In Search of Best Practice Cocomo 2009

8/12/2019 In Search of Best Practice Cocomo 2009

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In Search of Best PracticeEndur ing Ideas in Strategy & I nnovation

International Forum on COCOMO

and Systems/Software Cost ModelingNovember 5, 2009

Based on the 2009 13thAnnual Clarendon Lectures

in Management Studies, University of Oxford

Michael A. Cusumano 2009

MIT Sloan School of Management

[email protected]
http://esd.mit.edu/default.htm


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Oxford Clarendon Lectures

Task? Write a synthesis of my career researchFocus:Attempt to understand best practices

Context: Strategy, operations, & technology or

innovation management in the auto, consumer

electronics, software/internet sectors

Methodology: Reflection on 25+ years of research,

mostly inductive cases, some large sample studies

Lectures Theme:Simple but potential enduring ideas

Inspiration?

Some popular books attempting the same, but mostly

Theodore White, In Search of History (1978) 2


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3

In

Search

of Best

Practice

1985 1991 1995

1998 1998 2002

2002 2004 2010
http://images.google.com/imgres?imgurl=http://images.amazon.com/images/P/0684849186.01.LZZZZZZZ.jpg&imgrefurl=http://100megsfree4.com/corvette/book/toyota/TOYOTA.htm&h=475&w=304&sz=48&hl=en&start=1&tbnid=-gXkXfipsW5WnM:&tbnh=129&tbnw=83&prev=/images%3Fq%3Dcusumano%2Bthinking%2Bbeyond%2Blean%26hl%3Den%26rls%3DRNWE,RNWE:2005-26,RNWE:en


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Best Practice in Management?

Lots of popular books & academic research,though mostly case studies, small samples, or limited analysis

Hard to generalize;what works in one firm, time period,industry or nation may not transfer

Partially a problem of knowledge(what do we reallyknow) as well as context(controls & management issues) Imitation (best to common to non-differentiating practices)

I ndustry or technology li fecycle (new, mature, disruptive)

Type of technology or innovation (product, process, service) Industry (industry structure, business or firm differences)

I nstitution or environment (country, government)

Luck or population ecology (timing, survival bias?)


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For Example: Japanvs. US/West

US and Europe once center of best practices Japan in 1950s and 1960s: cheap, low-quality goods, but

fastest growing economy

Japan later overtook the West in some areas Best practices in manufacturing, quality, HR, product

development, industrial policy

Since 1990, many Japanese strengths turned

into weaknesses Beyond company practices to government policies and social

or cultural characteristics

5


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Tom Peters & Robert Waterman,

In Search of Excellence (1982)

Of 62 of McKinseys best clients, focused on top 43

Key success factors: (1) action bias, (2) close to customer,(3) entrepreneurship spirit, (4) people focus, (5) hands-on

management, (6) focus on what firm is good at, (7) lean staffing,(8) tight centralized values with decentralization

Hard to disagree with these qualities, but

No statistical or historical analysis; cant tell which factorimpacts what, or what is enduring

Many excellent firms later struggled or failed

Atari, Data General, Delta Airlines, DEC, IBM,

Kodak, NCR, Wang, Xerox


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Jim Collins,From Good to Great (2001)

Analyzed 1500 companies to find best performers instock market value; focused on top 11

Key success factors: (1) Internal CEOs, (2) focus on talent,(3) focus on internal strengths, (4) fact-based performance goals,

(5) disciplined commitment culture, (6) reinforcing use oftechnology, (7) momentum built from early successes

Again, hard to disagree with these qualities, but

Again, no analysis of what effects what or how otherfirms with similar characteristics performed

Again, trouble, takeovers, or bankruptcy

Abbot, Circuit City, Fannie Mae, Gillette, Wallgreens


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General Observations

Some practices seem more enduringthan others Though unpredictable catastrophes (black swans)can disrupt any market and any firm

What is lasting best practice surely DEPENDS

E.g., in manufacturing Ford (Model T) bestuntilsurpassed by GM (variety) and then by Toyota (JIT)

E.g., in various areas, Japan, Inc. in 1980s bestwhile economy growing & competition limited

Need to state qualifying conditions or context

But, for managers, specific practices moderated byformal contingency frameworks get complex fast


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My Six Enduring IdeasNot original to me, but underlie my work & have

decades of empirical & theoretical research behind them

1. Capabil i ties,Not Just Strategy

2. Pull, Dont Just Push

3. Scope, Not Just Scale

4. F lexibil i ty,Not Just Efficiency

5. Platforms, Not Just Products

6. Services, Not Just Products (or Platforms)9


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Capabilities and Economies of Scope

Flexibility

New Way of Thinking About

FIRM

AGILITY

Pull Platforms Services

New Way of Thinking About

ECOSYSTEM

STRATEGY

Enduring Ideas & Competitive Advantage

How anticipate emerging customer

needs or market change, and lead or

adapt quickly ,flexiblyand effectively

How move to new capabilities within

an industry ecosystem, and influence

markets & adapt to commoditization


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1. Capabil i ties, Not Just Strategy

Focus not simply on formulating strategy or a vision of

the future (i.e., deciding what to do)but equally on

building distinctive organizational capabilities and

operational skills (i.e., how to do things) that rise above

common practice (i.e., what most firms do).

Distinctive capabilities center on people, processes, and

accumulated knowledge. Reflect a deep understanding

of the business and the technology and enable the firm

to offer superior products and services as well as exploit

foreseen and unforeseen opportunities for innovation.

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Capabilities Intellectual HistoryUnique/Distinctive Resources (sometimes Capabilities)

Penrose (1959); Chandler (1962); Richardson (1972), Wernerfeldt (1984); Barney(1991); Grant (1991); Peteraf (1993), etc.

Incremental Strategy & Domain Knowledge

Bower (1970); Quinn (1980); Hayes and Abernathy (1980); Pascale (1984);Mintzberg (1987, 1994); Hamel and C.K. Pralahad (1989, 1990); Brown and

Eisenhardt (1998); Burgelman (2001), etc.

How Much Does Industry (vs. Management) Matter?

Porter (1980); Schmalensee (1985); Rumelt (1991); McGahan and Porter (1997)

Dynamic Capabilities & Apsorptive Capacity

Leonard-Barton (1992); DAveni (1994); Teece, Pisano & Shuen (1997); Markides

(1999); Eisenhardt & Martin (2000); Teece (2009). Cohen & Levinthal (1990) 12


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My Examples Strategy and capabilities development at Toyota

(indirect tech transfer) vs. Nissan (direct),layingfoundation for Toyotas revolutionary process

innovations (M. Cusumano, The Japanese Automobile Industry, 1985)

Strategy and capabilities development at JVC and Sony,

leading to mass-production and design skills used to

create the home VCR (R. Rosenbloom and M. Cusumano,

Technological Pioneering and Competitive Advantage: The Birth of the VCRIndustry, California Management Review, 1987)

Strategy and capabilities at Microsoft unique to PC

software (M. Cusumano & R. Selby, Microsoft Secrets, 1995) 13


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Lessons for Managers (Idea 1)

Essential to couple strategy with distinctive

capabilitiesto implement and evolve that

strategy as needed.

Unique benefits to have people at hand who

have the knowledge, skil ls, and creativityto

produce the product and process innovations

planned or unplanned that truly differentiate

firms over the long run.

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2. Pul l, Dont Just Push

Emphasize a pull-styleof management that reverses

the sequential processes & information flow common inmany firms for manufacturing as well as product

development, service design and delivery, and other

operations and activities.

Link each step in key processes backwardfrom the

market to respond in real-time to changes in demand,

customer preferences, competitive conditions, orinternal operational difficulties. Continuous feedback &

adjustmentalso facilitate rapid learning, elimination of

waste, and incremental product & process innovations.15


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Pull Intellectual HistoryPush vs. Pull in Marketing, Scientific Invention, Supply Chain

(Dodgson, Gann, & Salter (2005); von Hippel (various)

Toyota & Lean Production Early: Managerial

Sugimori et al. (1977), Ono (1978), Monden (1981 and 1983), Schonberger

(1982), Hall (1983), Cusumano (1985), Krafcik (1988), Womack, Jones, andRoos (1990), Oliver & Wilkinson (1992), etc.

Toyota & Lean Production Later: Theory, Analysis

Lee (1989), Fujimoto (1999) , Holweg and Pil (2004), Holweg (2007), etc.

Iterative Product DevelopmentSoftware & Other

Basili & Turner (1975), Boehm (1988), Aoyama (1993), Ulrich & Eppinger

(1994); MacCormack & Verganti (1999) , Kelley (2004), Thomke (2004)16


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My Examples

Toyota Just-in-Time (Kanban/Lean) production system(which uses half the workers of conventional

manufacturing &minimal inventory, with higher

productivity , quality and short-cycle learning dynamics)(M. Cusumano, The Japanese Automobile Industry, 1985)

Iterative or prototype-driven software development

such as at Microsoft, Netscape, et al., compared to plan-driven sequential or waterfall processes for product

development (M. Cusumano and R. Selby, Microsoft Secrets, 1995; M.Cusumano and D. Yoffie, Competing on Internet Time, 1998)

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The pull concept is a fundamental phi losophy ofmanagement, emphasizing real-time information

and continuous improvement.

Pull versus pushin everything from strategic

decision making to planning and operations

management.

Managers can set the pace of feedback &

adjustment with mechanisms that set theheartbeat of the processes: kanban exchange

or the (daily) build cycle.

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Process Spectrum

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User FeedbackDuring Project

Uncertainty inRequirements

Early/OftenHigh

Late/OccasionalLow

Number of Cycles or Releases1 Many

Traditional Waterfall,Approaches

RapidPrototyping

XP

Agile orIterativeMethodsIncremental

Source: Adapted from Bill Crandall (formerly of Hewlett-Packard)

Process Spectrum


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Synchr onize-& -Stabil ize

Product Vision/Architecture Design

Functional Specification

Milestone 1 Milestone 2 Milestone 3

Iterative Design Iterative Design Iterative Design

Code Code Code

Usability test Usability test Usability test

Test Test Test

Daily builds Daily builds Daily builds

Test Test Test

Redesign Redesign Redesign

Debug Debug Debug

Integrate Integrate Integrate

Stabilize Stabilize Stabilize

Buffer time Buffer time Buffer time

Alpha release Beta release Feature complete

Beta release

Visual freeze

CODE COMPLETE

Final test

Final debug

Stabilize

Final release

Synch & Stabilize Process Flow


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Toyota Lean Production Microsoft Agile Development

Manual demand-pull with kanban cards Dai ly bui lds with evolving features

JIT small lot production Development by small-scale features

Minimal in-process inventories Short cycles and milestone intervals

Geographic concentrationproduction Geographic concentration -development

Production leveling Scheduling by features & milestones

Rapid setup Automated build tools & quick tests

Machine/ line rationalization Focus on small, multifunctional teams

Work standardization Design, coding, and testing standards

Foolproof automation devices Builds &continuous integration testing

Multi-skilled workers Overlapping responsibilities

Selective use of automation CA tools but no code generators

Continuous improvement Postmortems, process evolution


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3. Scope, Not Just Scale

Seek efficiencies even in activities not suited to scale

economies, such as research, engineering, and productdevelopment as well as services. Usually see scope as

corporate strategy: synergies across lines of business.

But potentially more practical & valuable are scope

economies within the same line of business.

Require systematic ways to share product inputs,

intermediate components, or other key elements ofproduct, process, or customer knowledge across diverse

groups and projects. Scope economies also eliminate

redundant activities and are an important source of

competitive differentiation. 23


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Scope Intellectual History

Economies of Scope Definitions & Theory

Teece (1980), Panzar & R. Willig (1981), Helfat & Eisenhardt (2004)

Corporate Diversification (across lines of business)

Chandler (1962), Rumelt (1974), Bettis (1981), Ravenscraft & Scherer (1987),

Ramanujan & Varadarajan (1989)

Limits vs. Benefits of Scale in Manufacturing

Abernathy & Wayne (1974), Abernathy (1978), Hounschell (1985)

Scope Examples (within a line of business, across activities)

Leggette & Killingsworth (1983), Matsumoto (1984), Chandler (1990), Henderson

& Cockburn (1996), Hansen, Nohria & Tierney (1999), Hallowell (1999).

Hansen et al. (1999), Christensen, Grossman & Hwang (2008) 24


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My Examples

Software factories, from US to Japan to India, forbuilding custom applications and standardized products(M. Cusumano, Japans Software Factories, 1991; M. Cusumano, The Business

of Software (2004); M. Cusumano et al., Software Development Worldwide:

The State of the Practice, IEEE Software, 2003)

Multi-project management and concurrent technology

transfer in product development, at Toyota et al., to

balanceprojectmanagement with technology reusethrough in-house platforms and knowledge management(M. Cusumano and K. Nobeoka, Thinking Beyond Lean, 1998)

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Lessons for Managers (3)

Economies of scope potentially as valuable toeff iciency as traditional economies of scale, and

probably more important to firm-level

differentiation

precisely because this isdifficult to achieve!

Managers also must be smart enough to balanceor eliminate the potential tradeoffse.g., with

efficiency & quality

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4. F lexibi l i ty, Not Just Eff iciency

Place as much emphasis on flexibility as on efficiency in

manufacturing, product development, and other

operations as well as in strategy and decision making.

Firms need to adapt to change in market demand,

competition, and technology, and exploit opportunitiesfor innovation and new business development.

Moreover, rather than always requiring tradeoffs,

flexible systems and processes can actually reinforce or

facilitate efficiency and quality, as well as encourage

innovation.

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Flexibility Intellectual HistoryOrganizations, Environments & Strategy

Lawrence & Lorsch (1967); Aaker & Mascarenhas (1984), Harrigan (1984).DAveni (1994); Tushman & O'Reilly (1996); Volberda (1996, 1999); Brown &

Eisenhardt (1997, 1998), Gemawhat & Sol (1998), Birkinshaw & Hagstrom

(2002), etc.

ManufacturingFlexibility-Efficiency-Quality Tradeoffs

Skinner (1974) , Jaikumar (1986), Krafcik (1988), Garvin (1988), Sethi & Sethi

(1990), Pine (1992), Gerwin (1993), Upton (1994), Adler et. al. (1999),Pagell &

Krause (2004), etc.

Product DevelopmentAutos & Software Examples

Womack et al. (1990), Clark & Fujimoto (1991), Sanchez (1995), MacDuffie et al.

(1996), Sobek et al. (1998), Adler (2005), etc., as well as the iterative

literature discussed under Pull idea

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My Examples Manufacturing : Printed-circuit boards study, with some

exploration of Toyota concepts (F. Suarez, M. Cusumano, and C.Fine, An Empirical Study of Manufacturing Flexibility in Printed-Circuit Board

Assembly, Operations Research, 1996)

Product development: Scaling up flexibility of small,autonomous teams for larger projects (M. Cusumano, HowMicrosoft Makes Large Teams Work Like Small Teams,MIT Sloan Management

Review, 1997; A. MacCormack, M. Cusumano, C. Kemerer, and B. Crandall,

Trade-offs between Productivity and Quality in Selecting Software

Development Practices, IEEE Software, 2003; M. Cusumano, The Business ofSoftware, 2004)

Strategy and entrepreneurshipNetscape (vs. Microsoft)(M. Cusumano and D. Yoffie, Competing on Internet Time,1998) 29


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Flexibilitycomes in different forms and thesecan be powerful strategic levers

Rather than worrying about tradeoffs withefficiency or quality, use flexible processes and

structures to enhance organizational

effectiveness when dealing with changein

strategy, customer needs, manufacturing,

product development, technology disruptions,

and unforeseen opportunities for innovation30


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5. Platforms, Not Just Products

(At least, for firms affected by digital technologies as

well as network effects) should move beyond

conventional thinking about strategy and capabilities

to compete on the basis of platforms, or complements.

A platform strategy differs from a product strategy in

that it requires an external ecosystem to generate

complementary innovations and build positive

feedback between the complements and the platform.

The effect is much greater potential for growth and

innovation than a single firm can generate alone.

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Platform Intellectual History

I n-H ouse Product Platforms & ProductModularity

Meyer & Utterback (1993), Ulrich (1995), Sanchez & Mahoney (1996), Meyer &Lehnerd (1997), Baldwin & Clark (1999), etc.

Standards & Dominant Designs to Network Effects

Utterback & Abernathy (1975), David (1985), Farrel & Saloner (1986), Arthur(1989), Katz & Shapiro (1992), Shapiro & Varian (1998), Bresnahan &

Greenstein (1999), etc.

Multi-Sided Markets (Industry Platform + Complementors)

Parker & Van Alstyne (2005), Eisenmann (2006), Evans, Hagiu & Schmalensee

(2006), Eisenmann, Parker &Van Alstyne (2006), Yoffie & Kwak (2006), Adner

(2006), etc.

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My Examples

Platform leadership, based on Intel case study and

comparisons, especially to Microsoft (A. Gawer and M.Cusumano, Platform Leadership, 2002)

Product vs. platform strategy (Sony and Apple vs. JVCand Microsoft) and how to turn a product into a platform

(Google, Qualcomm, et al.) (M. Cusumano, Y. Mylonadis, and R.Rosenbloom, Strategic Maneuvering and Mass-Market Dynamics: Triumph of

VHS Over Beta,Business History Review, 1992; M. Cusumano, The Puzzle of

Apple, Communications of the ACM, 2008; A. Gawer and M. Cusumano, How

Companies Become Platform Leaders,MIT Sloan Management Review, 2008)

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Enormous differences between a product versusplatform strategywith equally enormous

economic consequences for users and entire

industry ecosystem

Four Levers: Scope of the firm, Product technology,

External relationships, Internal organization

Even if multiple platforms persist, platform

thinking useful for in-house product

developmentas well as strategic marketing34

6 S i N J P d


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6. Services, Not Just Products

(Product firms, or services firms that offer standardized

services treated as products) should use servicecapabilities and innovations to sell, enhance, and even

de-commoditize product offerings or standardized

services as well as create new sources of revenues and

profits, such as an ongoing maintenance stream.

The goals should be to find the right revenue balance

and then servitize products to create new value-added opportunities and productize services to

deliver them more efficiently and flexibly, using

information technology & service automation.35


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Services Intellectual History

Definitions of Services versus Products

Judd (1964). Rathmell (1966), Bell (1973), Levitt (1972, 1976)

Theories of Service I nnovation

Barras (1986), Thomke (2003), Mansharamani (2007)

Services/Servitization Strategies & Economic Value

Teece (1986), Potts (1988), Bowen et al. (1991), Quinn (1992), Knecht et al. (1993),

Gadiesh and Gilbert (1998), Nambisan (2001), Oliva & Kallenberg (2003), Slack

(2005), Neely (2009)

Computers and Software Industry Example

Campbell-Kelly and Aspray (1996), Gerstner (2002), Campbell-Kelly (2004),

Cusumano (2004), Campbell-Kelly and Garcia-Schwartz (2007)

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My Examples

Rise of services among software product and

computer hardware/systems firms (M. Cusumano, TheSoftware Business, 2004, and The Changing Software Business: From Products

to Services,IEEE Computer, 2008; F. Suarez, M. Cusumano, and S. Kahl,

Services and the Business Models of Product Firms: An Empirical Analysis of

the Software Industry, WP 2008)

How services and services innovation help product

firms and platform leadership (M. Cusumano, F. Suarez, S.Kahl, A Theory of Services in Product Firms, WP 2008; F. Suarez and M.

Cusumano, The Role of Services in Platform Markets, forthcoming in A.

Gawer, ed., Platforms, Markets, and Innovation, 2009)

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Software ProductsBusiness:Extreme Example of Innovation & Commoditization?

Massive Industry Consolidation!! The data are clear

Decline of Enterprise Sales (or Prices?)

Only exceptions are hits & platform products?

Growth of Services & Maintenance Revenues

Freeware/open source driving prices to zero?

Customers rebel against costly products?

Emergence of New Business & Pricing Models

Software as a Service/Cloud Computing cheaper products,bundled support/maintenance (Salesforce, Amazon)

Free, But Not Free, Againsupported by advertising (e.g., Google)orservices (Red Hat), or multi-sided market (Microsoft & Adobe, Facebook

et al.)


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Public Software Product FirmsListed on US Stock Exchanges (SIC 7372)

0

50

100

150

200

2503

00

350

400

1990 1992 1994 1996 1998 2000 2002 2004 2006fyadj

Number of Firms in the Industry - All Sample

P bli IT S i Fi


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40(SIC codes 7370, 7371, 7373 for computer services, and mgt consulting IT services 8742)

100

200

300

400

500

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Year

Number of Public IT Service Firms (1990 - 2006)

Public IT Services Firms

Listed on US Stock Exchanges


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Siebel

0

10

20

30

40

5060

70

80

90

100

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

%o

fTotalRe

venues

NewProd

ServMain

Siebel

0

200

400

600

800

1000

1200

1

995

1

996

1

997

1

998

1

999

2

000

2

001

2

002

2

003

2

004

$million

NewProd

ServMain


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Oracle

0

10

20

30

40

50

60

70

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

%o

fTotalR

evenues

NewProd

ServMain

Oracle

0

2000

4000

6000

8000

10000

12000

1992

1994

1996

1998

2000

2002

2004

2006

$million

NewProd

ServMain


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40

0%

10%

20%

30%

40%

50%

60%

70%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

%Sales

Calendar Year

Service Revenue %, Select Hardware Firms

IBM

HP

Sun Microsystems

EMC

Cisco

Dell


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7

Business orLife Cycle Models?

010

203040

506070

8090

Products

Hybrid

Solutio

ns

Serv

ices

%o

fTotalRevenues

Products

Services

Source: M. Cusumano, The Business of Software (2004)

Diff t S C D i


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DifferentS-Curve DynamicsProduct Platform Disruptions Generate New

Services & New Business Models?

Performance

Time

Ferment

Takeoff

Maturity

Platform

Disruption

New Services?

New Business Models?

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New Business Model DimensionsRevenue Model

Delivery

Model

Customers

Local ClientInstallation

Local ServerInstallation

RemoteWeb-based

Remoteproprietary

(e.g. hostedSAP)

Up-frontlicense fee

Subscription/Software as aservice

Advertisting-

based

Transaction-based

Free but notfree (bundled)

Free (revenuesfrom services

Bundled aspart of a

hardwareproduct

Mainstream consumers

Early-adopter consumers

Small businesses

Mainstream enterprise customers

Early-adopter enterprise cust.

Source: MIT student team K. Boppana, A. Gldi, B. Hein, P. Hsu, T. Jones (The Software Business, 15.358), 2006

Traditional


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Web-Based Enterprise Software Vendors

Source: Andreas Goeldi survey (MIT masters thesis, 2007) n=108

Year of Company Formation

0

5

10

15

20

25

1911

1972

1975

1977

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Year

.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

Frequency

Cumulative %


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0

20

40

60

80

100

Frequency

n=180

Business Models

108 Web-Based Enterprise Software Vendors

Monthly Fee

Free

Upfront License Fee

Professional Services

Open Source

Advertis ing

Pay Per Use

89

29 30

6 2

16

Source: Andreas Goeldi survey (MIT masters thesis, 2007)

7

Traditional

S ft P d t Fi


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Software Product Firms

and Other Research

M. Cusumano, F. Suarez, S. Kahl and students

Public software products firms -- Identifiedca. 500 (listed onUS stock exchanges) under US SIC code 7372PrePackaged

Software

Since 2003, downloaded data from Compustat, Mergent, anddirectly from 10K reports

Over 3000 yearly usable observations Average 10+ years of detailed financial data from 1990

Also now databases on all IT Services firms and S&P 1000 withproducts and services revenues


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.2

.3

.4

.5

.6

.7

.8

1990 1992 1994 1996 1998 2000 2002 2004 2006fyadj

(mean) servpctsales (mean) prodpctsales

Service vs Product as % Sales - Average All Sample

Note: Services including maintenance

(about 55% of services revenues for firms breaking this out)

Excludes video games

SaaS counted as product revenue

Services include professional + maintenance


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Includes video games

SaaS counted as product revenue

Services include professional + maintenance

S i /M i P d R


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52 52

Service/Maintenance vs. Product Revenuese.g. SAP

e.g. Novell

S i /M i t P d t R


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53 53

Service/Maintenance vs. Product Revenuese.g. Business Objects, Cognos

e.g. Oracle

S i /M i t P d t R


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Service/Maintenance vs. Product Revenuese.g. Microsoft

e.g. Adobe

S i I t P fit & M k t


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Services Impact on Profits & MarketValue: Sweet (vs. Sour) Spots

010

203040

506070

8090

Prod

ucts

Hybrid

Solutio

ns

Service

s

%o

fTotalRevenues

Products

Services

Sweet

Spot?

Stuck

in the

Middle?

Scale, Scope, Learning

Economies?

20% 60%


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Many if not most product companies today are

really hybridsthat have to manage both a product

business and a services business two

organizations in one

Servitize products = innovate around the product to

generates value-added customization, support,

training, consulting, new pricing/delivery models

Productize services = software factory-likecustomization, automated service delivery

Former partners (IT services firms + product

firms) now must f ight for the same services pie! 56


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The Search for Best PracticeShould Begin with Practice,

But Not End There!

Thank you

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Documents

In Search of Best Practice Cocomo 2009