The effect of synergy enhancement on information technology portfolio selection

Abstract

This paper investigates how firms can use synergy to optimize their information technology portfolios. We begin by developing a framework for the portfolio selection by identifying three types of information technology synergy. Next, we use this framework to examine the impact of different types of synergy on the portfolio selection. Analytical models are developed to illustrate the roles of different types of the synergy, and analytical and computational methods are used to investigate the impact of the synergy. The analysis in this paper provides conditions in which synergy enhancement results in a more efficient or a less efficient portfolio. Our study establishes that firms with higher risk thresholds are more likely to obtain more efficient information technology portfolios by enhancing synergy, whereas firms with lower risk thresholds are less likely to benefit from enhancing synergy.