit. As part of the audit, an interdisciplinary IT Portfolio Management (ITPM) executive
committee was assembled with the task of defining and prioritizing the top IT projects and initiatives
that would support MDCM’s strategic business goals.

The next day marked an important milestone. The ITPM executive committee would present its findings
to the corporate board and the rest of the senior executive team. However, a lot of work still needed to
be done before the meeting. Both CEO Max McMullen and Atkins were very anxious to finalize a
recommendation for the most important initiatives—they needed to turn the tide on MDCM’s losses
during the last five consecutive quarters.

MDCM did not have vast experience in executing large IT initiatives. Thus, the challenge for the team
was to find an optimal portfolio of IT investments that not only balanced risk and return but also were
aligned with the overall corporate strategy. Their recommendation also needed to consider the
dependencies among initiatives.

Going into the ITPM committee meeting, Atkins was not sure how the company was going to be able to
accomplish all of these initiatives in such short order, or how they should ensure the IT initiatives were
aligned with the corporate strategy. He knew he was going to need the ITPM executive committee’s
help.

IT Audit

The audit initiated by Atkins when he became CIO was a complete top‐to‐bottom report on the state of
MDCM’s IT. The report consisted of an inventory of systems, standards, projects, investments, and
budgeting decisions made by all IT groups within MDCM in the past five years.

The audit found exactly what Atkins and most people at the company already knew—MDCM’s IT
services had been badly mismanaged. The situation could only be described as disastrous in terms of IT’s
readiness to meet the challenges faced by the company. Years of poor investment decisions and
managerial neglect left the IT department in such disarray that it resembled more a collection of systems
pieced together than a single coordinated unit that could deliver the global IT capabilities necessary for
MDCM.
To his surprise, Atkins did have some positive findings. For example, MDCM France, the company’s
subsidiary in France, had successfully implemented a customer relationship management (CRM) system
that had great potential if it were rolled out globally. Another example was a computer‐assisted design
(CAD) system developed by a group of design engineers in the UK that helped reduced the UK division’s
product development cycle time by 40 percent. These findings were comforting to Atkins because it
seemed that MDCM had people who were capable of managing and building enterprise technologies
that could be of great business benefit.

The total MDCM IT budget in 2001 was $56.5 million, and Atkins found the IT headcount across the
company to be 195 professionals worldwide. Corporate headquarters in the United States had the most
staff at twenty‐five, while the UK and France were second and third with staffs of fifteen and ten,
respectively. The remainder were almost evenly scattered across the rest of the company locations.

Top Projects and Initiatives

After the IT audit, McMullen asked Atkins to estimate the cost of overhauling MDCM’s IT. Atkins
estimated the IT budget should be increased to $175 million per year for the next three years. However,
before committing to a total cost, Atkins knew he had to figure out the portfolio of initiatives that should
be implemented. Working with his top lieutenants, he put together an interdisciplinary team to create a
short list of the most important projects and initiatives. All the projects were part of the grand plan to
improve MDCM’s global IT. The intended final technology “blueprint” in the plan was for MDCM’s IT to
be second to none in its industry. The goal of this diverse set of projects, defined by the ITPM team, was
to completely revamp MDCM’s IT in the next thirty‐six months. The projects included infrastructure
changes and new back‐office and front‐office systems. In all, the team identified twelve major potential
projects and initiatives. These projects were as follows:

Unify Methodology and Technical Standards

Atkins and his team wanted to eliminate the myriad different standards and IT methodologies across the
company. The common approach would help reduce project cycles and encourage knowledge sharing
across IT development teams. This initiative would require all 195 internal IT professionals and any
consultants and contractors to be trained in the new methodology and educated on the technical
standards. Although existing systems and projects were not to be changed, any new systems and
projects would conform to the methodology and standards. This initiative was essential for improving
the future systems‐development capability of the IT organization.

Consolidate Data Centers and Networks

MDCM and its subsidiaries had thirty‐seven data centers and nineteen disparate networks worldwide.
The IT team estimated that it could save $1.1 million by simply consolidating the data centers to three
locations and shifting the company network to a virtual private network (VPN) managed by a
telecommunications provider. The new network would also be more reliable. Even though the benefits
and savings made it an attractive proposition, this would be a major undertaking with possible
interruptions to network services. Moreover, the project would consume all of the networking staff for
about six months.
Outsource Nonstrategic IT Services

In the past few years, Atkins had led several successful initiatives to outsource nonstrategic services of
IT. Services such as help desk support and hardware maintenance were good candidates for outsourcing
at MDCM. The team estimated that by outsourcing these two services, the firm could realize savings
within twelve months.

Standardize Server Hardware and Platforms

Numerous hardware platforms were being run across the enterprise. This included mainframes running
AIX or MVS, UNIX systems with either Solaris or HP/UX, and also Windows systems running on Windows
NT and Windows 2000. The team saw a potential opportunity to standardize server hardware and
platforms. Doing so would decrease maintenance and support costs, especially on vendor services that
typically cost MDCM $1.5 million each year. Because most of MDCM’s systems were legacy systems, the
savings from standardization would largely come from the mainframes. In fact, MDCM Brazil, MDCM
Argentina, and MDCM Mexico had already begun standardizing on AIX running on RS6000 computers,
IBM’s mid‐range mainframe.

Implement Enterprise Resource Planning

Before Atkins arrived at MDCM, an enterprise resource planning (ERP) project was well underway in the
United States. The implementation was meant to be the capstone piece of the reorganization of the
production facilities and suppliers associated with Horizon 2000. The project had been delayed twice
already due to unexpected scope changes and difficulty in coordination among the different local IT
groups. The team saw the ERP implementation as a crucial cornerstone for MDCM but was not sure if
the project could be a success if it continued. Because of the high cost of consultants, the team
estimated that the project would take another twelve months and cost $30 million to complete.

Create Employee Intranet Portal

The cost of supporting human resource administration, especially employee benefits, had risen
dramatically as MDCM grew internationally. With three months of development effort, many of these
functions could be automated and available for “self‐service” to the employees on an intranet Web site.
Although HR expenses were a fraction of overall SG&A, creating an employee intranet portal for HR‐
related administration would enable increased efficiency and potentially reduce headcount by twenty to
twenty‐five employees in the United States. Since MDCM U.S. had a majority of the employees, the
implementation plan would have the United States as its first rollout.

Manage the Supply Chain

With Horizon 2000, MDCM reduced the number of suppliers from thousands to a few hundred. In turn,
it was necessary for the company to be more connected to its key suppliers. A vendor selection had
been conducted, but the project was stalled because of the delays in the ERP implementation.
Corporate IT had already chosen software vendor i2 as a potential partner to implement the supply
chain system, although this was before the delays in the ERP implementation. The vendor had offered to
fully implement the software for a fixed fee of $12.3 million. Typical implementations for supply chain
management systems for organizations similar in size to MDCM could take nine to twelve months.
Streamline Design Systems

CAD design systems were key tools for MDCM’s engineers to use with their customers. They reduced
product design cycle time and improved quality control. Because of the complexity of software
development, for the most part MDCM purchased off‐the‐shelf software products like AutoCAD, Cadam,
and Catia. However, if the efficiency improvements were replicable, the team saw tremendous payback
in rolling out the custom‐built CAD system used in the UK to other design groups within MDCM.

As the sole subsidiary using the Cadam and Catia software in MDCM, the French subsidiary had
proposed to buy the systems outright instead of continuing to lease them via share time. Therefore,
another option was to leverage this investment and standardize on Cadam and Catia across the
enterprise.

Improve Collaboration Systems

Even though the ROI was difficult to quantify, there were opportunities to improve the different
collaboration systems at MDCM. E‐mails, discussion boards, calendars, and knowledge management
applications had been in place at MDCM, but they were highly disparate systems and some of them
were underutilized. An effort to globally consolidate and run these systems would need a strong
commitment from IT since it would require a lot of internal resources.

Begin CRM/Create Data Warehouse

With the successful CRM implementation at its French subsidiary, there was a potential for a global
rollout. To truly make good use of CRM, however, MDCM needed to consolidate data on customers into
a data warehouse. Such an undertaking was by no means easy and typically would take nine to twelve
months and cost more than $15 million to implement. Moreover, payback for such a system could take
as long as three years as the organization learned to make best use of the system.

Implement E‐Procurement System

Over the past few years, MDCM had continued to aggregate all materials purchasing to take advantage
of buying power from its scale. This had created huge savings. Additional savings could be realized if
local managers managed their internal purchases. An e‐procurement system such as Ariba would
facilitate this and typically would take only six months to implement. Instead of phone calls, e‐mails, and
faxes, the system would provide an easy way for MDCM to further save costs by consolidating its
internal purchasing.

Customer Self‐Service Portal

A customer portal on the Internet could reduce the administrative expenses associated with customer
service. Customers could communicate with their account managers, place orders, inquire about order
statuses, and learn more about how MDCM could better serve them through such a site. The team
estimated that MDCM could get a portal up and running within six months but was worried about its
reliability because of MDCM’s antiquated network and data centers.

Project Decisions

The debate between Atkins, McMullen, and the rest of the ITPM team only intensified as they worked
late into the night to prepare for the board meeting the next day. Atkins knew they had to reach a
consensus on which projects to recommend, and when to implement the projects over the next three
years. He also knew that due diligence in formulating the right portfolio of projects was vital to MDCM
regaining its competitiveness.

While the team had a comprehensive list of potential projects for MDCM, they had not yet considered
the fit of these projects with the overall strategy of the company. Moreover, the team needed to
identify where each project “fit” in the company’s ability to succeed versus the value to the business.
Atkins envisioned a matrix “map” with Value on the left axis with scores ranging from 0 to 100 and a
horizontal line drawn across the map at 50 and Ability (to succeed) at the bottom with the same scale
and a vertical line at 50. This would divide the map into four quadrants with the top projects in the
upper right corner. The projects to consider would all need to be above a diagonal line drawn from the
top left 100 point to the bottom right 100 point. To do this, Atkins considered creating a score card to
evaluate and compare the projects. But what criteria should be used? And how should the team think
about the dependencies across the projects?

Atkins wondered if they could come up with a solid recommendation in time for the board meeting the
next morning. “It’s going to be a late night tonight with some interesting discussions,” he thought to
himself.

Questions

Strategically, what is MDCM trying to achieve?

What important aspects of the organization are relevant to this decision?

What factors were important for Atkin’s team to consider in their recommendation?

Given the above considerations, analyze the various project selection models described in the chapter
and describe their relevance for this decision. Could the Real Options approach be of any value here?
Could the Aggregate Project Plan be of value for MDCM?

What project selection model would you recommend? Why? How would you incorporate the Ability to
Succeed—Value to the Business map into your analysis?

What projects should be initiated first, which later, and which, if any, eliminated? Show the 12 projects
along a vertical “Projects” axis by rows in order of which projects depend on other prior projects, and
the 36‐month timeline on a bottom “Time” axis.