Design of a Portfolio Management System for Software Line Development: Merging the Gap between Software Project and Product Management
©2015
Textbook
126 Pages
Summary
Tracy (1995, p. 19) emphasises in his book that in the twenty-first century, tomorrow will be more different from today than in the past. Therefore today’s corporations get to stay innovative, reinvent themselves continuously and have to design new business. In contrast to that, software mastery becomes more than ever the key factor for business success (Northrop, 2008, p. 12). In the twenty-first century, software pervades every sector and has become the bottom line for many organisations. Therefore, reusability plays a growing role for every business in today’s rapid changing world (Strahringer, 2003, p. 5). Thus, new paradigms in software engineering are focusing on the reutilisation and modularisation of software solutions. One innovative and growing concept since 2003 is software line development which has its origin in the automotive and fashion industry (Strahringer, 2003, p. 5). The key benefit of software line development is the covering of a wide field of application with minimal extra costs by reuse of a common software platform. In reference to Ebert & Smouts (2003, p. 29) the most publications in the field of software lines deal with configuration and change management. Whereas the integration of software line development into enterprises’ product portfolios has been till now widely neglected. In contrast to that Jeffery & Leliveld (2004) points out that the failure or success of software lines highly depends in particular on their level of integration into companies’ product portfolio system. For this reason, the major goal of this research is the realisation of an integrated portfolio management system for software line development. This covers at first the determination of the role portfolio management in organisational governance. Thereafter the general elements of a portfolio management system will be identified. On the other side, the specific demands of software line engineering according to the portfolio elements will be analysed. The insights of the analysis build the basis for the design of the software product line portfolio management system. The design describes the portfolio management system from different architectural perspectives which represent the viewpoint of the diverse stakeholders. Moreover, different analysis methods will be evaluated with a respective scoring model for the software line product, domain and asset application domain. At the end, the scientific work gives a suggestion for further investigations in […]
Excerpt
Table Of Contents
Contents
5.4.1
Analysis of Research Status in Portfolio Management
. . . . . . . . 55
5.4.2
Analysis of Software Product Line Demands . . . . . . . . . . . . . . 59
5.4.3
Comparison of Application Domains and Building Blocks . . . . . . 63
5.4.4
First Concept of Software Line Portfolio Management System . . . . 64
5.5
Design of Software Line Portfolio Management System . . . . . . . . . . . . 65
5.5.1
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
5.5.2
Logical View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
5.5.3
Module View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
5.5.4
Process View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
5.5.5
Organisational View . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
5.6
Evaluation of Portfolio Analysis Methods . . . . . . . . . . . . . . . . . . . 82
5.6.1
Overview of Evaluation Approach
. . . . . . . . . . . . . . . . . . . 83
5.6.2
Product Portfolio Analysis
. . . . . . . . . . . . . . . . . . . . . . . 84
5.6.3
Domain Portfolio Analysis . . . . . . . . . . . . . . . . . . . . . . . . 85
5.6.4
Asset Portfolio Analysis . . . . . . . . . . . . . . . . . . . . . . . . . 88
5.6.5
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
5.7
Application of Software Line Portfolio Management System . . . . . . . . . 89
6 Discussion
91
6.1
Strengths of Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
6.2
Limitations of Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
7 Summary
93
8 Prospects
95
Bibliography
97
Index
102
A Research Method
105
B Portfolio Management
107
C Expert Interview Guideline
113
vi
List of Figures
3.1
Overview of Research Model . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
3.2
Overview of Thesis Structure . . . . . . . . . . . . . . . . . . . . . . . . . .
7
4.1
Overview of Portfolio, Program and Project Management . . . . . . . . . .
9
4.2
Subject of Product Portfolio Management . . . . . . . . . . . . . . . . . . . 10
4.3
Strategic Triangle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.4
Scope of Portfolio Management . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.5
Evolution of Portfolio Analysis and Classification . . . . . . . . . . . . . . . 16
4.6
Boston Consulting Group Matrix . . . . . . . . . . . . . . . . . . . . . . . . 17
4.7
Common Portfolio Analyses . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.8
Portfolio Management System . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.9
Relationship of Portfolio, Program and Project Management
. . . . . . . . 23
4.10 Scope of Portfolio, Program and Project Management . . . . . . . . . . . . 24
4.11 Portfolio versus Program and Project Management . . . . . . . . . . . . . . 24
4.12 Overview of Software Product Line Engineering . . . . . . . . . . . . . . . . 27
4.13 Product and Individual versus Standard Product . . . . . . . . . . . . . . . 28
4.14 Product Life Cycle and Product Line Advantages . . . . . . . . . . . . . . . 29
4.15 Variability in Real and Virtual World
. . . . . . . . . . . . . . . . . . . . . 30
4.16 Reuse Paradigms and Software Product Line Functionalities . . . . . . . . . 31
4.17 General versus Software Line Concept . . . . . . . . . . . . . . . . . . . . . 32
4.18 Example for Evolution of a Software Product Line . . . . . . . . . . . . . . 33
4.19 Internal versus External Variability and Variability Pyramid . . . . . . . . . 34
4.20 Variability Tracing and Variant Packages
. . . . . . . . . . . . . . . . . . . 35
4.21 Overview of Software Product Line Engineering . . . . . . . . . . . . . . . . 36
4.22 Overview of Software Product Line Activities . . . . . . . . . . . . . . . . . 37
4.23 Overview of Software Product Line Practice Areas . . . . . . . . . . . . . . 38
4.24 Software Product Line Framework . . . . . . . . . . . . . . . . . . . . . . . 39
4.25 Domain Engineering Process
. . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.26 Application Engineering Process . . . . . . . . . . . . . . . . . . . . . . . . 42
4.27 Differences between Single-System and Software Product Line . . . . . . . . 44
4.28 Project versus Product Paradigm . . . . . . . . . . . . . . . . . . . . . . . . 45
4.29 Benefits of Software Product Line Engineering
. . . . . . . . . . . . . . . . 47
vii
List of Figures
5.1
Role of Portfolio Management . . . . . . . . . . . . . . . . . . . . . . . . . . 49
5.2
Justification of Portfolio Management for Software Lines . . . . . . . . . . . 51
5.3
Research Approach for Design of Software Line Portfolio Management System 53
5.4
Hierarchical Concept of Portfolio Management System . . . . . . . . . . . . 55
5.5
Portfolio Management Domains Addressed in Literature . . . . . . . . . . . 57
5.6
Portfolio Management System Building Blocks . . . . . . . . . . . . . . . . 58
5.7
Overview of Stakeholder Groups . . . . . . . . . . . . . . . . . . . . . . . . 60
5.8
Application Domains and Business Objects . . . . . . . . . . . . . . . . . . 61
5.9
Analysis of Application Domains . . . . . . . . . . . . . . . . . . . . . . . . 61
5.10 Comparison of Application Domains and System Building Blocks . . . . . . 63
5.11 Concept of Software Line Portfolio Management System . . . . . . . . . . . 64
5.12 Overview of 4+1 Architectural Views . . . . . . . . . . . . . . . . . . . . . . 65
5.13 Layer Model of Software Line Portfolio System . . . . . . . . . . . . . . . . 67
5.14 Component Model of Software Line Portfolio System . . . . . . . . . . . . . 68
5.15 Identify and Categorise Portfolio Objects
. . . . . . . . . . . . . . . . . . . 69
5.16 Evaluate Portfolio Objects . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
5.17 Select Portfolio Objects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
5.18 Identify Portfolio Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
5.19 Analyse Portfolio Risks
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
5.20 Prioritise Portfolio Objects
. . . . . . . . . . . . . . . . . . . . . . . . . . . 72
5.21 Develop Portfolio Risk Response . . . . . . . . . . . . . . . . . . . . . . . . 72
5.22 Balance Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
5.23 Communicate Portfolio Adjustments . . . . . . . . . . . . . . . . . . . . . . 74
5.24 Authorise Portfolio Objects . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
5.25 Monitor and Control Portfolio Risks . . . . . . . . . . . . . . . . . . . . . . 75
5.26 Review and Report Portfolio Performance . . . . . . . . . . . . . . . . . . . 76
5.27 Review and Report Portfolio Performance . . . . . . . . . . . . . . . . . . . 76
5.28 Product Portfolio Scoping Process . . . . . . . . . . . . . . . . . . . . . . . 77
5.29 Domain Portfolio Scoping Process
. . . . . . . . . . . . . . . . . . . . . . . 78
5.30 Asset Portfolio Scoping Process . . . . . . . . . . . . . . . . . . . . . . . . . 79
5.31 Comparison of Portfolio Organisation Models . . . . . . . . . . . . . . . . . 80
5.32 Portfolio Hub and Spoke Organisational Model . . . . . . . . . . . . . . . . 81
5.33 Strengths and Weaknesses of Portfolio Analysis Methods . . . . . . . . . . . 82
5.34 Overview of Portfolio Analysis Example . . . . . . . . . . . . . . . . . . . . 83
5.35 Overview of Evaluation Procedure . . . . . . . . . . . . . . . . . . . . . . . 84
5.36 Evaluation of Solutions against Product Killer Criteria . . . . . . . . . . . . 84
5.37 Example of Product Map and KANO model . . . . . . . . . . . . . . . . . . 85
5.38 Evaluation of Solutions against Domain Killer Criteria . . . . . . . . . . . . 85
5.39 Definition of Domain Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . 86
viii
List of Figures
5.40 Weighting of Domain Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . 86
5.41 Calculation of Total Attractiveness Score
. . . . . . . . . . . . . . . . . . . 87
5.42 Evaluation of Solutions against Asset Killer Criteria . . . . . . . . . . . . . 88
5.43 Recommended Software Line Portfolio Analysis Methods . . . . . . . . . . . 88
A.1 Overview of Research Method . . . . . . . . . . . . . . . . . . . . . . . . . . 106
B.1 Overall Portfolio Management Organisation . . . . . . . . . . . . . . . . . . 107
B.2 Classification of Portfolio Analysis Methods . . . . . . . . . . . . . . . . . . 108
B.3 Popularity of Portfolio Analysis Methods Employed
. . . . . . . . . . . . . 109
B.4 Dominant Portfolio Analysis Methods Employed . . . . . . . . . . . . . . . 109
B.5 Acceptance Formula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
B.6 Discriminance Formula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
B.7 Result of Scoring Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
B.8 Example of Hybrid Domain Portfolio Analysis Method . . . . . . . . . . . . 111
B.9 Financial Method for Asset Portfolio Scoping . . . . . . . . . . . . . . . . . 112
C.1 Product Line Technical Probe - Part A . . . . . . . . . . . . . . . . . . . . . 113
C.2 Product Line Technical Probe - Part B . . . . . . . . . . . . . . . . . . . . . 114
ix
List of Abbreviations
bn
billion
C2
Command and Control
CEO
Chief Executive of Officer
EADS
European Aeronautic Defence and Space Company
ECV
Expected Commercial Value
EPC
Event-driven Process Chain
FEF
Family Evaluation Framework
GmbH
Gemeinschaft mit beschränkter H aftung
IT
Information Technology
NPV
Net Present Value
OGC
Office of Government Commerce
P3O
Portfolio, Program and Project Office
PMI
Project Management Institute
PM
Project Management
R&D
Research & Development
ROI
Return On Investment
SBU
Strategic Business Unit
SEI
Software Engineering Institute
UML
Unified Modeling Language
xi
Chapter 1
Introduction
"In the twenty-first century,
Tomorrow will be more different from today than in the past. Continuing innovation and
improvement are essential for survival."
(Brian Tracy, 1995, p. 19)
The author Tracy (1995, p. 19) emphasises in his book the challenges companies will face
in the twenty-first century. In order to survive in a globalised business world of relentless
change and enduring competition, companies have to come up with more than only new
ideas. According to Hamel (2012, p. 41), enterprises have to consider that their present
state of success will be probably not of a long lasting nature.
Examples of today's rapidly changing markets are the diverse stories of Apple and Nokia.
Apple computers, which lacked of innovation and a marketing strategy in 1996, is since
2011 the most valuable company of the world with about 600 billion US dollars market
value (BBC, 2012). In contrast to that, Nokia the former market leader in mobile sector
has forgotten how to deliver innovation fast enough to its clients (Elop, 2011).
Thus, IDEO President and CEO, Tim Brown (2005) stated that companies who fail to
excel at new products have very little chance of survival. Therefore today's corporations
get to stay innovative, reinvent themselves continuously and have to design new business.
In contrast to that, software mastery becomes more than ever the key factor for business
success (Northrop, 2008, p. 12). In the twenty-first century, software pervades every sector
and has become the bottom line for many organisations.
Therefore, reusability plays a growing role for every business in today's rapid changing
world (Strahringer, 2003, p. 5). In the future, only the companies will stay competitive
which can deliver customizable software solutions for an acceptable price in a proper time.
For this reason companies have to transform their previous project focus into a product
centred business strategy (Ebert & Smouts, 2003, p. 28). Thus, new paradigms in software
engineering are focusing on the reutilisation and modularisation of software solutions.
1
Chapter 1 Introduction
One innovative and growing concept since 2003 is software line development which has its
origin in the automotive and fashion industry (Strahringer, 2003, p. 5). The key benefits
of software line development is the covering of a wide field of application with minimal
extra costs by reuse of a common software platform. In reference to Ebert & Smouts
(2003, p. 29) the most publications in the field of software lines deal with configuration
and change management. Whereas the integration of software line development in business
organisations, processes and into enterprises' product portfolios has been till now widely
neglected. In contrast to that Jeffery & Leliveld (2004) points out that the failure or
success of software lines highly depend in particular on their level of integration into
companies' product portfolio system.
For this reason, the major goal of this research is the realisation of an integrated portfolio
management system for software line development for merging the gap of today's software
project and product management. Therefore the assignment tries to answer the questions
of how does an ideal software line portfolio model have to look like? What kind of elements,
key figures and interfaces to other business units belongs to this portfolio model? In which
way can it be introduced into existing organisations and aligned with company's business
strategy? Finally how can the portfolio model ensure that the right projects will be
selected for maximum long-term business growth? In order to answer these questions,
the assignment emphasises at first the current body of knowledge of the portfolio and
software line theory. On the basis of the theoretical results combined with the insights
of an empirical research an ideal portfolio management system for software lines will be
designed.
2
Chapter 2
Purpose of the Research
The major goal of the assignment is the evaluation and design of an ideal portfolio manage-
ment system for software line development for merging the gap between common project
and product management. This contains at first the evaluation of the current status of re-
search of portfolio management and software line development. On the basis of theoretical
results combined with insights of expert interviews an appropriate portfolio management
system will be established and further designed in an iterative approach. The developed
system will be exemplary approved in a case study. The research objectives of this assign-
ment are in detail:
1. Scientific research
· Theoretical research: Investigation of the current body of knowledge of port-
folio theory and software line development theory in the frame of project and
product management.
· Empirical research: Interview of expert groups for capturing their demands
and advices for an integrated portfolio management system for software line
development.
· Evaluation of analysis alternatives: Development of a multidimensional
scoring model for software line portfolio analyses. Comparison of alternatives
based on a developed assessment model. Selection of the most appropriate
portfolio analysis model for the detailed realisation of the ideal portfolio man-
agement system in the context of software line development.
2. Constructive design of portfolio management system
· Design of portfolio management system: Detailed realisation of the port-
folio management system for software line development with the the selected
portfolio analysis model based on theoretical research combined with the in-
sights of expert interviews.
3
Chapter 2 Purpose of the Research
· Exemplary application and concept validation: Implementation and val-
idation of the developed ideal portfolio management system in practice. The
case-study shall carve out the possible benefits and expected effort of the inte-
gration of a software line portfolio management into a business system. More-
over the exemplary application shall deliver first insights of the model in practice
which finally lead to additional optimisations.
4
Chapter 3
Organisation of the Research
The structure of the research with the title Design of a Portfolio Management System
for Software Product Line Development can be separated in two major parts. The first
part deals with the theoretical and empirical research on portfolio theory and software line
development. The insights are the basis for the evaluation and selection of an appropriate
portfolio analysis model. The second part concerns with the detailed development of
the ideal portfolio management system with the previous selected analysis instrument.
The realised system will be exemplary applied and validated for a software product. The
selected research approach and the chapters of the assignment are in detail the following.
3.1 Research Approach
The selected research methodology is a constructive design science approach. In reference
to Nunamaker and Chen (1990, p. 90) design science is an applied research that applies
knowledge to solve practical problems. The goal of this constructive research is to design a
portfolio management system for software line development for transforming project results
into reusable standard products. The portfolio management solution will be validated by
expert interviews in combination with a practical approval in a exemplary project.
3.1.1 Research Model
The research model is shown in Figure 3.1 which is based on the design science framework
by March and Smith (1995, p. 255). The framework covers with two axes, namely research
activities and research outputs. Research outputs cover constructs, models, methods and
instantiations. Research activities comprise building, evaluating, theorizing on and justi-
fying artefacts. Figure 3.1 thereby illustrates which cells at the intersection of research
activities and research outputs are covered by this assignment. Each intersection contains
a specific research objective of the overall portfolio management system and is addressed
and explained in a specific section of the assignment.
5
Chapter 3 Organisation of the Research
Figure 3.1: Overview of Research Model (Own Figure)
3.1.2 Research Method
The research method for designing the software line portfolio management system shows
the activities that will be performed to achieve the previous defined research goals. The de-
tailed research procedure is depicted in Figure A.1 of the appendix. The proposed research
method is in line with the general approach for design research by Takeda, Veerkamp,
Tomiyama and Yoshikawam (1990, p. 37-48), which identified the five phases: Awareness
of the problem, Suggestion, Development, Evaluation and finally Conclusion.
3.2 Structure of Thesis
Chapter 1 presents the motivations of this research whereas Chapter 2 outlines which
goals shall be achieved and why this assignment presents a contribution to research. The
Chapter 3 determines the research methodology to achieve the goals. Chapter 4 gives
an overview of the fundamentals which are essential for the subsequent evaluation and
design of a software line portfolio management system. This covers the portfolio theory
itself as well as the current research state of software line development.
6
3.2 Structure of Thesis
Chapter 5 represents the main part of this assignment. The first two sections give a brief
overview of the role of software line portfolio management and justify the research topic.
The Section 5.4 analysis the elements of a portfolio management system. The subsequent
Section 5.5 represents the system design of the ideal software line portfolio system. It
outlines the components, roles and interfaces of the software line portfolio system and
evaluates a portfolio analysis method with a respective scoring model. Finally, in Section
5.7 the realised software line portfolio management system will be applied for a software
product and shall give a first validation of the model in practice. In Chapter 6 the
achieved results will be discussed and the own approach reflected. Finally Chapter 7
summarizes the major insights and Chapter 8 gives a short perspective.
Figure 3.2: Overview of Thesis Structure (Own Figure)
7
Chapter 4
Fundamentals
4.1 Fundamentals of Portfolio, Program and Project
Management
4.1.1 Overview
This section gives a basic overview of portfolio, program and project management. There-
fore the first section deals with the key principles of the overall portfolio theory and defines
terms like portfolio and portfolio management system. The subsequent sections present the
roles and fields of activity of portfolio, program and project management in enterprise as
well as their interrelationship between each other. Finally, the last section of this chapter
focuses on the advantages and drawbacks of portfolio management itself (Figure 4.1).
Figure 4.1: Overview of Portfolio, Program and Project Management (Own Figure)
9
Chapter 4 Fundamentals
4.1.2 Principles of Portfolio Theory
Definition of Portfolio
The term portfolio is based on the French word portefeuille and refers to a repository for the
deposition of commercial papers (Wittmann, Reuter & Magerl, 2007, p. 60). Transferred
to the business management, the product portfolio represents the entire solutions of a
company or a strategic business unit
1
. A product portfolio can be established for example
by delimitation and structuring criteria (Figure 4.2) (Schmahl & Gleich, 2009, p. 5):
Figure 4.2: Subject of Product Portfolio Management (Schmahl & Gleich, 2009, p. 5)
In reference to Schmahl & Gleich (2009, p. 5) the delimitation of products is more difficult
for enterprises as it seems at first sight, because the term product itself can be defined
from different ways. From a company point of view a product is the result of a production
process whereas it is from a customer perspective a satisfaction of one's needs. Moreover
the differentiation between a material good and a service as well as product line and
product bundling strategies reinforce the challenge of an acceptable product portfolio
management, which will be defined in the next section.
1
A strategic business untit (SBU) is a division of a company with an independent performance measure-
ment and distinct external market (Wittmann, Reuter & Magerl, 2007, p. 60).
10
4.1 Fundamentals of Portfolio, Program and Project Management
Portfolio Selection Theory
The portfolio theory has its origins in the financial industry. In this context, the work of
Markowitz played in the fifties a special role in the development of the portfolio theory.
In his portfolio selection theory Markowitz assumes that the main objective of an investor
is the optimal combination of securities. He follows the principle:
"`Combine a group of assets that for a given profit rate the risk of the portfolio will be
minimised"' - or conversely, for a given risk the expected total profit of the portfolio will
be maximized." (Markowitz, 1952, p. 77)
Transferred to business management the objective of product portfolio management is to
combine the product portfolio of a company or SBU in such a way so that the goals of the
entire company can be achieved at best for the coming period (Markowitz, 1952, p. 77).
Thereby, it follows the principle of the strategic triangle (Wittmann, Reuter & Magerl,
2007, p. 60).
Strategic Triangle
The strategic triangle illustrates the relationship between customer, competitors and the
own enterprise (Figure 4.3).
Figure 4.3: Strategic Triangle (Wittmann, Reuter & Magerl, 2007, p. 61)
11
Chapter 4 Fundamentals
According to this principle, a product has to be included in a portfolio and maintained
when it has a comparative advantage over the competition in the form of the following
points (Wittmann, Reuter & Magerl, 2007, p. 61):
· The product or service is important for the customer.
· The competitive advantage is perceived by the customer.
· The competitive advantage can be sustainably supported.
4.1.3 Product Portfolio Management
Definition
The product portfolio management was first mentioned in the 1970s in the context of
project selection, project prioritisation or resource allocation. A commonly used definition
is the one of Cooper, Edgett & Kleinschmidt (2001, p. 3):
Product portfolio management is a strategic decision process and controlling method in
which a list of existing and new solutions are continually evaluated, selected and prioritised.
New projects can be introduced, existing projects can be abandoned, aborted or their priority
can be adjusted. (Cooper, Edgett & Kleinschmidt, 2001, p. 3)
The purpose of portfolio management is on the one side the selection of the right products
which are compatible with the business strategy and on the other side to maximize the
value of the portfolio itself (Schmahl & Gleich, 2009, p. 24).
Scope of Portfolio Management
On the basis of the previous defined role of portfolio management as a strategy and
controlling instrument, the scope of portfolio management can be separated in four core
domains goals and strategy definition, core processes design, organisational coordination
and the use of keys figures and methods, which will be introduced in the following section
(Figure 4.4):
12
4.1 Fundamentals of Portfolio, Program and Project Management
Figure 4.4: Scope of Portfolio Management (Schmahl & Gleich, 2009, p. 7)
1. Goals and strategic focus: This core domain of portfolio management deals with
the alignment of product portfolio with the company objectives. In reference to
Schmahl & Gleich (2009, p. 8-9) four different strategic core focuses can be identified
in this context:
· Result orientation: The main goal is a long-term balanced portfolio with a
solid growth rate. An example is the strategy of Volkswagen, which aspires the
position as an ecological automotive company until 2018 (Volkswagen, 2011).
· Market orientation: The main goal is to satisfy the needs of the current
and potential customers. The portfolio structure of Cassidian is at the moment
focused on its main customers in Europe and Middle East and therefore be
allocated to this strategy (EADS, 2012).
· Technology orientation: The main goal is to identify the potentials of new
technologies at an early stage and to include them into the overall business
portfolio. An instance of this strategy is Google's portfolio which has been
aligned at an early stage on the mobile sector. Today, Goggle's Android is the
most used operation system for smart phones with a worldwide market share
of over 50 per cent (Gartner, 2011).
13
Chapter 4 Fundamentals
· Competence orientation: The main goal is to concentrate the portfolio on
the core business of the company. An example of this strategy is the portfolio
change by Siemens, which focuses now on its three pillars energy, healthcare
and industry. The former business division information technology has been
sold out consecutively from 2005 onwards (Mauerer, 2012).
The discrete illustration of the four strategies does not implicit that a company only
focus on one strategy. In general, an enterprise has a mix of the above strategies with
mostly one focus. In contrast to that the experience shows that many companies
have no strategic portfolio focus which complicates efficient decisions (Schmahl &
Gleich, 2009, p. 9).
2. Core process design: A goal-oriented and systematic product portfolio manage-
ment comprises according to (Schmahl & Gleich, 2009, p. 10-11) three core processes:
· Inclusion of new products: The inclusion of new products contains espe-
cially analysis methods for the selection of the right research and development
(R&D) projects. The results will be integrated into the portfolio which is known
as a phase-in.
· Optimisation of portfolio: The optimisation of the portfolio deals with the
identification and usage of synergy effects. The major challenge of this task is
the information search and the building of trust within the organisation for a
transparent portfolio.
· Elimination of old products: The elimination of products serves as a strate-
gic regeneration of the portfolio. This task is called a phase-out.
The major challenge of the core process design lays in the coordination of the three
previous processes in order to guarantee a flawless phase-in and phase-out procedure
of products.
3. Key figures and methods: The key figures and analysis methods serve for the
decision support for the selection of the right objectives and strategies:
· Key figures: The implementation of objectives and strategies demands con-
crete economic key figures. Thereby the difficulty lies in the selection of the
right classification figure. The mostly used key figures are key performance in-
dicators like Net Present Value
2
(NPV) or Expected Commercial Value
3
(ECV).
2
Net Present Value (NPV) is a financial ratio, which discounts future earnings of an investment on its
present value (Cooper, Edgett & Kleinschmidt, 2001, p. 29-34).
3
Expected Commercial Value (ECV) is a profitability figure for project assessment. It is based on the
NPV with extensions regarding risk and evolution factors (Cooper, Edgett & Kleinschmidt, 2001, p.
34-40).
14
4.1 Fundamentals of Portfolio, Program and Project Management
· Analysis methods: The analysis methods relate the key figures to basic mod-
els. In the most cases, the models are represented in two-dimensional figures
with two-way representation. An example of this representation format is the
Boston Consulting Group Matrix or Market Technology Portfolio, which will be
introduced in Section 4.1.3.
4. Organisational structure: The fourth and last core domain deals with the or-
ganisational integration of portfolio management into the process and structural
organisation of a company. In this coherence the level of coordination, field of re-
sponsibility as well as the corresponding roles are three selection parameters which
have to be considered (Schmahl & Gleich, 2009, p. 13-14):
· Level of coordination: The level of coordination deals with the implemen-
tation of portfolio management in the company. According to the company
structure, it has to be divided if a company-wide or business unit specific port-
folio management shall be established. A company wide portfolio management
offers the possibility for synergy effects and an overall view whereas a busi-
ness unit scope is nearer to the working level which enables a more detailed
controlling (Schmahl & Gleich, 2009, p. 13).
· Field of responsibility: The field of responsibility covers the establishment of
portfolio management into the organisational structure. The portfolio manage-
ment can be established as a staff position with only consultative functions, as
a separate SBU or allocated to existing functional departments like marketing,
production, sales, which has an impact of the focus of portfolio management it-
self. Each alternative has its advantages and drawbacks and has to be evaluated
for each case separately.
· Role definition: The role definition covers which functions can be fulfilled by
the established departments and which have to be executed by the portfolio
team itself. Finally this parameter determines the managerial authority of the
portfolio department to corresponding organisational units.
15
Chapter 4 Fundamentals
Analysis Methods of Portfolio Management
The portfolio analysis focuses on the evaluation of current and new products of a portfolio
and is one of the major parts of product portfolio management. A research among 500
companies showed that three out of four enterprises use portfolio analysis for planning and
controlling of their products and SBUs (Schmahl & Gleich, 2009, p. 65). The following
diagram illustrates the evolution of portfolio analysis methods with their key drivers from
a chronological perspective (left Figure 4.5):
Figure 4.5: Evolution of Portfolio Analysis and Classification (Schmahl & Gleich, 2009, p.
66)
In reference to Schmahl & Gleich (2009, p. 66) the strategic management covers a wide
range of portfolio analysis methods (Figure B.2). But the basic idea of all portfolio meth-
ods is to position own solutions in an environment-related
and internal-related model
(Wittmann, Reuter & Magerl, 2007, p. 62). This section classifies the portfolio analysis
methods and introduces the concept of the Boston Consulting Group as an instance. In
general, portfolio analysis methods can be grouped into one of the following classifications
(right Figure 4.5):
· Market-based methods use an outside-in perspective and address the external
market. They are based on the idea that the success of a company is mostly deter-
mined by its competitive situation (Chamberlain, 1932; Bain, 1956).
· Resource-based methods use an inside-out perspective and focuses inwardly on
the company's resources and capabilities (Barney, 1986, p. 1231).
· Value-based methods are according to Schmahl & Gleich (2009, p. 66) modifica-
tions or further developments of the resource-based methods.
16
4.1 Fundamentals of Portfolio, Program and Project Management
Boston Consulting Group Matrix
The market share and market growth portfolio method by the Boston Consulting Group is
based on the insights of the product life cycle and experience curve
4
. The analysis concept
is consequently divided in two axis (Figure 4.6) (Wittmann, Reuter & Magerl, 2007, p.
63):
Figure 4.6: Boston Consulting Group Matrix (Wittmann, Reuter & Magerl, 2007, p. 63)
1. Relative market share: The horizontal axis illustrates the relative market share,
which represents the proportion of the own product to the next bigger competitor.
It points out finally the competitive position of a product.
2. Real market growth: The vertical axis represents the real market growth of a
product based on its product life cycle.
According to this fact the matrix can be separated in four fields in which the products
can be assigned:
· Question Marks promise a high relative market growth. In contrast to that, they
have at the beginning only a small market share und need financial support in order
to enhance their market share over a critical size.
· Stars have a high market growth and a leading market position. These products
normally generate an above-average return on investment.
4
The experience curve signifies that the real unit cost of a product decline respectively with a constant
value as soon as the cumulative production output has doubled its volume (Wittmann, Reuter &
Magerl, 2007, p. 62).
17
Chapter 4 Fundamentals
· Cash Cows are characterised by a moderate market growth but gain a high excess
of financial resources.
· Poor Dogs operate in stagnating and shrinking markets. They have a moderate to
weak market position and provoke losses.
Based on this knowledge the strategic management can derive generic strategies. Normally
it can be differentiated between a growth strategy for question marks, hedging strategy
for stars, skimming strategy for cash cows and finally disinvestment in the case of poor
dogs (Wittmann, Reuter & Magerl, 2007, p. 62-63).
Classification of Further Portfolio Analysis Methods
Further common analysis methods for portfolio management are:
1. McKinsey Portfolio Matrix: The McKinsey portfolio matrix is relatively similar
to the Boston Consulting Group Matrix. The evaluation method also analysis strate-
gic business areas. The main difference lays in the way of evaluation of the business
areas itself. It uses the key figures market attractiveness and competitive strength,
which are the results of respectively scoring models, which include quantitative and
also qualitative variables. The qualitative variables are the main negative aspect of
the analysis because of their subjectivity. The McKinsey matrix itself contains nine
fields with three basis strategy advices (Clifford, Bridgewater & Hardy, 1975, p. 2).
2. Technology Portfolio: In contrast to the Boston and McKinsey matrix the tech-
nology portfolio analysis by Pfeiffer focuses on the technology selection of a company.
The evaluation object are in this case product and process technologies of a business
segment or product group (second Figure 4.7). The key figures technology attrac-
tiveness (external view) and resource strength (internal view) are determined by a
respective scoring model (Pfeifer, 1987). The main disadvantages of this analysis is
regarding Specht the missing link to market aspects (Specht, 2002, p. 481).
3. Dynamic Market-, Technology and Ecology Portfolio: The portfolio analysis
by Hahn aims to be an holistic concept by evaluating alternatives from three differ-
ent perspectives. The example in the third Figure 4.7 illustrates for instance that
the solution three has as relative low market position which can be strengthened
by corresponding marketing campaigns. The major disadvantage of this portfolio
analysis is the bundling of technologies to SBUs. This leads to that strategies for a
single technology can not be derived from the analysis (Hahn, 1999, p. 403-439).
18
4.1 Fundamentals of Portfolio, Program and Project Management
4. Modified Darmstädter Portfolio: This concept extends the common customer
group, customer value portfolio with a technology dimension. This leads to a first
multidimensional analysis of technology and market aspects. Moreover it outlines the
relationship between innovation fields and SBUs. This analysis gives the opportunity
to determine which technology leads to which customer value and which customer
segment has to be considered. A drawback is the growing complexity of the analysis
corresponding to the observed characteristic (Specht & Michel, 1988, p. 502).
Figure 4.7: Common Portfolio Analyses (Schmahl & Gleich, 2009, p. 113-117)
19
Details
- Pages
- Type of Edition
- Erstausgabe
- Publication Year
- 2015
- ISBN (eBook)
- 9783954897186
- ISBN (Softcover)
- 9783954892181
- File size
- 34.1 MB
- Language
- English
- Publication date
- 2015 (January)
- Keywords
- Product Line Engineering Product Management Portfolio Management Project Mangement Mass Customization
- Product Safety
- Anchor Academic Publishing
