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

43 Pages Posted: 27 May 2017 Last revised: 6 Oct 2017

See all articles by Alan MacCormack

Alan MacCormack

Harvard Business School

Robert Lagerstrom

KTH Royal Institute of Technology, Sweden

Martin Mocker

ESB Business School; MIT Sloan Center for Information Systems Research

Carliss Y. Baldwin

Harvard Business School, Finance Unit

Date Written: October 2, 2017

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 4-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.

Suggested Citation

MacCormack, Alan and Lagerstrom, Robert and Mocker, Martin and Baldwin, Carliss Y., Digital Agility: The Impact of Software Portfolio Architecture on IT System Evolution (October 2, 2017). Harvard Business School Technology & Operations Mgt. Unit Working Paper No. 17-105; Harvard Business School Finance Working Paper No. 17-105. Available at SSRN: https://ssrn.com/abstract=2974405 or http://dx.doi.org/10.2139/ssrn.2974405

Alan MacCormack (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Robert Lagerstrom

KTH Royal Institute of Technology, Sweden ( email )

Lindstedtsvägen 30-100 44
Stockholm
Sweden

Martin Mocker

ESB Business School ( email )

Alteburgstr. 150
Reutlingen, 72762
Germany

MIT Sloan Center for Information Systems Research ( email )

Sloan School of Management
5 Cambridge Center, NE25, 7th Floor
Cambridge, MA 02142
United States

Carliss Y. Baldwin

Harvard Business School, Finance Unit ( email )

Boston, MA 02163
United States

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