Digital Agility:  The Impact of Software Portfolio Architecture on IT System Evolution

Alan   MacCormack; Robert  Lagerström; Martin  Mocker; Carliss Y. Baldwin

Working Paper | HBS Working Paper Series | 2017

Digital Agility: The Impact of Software Portfolio Architecture on IT System Evolution

by Alan MacCormack, Robert Lagerström, Martin Mocker and Carliss Y. Baldwin

Abstract

The modern industrial firm increasingly relies on software to support its competitive position. However, the uncertain and dynamic nature of today’s global marketplace dictates that this software be continually evolved and adapted to meet new business challenges. This ability—to rapidly update, improve, remove, replace, and reimagine the software applications that underpin a firm’s competitive position—is at the heart of what has been called IT agility. Unfortunately, we have little understanding of the antecedents of IT agility, specifically with respect to the choices that a firm makes when designing its portfolio of software applications. In this paper, we explore the relationship between software portfolio architecture and IT agility. In particular, we use modular systems theory to examine how different types of coupling impact the ability to maintain, retire, and commission new software applications. We test our hypotheses with a unique longitudinal dataset from a large financial services firm. Our sample comprises information on over 2,000 software applications observed over a four-year period. We find that applications with higher levels of coupling cost more to maintain, are less likely to be retired, and are less likely to be commissioned. However, we show specific types of coupling present greater challenges than others in terms of their impact. In particular, applications that are cyclically coupled (i.e., mutually interdependent) are the most difficult to manage in terms of maintaining and updating the software portfolio. Our results suggest that IT managers have a critical design role to play in firms that seek enhanced digital agility.

Keywords: information systems; software; architecture; modularity; Agility; coupling; Software; Design; Decisions; Performance;

Language: English

Format: Print

48 pages

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Citation:

MacCormack, Alan, Robert Lagerström, Martin Mocker, and Carliss Y. Baldwin. "Digital Agility: The Impact of Software Portfolio Architecture on IT System Evolution." Harvard Business School Working Paper, No. 17-105, May 2017. (Revised October 2017.)

Working Paper | HBS Working Paper Series | 2020

Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 6 The Value Structure of Technologies, Part 1: Mapping Functional Relationships

Carliss Y. Baldwin

Organizations are formed in a free economy because an individual or group perceives value in carrying out a technical recipe that is beyond the capacity of a single person. Technology specifies what must be done, what resources must be assembled, what actions taken in order to convert stocks of material, energy and information into products and services of value to human beings. Technology is the guide, organizations are the means, value is the goal. The purpose of this chapter is to build a robust and versatile language that is capable of representing the value structure of large technical systems. The language is based on elements I have labeled functional components. The language is more abstract than the language of technical recipes and task networks, thus it is capable of hiding details. However, the language also makes it possible to “trace back” from each named functional component to a technical recipe and a corresponding task network. Finally, although the language itself is non-mathematical, the value structure it reveals can be used to specify equations and prove mathematical propositions about the value of technical systems. The plan of the chapter as follows. I first explain why it is difficult to value technologies using standard economic methods based prices, quanities and probabilities. I then describe a methodology that shows how functional components are combined through technology to create a particular artifact or technical system. The methodology uses symbolic notation to clarify relationships between and among functional components. I illustrate these relationships using an ancient technology—the technology for making a garment from pieces of cloth. I go on to describe commonly observed patterns within technical systems, including optional features; composite functions; and platforms.

Keywords: modularity; Technology; Organizations; Value Creation;

Citation:

Baldwin, Carliss Y. "Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 6 The Value Structure of Technologies, Part 1: Mapping Functional Relationships." Harvard Business School Working Paper, No. 21-039, September 2020. View Details

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Functional analysis as set forth in the last chapter decomposes a technical system into functional components that do things to advance the system’s purpose and the goals of its designers. Functional analysis in turn can be used to construct value structure maps of technical systems. Such maps reveal targets of potential action and investment in the technical system where value may be created and captured. Value structure maps can be constructed without using numerical estimates based on prices, quanities and probabilities, thus they are an appropriate means of analyzing technical systems subject to radical uncertainty, complexity, and complementarity.

The purpose of this chapter is to illustrate how value structure mapping combined with narratives can be applied to problems of strategy in large technical systems. I first argue that the salient points of value creation and value capture in a large technical system are the system’s bottlenecks. I then use value-mapping methodology to trace the evolution of bottlenecks of three large technical systems: early aircraft; high-speed machine tools; and container shipping. Finally, I distill the lessons of the case studies into four principles for creating and capturing value in large, evolving technical systems.

From the 1930s through today, many economists have conceived of large technical systems for the production of goods and services as a series of transactions. This point of view has led eminent economists to assert that transactions are the fundamental unit of analysis in the economic system.
This conceptualization has been very powerful, but it is also limiting. To truly understand the relationship between technology and organizations we must look “beneath” transactions at the full set of tasks and transfers that must take place to design and produce useful goods and services in an efficient way. The purpose of this chapter is to describe how transactions fit into a larger network of tasks and transfers and to identify the technological determinants of transaction costs.

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Digital Agility: The Impact of Software Portfolio Architecture on IT System Evolution

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