Alan Thorogood PhD Candidate Australian Graduate School of Management University of Sydney and University of New South Wales Tel: +61 2 9931 9249 Fax: +61 2 9662 7621 Email: alant@agsm.edu.au Philip Yetton Commonwealth Bank Professor of Management Australian Graduate School of Management University of Sydney and University of New South Wales Tel: +61 2 9931 9257 Fax: +61 2 9662 7621 Email: phily@agsm.edu.au Abstract 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 [1] and Sambamurthy et al. [2] 1. Introduction Organisational change is both challenging and expensive [3]. In addition, organisational change programs involving Information Technology (IT) add considerably to the downside risk because IT projects have a poor track record [4]. Interfaces to other IT systems can also cause failure to cascade through Enterprise Resource Planning (ERP), E-Commerce and Customer Relationship Management (CRM), to other business divisions and companies. This is particularly so for innovative business projects that use cutting edge IT infrastructure to deliver IT-based strategic change to support new strategies. Such strategic IT projects suffer from two weaknesses. First, the mix of business unit requirements and corporate IT infrastructure is complicated, involving trade-offs across multiple business units and the corporate office [5]. Second, uncertainty and unreliability in large infrastructure upgrades and changes to IT applications have led to cost overruns, late product launches and poor functionality [4]. This paper argues that an alternative management framing of the issues could improve performance by both redefining the decision process and restructuring the implementation of major IT projects. This is motivated by two insights. First, field research revealed what was initially thought to be a deviant case – the upgrading of IT infrastructure in anticipation of an organisational change. Second, an interpretation of McGrath’s [1] framing of technology positioning would value IT infrastructure as the cumulative price that business units would be willing to pay to acquire the options to develop future IT business projects. These business projects have uncertain commercial returns and generate different technical challenges. The first insight contradicts the dominant Business Process Re-engineering (BPR) assumption that re- engineering the business processes precedes the installation of the technology [6]. Instead, the argument here is that by separating the infrastructure upgrade from the business application development, the technical Reducing the Technical Complexity and Business Risk of Major Systems Projects Proceedings of the 37th Hawaii International Conference on System Sciences - 2004 0-7695-2056-1/04 $17.00 (C) 2004 IEEE 1