Principles and Practices for Orchestrating Digital Value Chains

A recent survey by Colemen Parks shows that 90% of senior decision makers believe that the business cycles remain very volatile in the coming years and 80% believe that their organizations should become more flexible in their approach of business and technology. Business agility and common sourcing practices in IT are two words which are drifting apart. And the gap between both worlds increases only with the current pressures on cost (see also this post ). The CIO is now still able to sell its traditional sourcing decisions to the business as having no other choice due to the economic situation. But signing a five year outsourcing contract for the whole infrastructure or application portfolio puts both IT and business in a straight jacket with limited ability to maneuver. The economy will be picking up soon and that means that business are looking forward again and beyond short term cost cutting. The organization as a whole will have to shape up and make sure it has adequate long t...

The use of financial business cases to guide sourcing decisions is common practice. And with the current pressure on lowering cost, needs even the smallest investment to be accompanied with a business case showing a solid financial return. The effectiveness of the typical financial business case can be further improved in two key area’s. These are: Monitoring whether the expected return and investment envisioned in the business case materialize and,  The limitations of the standard Discounted Cash Flow (DCF) methods as it ignores the required flexibility required to define, execute and manage investments. In this post I explore how Real Options can help to overcome these drawbacks. The typical DCF calculation assumes a static scenario, ignoring the financial value represented by the flexibility to change course during an (outsource) project. In real life people learn during a project, and want to adjust their decisions accordingly, effecting the business case. Think of a manag...