The current economic downturn highlights how drastically businesses and their IT operations need to change -- whether through growth, reductions, or transformation (or all three).

As IT budgets react to such change, leaders need to better understand how to manage such change holistically, and not have change manage them (or worse).

One strong way to be on top of change is by employing IT portfolio management techniques, products, and processes. To learn more about helping enterprises better manage their IT costs and priorities while preparing for flexible growth when the economic tide turns, I recently interviewed Lori Ellsworth, vice president of Changepoint Solutions at Compuware, and David A. Kelly, senior analyst at Upside Research.

Here are some excerpts:

Kelly: It's really hard to improve, if you don't have a way to measure how you're doing, or a way to set goals for where you want to be. That's the idea behind IT portfolio management, as well as project portfolio management (PPM). ... [Leaders need to] take the same type of metrics and measurements that organizations have had in the financial area around their financial processes and try to apply that in the IT area and around the projects they have going on.

[IT portfolio management] measures the projects, as well as helps try to define a way to communicate between the business side of an organization that's setting the goals for what these projects or applications are going to be used for, and the IT side of the organization, which is trying to implement these. And, it makes sure that there are some metrics, measurements, and ways to correlate between the business and IT side.

Ellsworth: IT organizations now are moving toward acting in a more strategic role. Things are changing rapidly in the business environment, which means the organizations that they're serving need to change quickly and they are depending on, or insisting on, IT changing and being responsive with them.

It's essential that IT watch what's going on, participate in the business, and move quickly to respond to competitive opportunities or economic challenges. They need to understand everything that's under way in their organization to serve the business and what they have available to them in terms of resources -- and they need to be able to collaborate and interact with the business on a regular basis to adjust and make change and continue to serve the business.

If IT wants to engage in a conversation about moving investments, about stopping something they're working on so they can respond to a market opportunity, for example, they need to understand who are the people, what is the cost, and where can we make changes to respond to the business. ... This isn't about IT deciding on different projects they could work on and what benefit it might deliver to the business. The business is at the table, collaborating, looking at all the potential opportunities for investment, and reaching agreement as a business on what are the top priorities.

Kelly: The other thing that's needed is consistency. When you're making these kinds of decisions, for a lot of IT organizations and organizations in general, if times are good, you can make a lot of decisions in an ad hoc fashion and still be pretty successful.

But, in dynamic and more challenging economic times, you want the decisions that you or other people on the IT team, as well as the business, are making to be consistent. You want them to have some basis in reality and in an accepted process. You talked about metrics here and what kind of metrics can you provide to the Chief Operating Officer.

You need consistency in these dynamic times and also you need a way to collaborate.

Ellsworth: There are a couple of problems with manual processes. They're very labor-intensive. We've talked about responsiveness. We need information to drive decision-making. So, the moment we rely on individual efforts or on people who have to go out and sit through meetings and collect data, we're not getting data that we can necessarily trust. We're not getting data that is timely to your point and we're not able to make those decisions to be responsive.

You end up with a situation where very definitely your resources are busy and fully deployed, but they're not necessarily doing the right things that matter the most to the business. That data needs to be real-time, so that, at multiple levels in the organization, we can be constantly assessing the health and the alignment in terms of what IT is doing to deliver to the business, and we have the information to make a change.

Kelly: To me, it's analogous to what we saw maybe 10 years ago in software development, when a whole bunch of automated testing tools became available, and organizations started to put a lot of emphasis in that area.

As you're developing an application, you can certainly test it manually and have people sitting there testing it, but when you can automate those processes they become more consistent. They become thorough, and they become something that can be done automatically in the background.

We're seeing the same thing when it comes to managing IT applications and projects, and the whole situation that's going on in the IT area.

When you start looking at IT portfolio management, that provides the same kind of automation, controls, and structure by which you can not only increase the quality of the decisions that are being made, but you can also do it in a way that almost results in less overhead and less manual work from an organization.

... Areas such as legacy transformation or modernization are good for this, because you do have to make a lot of decisions ... where you need to gain consensus. [IT portfolio management] can certainly help deliver that return on investment (ROI) much faster.

Ellsworth: It's also an opportunity to reduce the total number of applications, and the follow-on is an approach to being more efficient or investing in the applications that are strategic to the business.

It sounds pretty basic, but the moment an organization starts to inventory all of the projects that are under way and all of the applications that are deployed in production serving the business, even just that simple exercise of putting them in a single view and maybe categorizing them very simply with one or two criteria, quite quickly allows organizations to identify those rogue projects that were under way.

... They will quickly learn, "We thought we had 100 applications, and we've now discovered there are 300." They'll also quickly identify those applications that no one is using. There is some opportunity to start pulling back the effort or the cost they're investing in those activities and either reducing the cost out of the business or reinvesting in something that's more important to the business.

... I'm also seeing an increased interest in participation, from a finance perspective, outside the IT organization. Often, the Chief Information Officer (CIO) and the executive in the finance area are working together.

The line of business executives -- the customers, if you will, the CIO -- are starting to be more mature, if I can use that expression in terms of their understanding of technology and of how they should be working with technology and driving that collaboration. So, there is some increased executive involvement even from outside IT, from the CIO's peers.

... IT needs to recognize that there are competitive alternatives, and certainly, if IT isn't delivering, the business will go and look elsewhere. In some simple examples, you can see line-of-business customers going out and engaging with a software-as-a-service (SaaS) solution in a particular area, because they can do that and bypass IT.

If they're not making the right decisions and doing the things that have the highest return to the business or if they are delivering poorly, it's really about missed opportunity and lower ROI.

Kelly: If you can do some application consolidation, you may be able to consider new deployment opportunities and cloud-based solutions. It will make the decision-making process within IT more nimble and more flexible, as well as enable them to respond more quickly to the line of business owners and be able to almost empower them with the right information and a structured decision-making process.