...by Daniel Szego
quote
"Simplicity is the ultimate sophistication."
Leonardo da Vinci

Monday, December 28, 2015

Analysing technology portfolio of an IT consulting company

Maintaining a technological portfolio of an IT company a similarly complex task as extending the portfolio with a new technology : Extending the technologycal portfolio.

Let we assume that we assume that a company has got the following technological portfolio: {t1,t2, .. tN}. Each technology in the portfolio has got a a certain cost to maintain and the maintaining the whole technological portfolio has got a cost as well. The cost of a certain technology depends on many factors, like the complexity of the technology, the available experts, how fast the technology is changing and so on. Cost of the whole technological portfolio depends on the cost of the individual technologies and the synergy effects of the different ones. As an example, maintaining a windows operation team and a .NET application operation team in a company has got a lot of common attributes, both due to the similar activities and due to the similar activity of operations. Let we assume that maintaining the technologies one by one would cost: {C1(t1), C2(t2), .. CN(tN)} and let we assume that cost of maintaining all of the technologies together would cost: Call (t1, t2, ... tN). A good technological portfolio has got the following characteristic:
ΣiCi(ti) > Call (t1, t2, ... tN) 
In other words maintaining the whole technological portfolio cost less than maintaining each of the elements one by one due to the synergy effects.

From the other perspective each technology brings some kind of a benefit, the most simple one that each technology or technological knowledge can be sold for a certain price. In this sense we can define benefit for each technology and a benefit for the whole technological portfolio. Let we assume that if we have the technologies one by one, the would bring the following benefits: {B1(t1), B2(t2)...BN(tN)} and let we assume that providing the whole technological portfolio together brings the following benefit: Ball(t1, t2, ... tN). A good technological portfolio has got the following characteristic: 
ΣiBi(ti) < Ball(t1, t2, ... tN)
In other words selling the whole technological portfolio together worth more than selling just the pieces one by one, As an example offering complex services ranging from SQL development via maintenance, operations and project management can be usually offered higher than offering these services only separately. 

Let we define the rentability of our technological portfolio as 
R(t1, t2, .. tN) = Ball (t1, t2, .. tN) / Call (t1, t2, ... tN)

Based on these definitions, there is a possibility to analyse out technological portfolio:
- at a rentable technological portfolio : R(t1, t2, .. tN) > 1
- at a nonprofitable technological portfolio : R(t1, t2, .. tN) < 1
- at introducing a new tN+1 technology in the portfolio, we make the optimal decision if : 
   R(t1, t2, .. tN) < R(t1, t2, .. tN, tN+1)
- Similarly by dropping out or outsourcing a technology, for example t1 from our technological portfolio we must be sure that :
   R(t1, t2, .. tN) < R(t2, .. tN)

Let we define benefits of alternative technological portfolios, that are manifested as we miss one technology from the portfolio, like if we skip only the t1 technology from the portfolio, we would get the following benefit function: 
Rt1 = R(t2, ... tN) 
- A ti technology is the strongest in the technological portfolio if missing the technology from the portfolio would cause the most loss in rentability : max ti (Rti)
- Similarly a ti technology is the weakest in the technological portfolio if missing the technology from the portfolio would cause the less loss in rentability: min ti (Rti)