Tuesday, November 08, 2005

Reuse and ROI

Are services assets?

If you can double the use of a service, while reducing the cost of provision, then surely this represents an economic improvement.

Roughly speaking, the economic efficiency of an asset may be calculated as a ratio between the economic output (e.g. average use-value multiplied by usage volume) and the economic input (cost of making and maintaining the asset).

Does this mean that it is a good thing (from an economic perspective) to produce services with a decent reuse rating? Should we reward software engineers for producing such services? Should we invest software production resources in services?

Not necessarily.

Economic productivity and ROI

Factory thinking calls for factory-style cost accounting. There is some dispute in the manufacturing sector about the DuPont ROI model, in which inventory (work in progress) is valued in cash terms. In lean manufacturing (at least under certain interpretations - see The Ghost of Sloan), inventory represents not asset but waste.

So shouldn't we reward software engineers for not producing services? Should we perhaps invest resources in the destruction of redundant and wasteful and non-SOA-compliant services?

And how should we calculate the ROI of a service? How should we calculate the ROI for a service factory? The conventional cost accounting methods don't seem to work very well here.

There's a particular problem with calculating the value of off-chance and long-tail services - services with a marginal value for a large and uncertain user community. ROI calculations might be expected to guide service factories to producing rival versions of existing commodity services, rather than innovate into unknown areas.

SOA governance

How should service engineers measure (and account for) their activities? How do we make service engineering more accountable and transparent to its various stakeholders?

Within a single enterprise, competition between near-equivalent services may often be suppressed, and developers may be obliged to use a single corporate service. Meanwhile, across a service economy, the emergence of alternative services may be a sign of a healthy SOA ecosystem. But pointless competition of proprietary services may be unhealthy.

SOA governance must maintain the health of the SOA ecosystem, and this includes making the distinction between healthy innovation and unnecessary conflict and waste between rival services. This cannot be done by decree or regulation, but calls for a collaborative / emergent governance process.

So what happens to a service that attracts rivals, loses its market share, and ceases to be economically viable? Should anyone invest in a new (and hopefully more reused) version of the service? If the ROI calculations are to be of any help in making such investment decisions, then we probably need to write off sunk costs, and concentrate only on the incremental costs.

Inventory (legacy) starts to look like liability rather than asset. Thus SOA thinking is pretty close to lean manufacturing.

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