Despite the young age of this company their track record lists a couple of extra-ordinary

Appendix A: Company profile

IT-eye is a Dutch IT services organization based in Nieuwegein. IT-eye was established in 2003 as a split-off of its holding company, The Redwood International Business Group (Redwood). Currently it is still a subsidiary of Redwood.

IT-eye’s mission it to act as a business partner for their customers helping them reaching their corporate goals and objectives through the use of innovative Information Technology. The corporate strategy is derived from the mission and has clear focus on two core competencies, Business Intelligence and Service-Oriented Architectures, both implemented through the use of highly innovative and intelligent software. In the past the corporate strategy entailed a more diversified field of services but since the market for SOA and BI started growing rapidly the company shifted to a more niche market strategy serving mainly these two fields of interest.

The markets they serve can be characterized as Business-to-Business markets with a slight focus on governmental or semi-governmental organizations. Several reasons can be drawn for this customer focus but one of the main reasons is the fact that these organizations require Information Technology that needs to be tailored to such an extent that off-the-shelf or in-house software development is not an option. Not-for-profit organizations account thus for the majority of the customer portfolio, although profit- oriented organizations are served as well.

Despite the young age of this company their track record lists a couple of extra-ordinary

achievements. For example in 2006 they were winner of the Oracle innovation award as

well as The Dutch IT architecture championship. In the same year they were awarded the

status of Certified Advantage Partner (CAP) by Oracle.

Appendix B: Financial concepts and definitions

The nature of this research demands some kind of twofold between the financial aspect and the IT aspect. The IT aspect can be seen as the main research subject viewed from a financial perspective. This implicates that using traditional financial performance indicators is appropriate, but some remarks have to be mentioned. The financial concepts and definitions will therefore be taken from financial sources as well as IT sources that cover the investment part of IT services.

Net Present Value (NPV)

Ross, et al, (2005: p. 901) defines Net Present Value as:

The present value of future cash returns, discounted at the appropriate market interest rate, minus the present value of the cost of the investment.

In formula:

NPV = PV – Cost C

= -Cost

NPV = C

+ ∑ +

= T

t 1

(

)

Grembergen (2004: p. 213) defines net Present value as follows:

The Net Present Value is the calculation of the project’s cash inflows and outflows discounted to the present time using a pre-selected project discount rate or cost of capital. The difference between the discounted inflows and outflows is the Net Present Value.

Internal Rate of Return (IRR)

Grembergen (2004: p. 213) defines IRR as follows:

The internal rate of return is the investment yield rate produced by a project when

the Net Present Value calculation is used; it is the rate at which the present value

of the inflows is equal to the outflows. The IRR is compared to the project

discount rate.

Ross et al. (2005: p. 899) defines IRR as:

A discount rate at which the Net Present Value of an investment is zero. The IRR is a method of evaluating capital expenditure proposals.

Cost Benefit Analysis According to Farbey (1993):

A Cost benefit analysis is a more sophisticated version of a cost/revenue analysis. Cost benefit Analysis is a method which tries to overcome the problem of valuing intangibles by imputing a money value for each element contributing to the costs and benefits of an IT project.

The method is of particular value when: 1) many of the costs and benefits are intangible, 2) there is broad agreement on the measures used to attach a value to the intangibles.

Cost-benefit analysis (Farbey 1993, p. 101) is of particular value if

• Where many of the costs and benefits are intangible

• Where there is broad agreement on the measures used to attach a value to the intangibles

Conversely, the method is not of any value when:

• Where there are widely different views on the intrinsic value of the intangibles and disagreement on the appropriate form of surrogate money value. The

• Where there is considerable uncertainty about the realization of the intangible benefits.

Brent (2006, p. 4) uses the following definition of the CBA process: Maximize the present value of all benefits less that of all costs, subject to specified constraints. This broken down into four questions:

1) Which costs and benefits are to be included?

2) How are the costs and benefits evaluated?

3) At what interest rate are future benefits and costs discounted to obtain the present value?

4) What are the relevant constraints?

Discounted Cash Flow (DCF)

In the Discounted Cash Flow method, costs and returns are calculated over the expected whole life of the project, but then adjusted for the fact that distant returns are worth less than those that are received soon (chambers and Lacey, 2004, p. 180).

Chambers and Lacey (2004, p. 150) define DCF as follows;

DCF=

∑

= T

t 1

(

)

CF + 1

Appendix C: Reflection

After finishing the research project a reflection is provided to reconsider the choices made in the project. Also a judgment on the utilized theory, methodology and researcher’s role can contribute to the research relevance for science.

Regarding Theory

The literature from Treacy & Wiersema (1995) has proved to be highly applicable in this research. Their threefold for categorizing organizations using products, customers/markets and operational excellence enables researchers to categorize the consequences Information Technology brings about on organizational performance.

Especially in this research, measuring financial implications became more clear due to the use of their threefold.

The research strategies form Yin (2003) enabled the use of a strategy for conducting research activities. In this situation it resulted in the performance of a case validation. An important negative aspect in the literature from Yin is the omission of clear guidelines for the practical performance of a case validation.

Literature regarding Service-Oriented Architecture is currently still scarcely available.

Among the available literature is the work of Marks & Bell (2006) which developed a model for describing the consequences of a SOA implementation on organizational performance in general. This model, combined with the work of Rao (2006) enabled insight into the influence of a SOA implementation on organizational performance.

Regarding methodology

Two types of methodologies have been utilized in the research; case study research and design oriented research. The case study research from Yin has proven to be a valid and well defined instrument to postulate claims based on a case study. As mentioned in the theory reflection an important flaw was the omission of guidelines.

The design oriented research was based primarily on the work of De Leeuw (1990). This

methodology turned out not so well defined. Especially the metrics for measuring the

Service-Oriented Architecture: Modeling profitability beyond the hype

6 quality of a new model or framework were scarce. On the other hand, this methodology revealed to be pragmatic and simple. An aspect ready for improvement is the use of the methodology for design oriented research. Searching a more profound system could benefit the quality and validity of the framework.

Regarding the role as a researcher

Considering the role as a researcher within an organization, positive as well as negative

aspects have occurred. However, the positive aspects overrule the negative aspects. On

the negative side, the collection of relevant financial data turned out to be more complex

than expected. But this lack of relevant data was overcome by the use secondary

information sources. Another important and rather common aspect is the planning of the

research activities within a predefined set of time. But overall, the support for conducting

the research within the particular organization was very good.

Appendix D: Case study validation results

Revenues Costs

Increase decrease Increase decrease

Location transparancy

Hosting software / insourcing services from business partners/ offshoring

offshoring is long

term investment

Impact High Low

Timeframe Exploitation

Business Flexibility Layer

Shorter time to market

Demands from suppliers faster incorporated

Impact High

Timeframe Exploitation

Increased business orientation of IT

Doumentation of processes

Impact none

Timeframe Exploitation

Improved availability

instead of calling for inquiries 24/7 logging in / insourcen processes external party

Eliminating call centers

Impact Medium

Timeframe Structural

Interoperability initial exploitation

Impact low

Timeframe initial exploitation

IT Infrastructure layer

Loose coupling Less maintenance

issues

Impact Low

Timeframe initial exploitation

Reuse Reusing software

components saves time and effort on

development

Impact Low

Timeframe initial exploitation

Improved scalability

Combined with location transparency possibilities for scale increase

Less effort on

maintenance

Impact Low Low

Timeframe Initial and exploitation initial exploitation

Service-Oriented Architecture: Modeling profitability beyond the hype

8