Reducing the technical complexity and business risk of major systems projects

Shared IT infrastructure achieves returns to scale and facilitates co-ordination. Determining the optimal investment is difficult because demand is derived from business projects that can "free-ride" once the infrastructure is established. Organisations control infrastructure investments by justifying them in business projects that are net present value (NPV) positive, such as business process re-engineering projects. This increases the technical complexity of the business project and misleadingly couples the project's business goals with shared infrastructure goals. Field research uncovered an alternative "deviant" model where a flexible, or agile, infrastructure is installed and justified ahead of the business needs. Those needs were then satisfied with multiple small business application projects, as each became NPV positive. The managers' intuition was that this gave them valuable options to capture benefits from uncertain future business scenarios. This paper draws on these insights to uncouple infrastructure projects from business projects while still aligning the two. Real options theory is applied both to control the costs and to specify the infrastructure flexibility. The assumption is that uncoupling would reduce technical complexity and lower business risk. The paper then shows how to improve business performance by using infrastructure flexibility either to suppress the cost variance of the IT projects or to amplify their business benefit variance, as called for by McGrath (1997) and Sambamurthy et al. (2003).