SB Program University of Jyväskylä Key issues on International software products and companies Author: Rauli Käppi Date: 20.11.2002 Topic: Multi-level

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University of Jyväskylä

Key issues on International software products and companies

Author: Rauli Käppi

Date: 20.11.2002

Topic: Multi-level view on international product-oriented software company, product development and product marketing

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Earlier and future research

Earlier focus has been on early productisation of european, small, even start-up companies in a master’s thesis form

The Ph.D. work focus is designed to progress towards more mature, larger companies (above 50 employees) using similar multi-level approach

Multi-level view includes the analysis of: managerial strategy work, company’s internal processes, software product development practices and customers setting requirements

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Research area description

The general purpose of the research is to identify both development and marketing mechanisms, which can be deployed concurrently to provide software product companies clear, feasible ways of managing themselves while developing and selling their software products for the international market. As important is to identify common reasons for failure in the field.

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Introduction

The research area of software products can be categorised relating either business-to-business or business-to-consumer products.

Another categorisation is the division to tailored, MOTS and COTS areas.

One interest area is to find relatively detailed models and processes, which identify the relationships between new product development (NPD) processes and feasible market entry mechanisms in selected software product categories.

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Product and tailoring businesses compared by Hoch et al.

PROFESSIONAL SERVICES

PRODUCT BUSINESS

MARGINAL COST Almost constant Almost zero

MARKET STUCTURE Highly fragmented Highly globalized

REGIONAL APPEARANCE

Mainly regional, tendency to globalisation

Higly globalized

CUSTOMER RELATIONSHIP

One to one One to few, one to many

MOST IMPORTANT NUMBER TO WATCH

Capacity utilization rate

Market share (installed base)

RELEVANCE OF MANAGEMENT AREAS

Human resources

Software developmentMarketing and sales

Strategy

Strategy

Marketing and sales

Human resources

Software development

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Relations between different software business types by Käkölä (Hoch et al.)

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Product and tailoring business…

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Management and strategy are evaluated as key factors for product success

Räsänen, H. 2001

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A generic process for creating products

Trott, P. 1998

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Software company’s internal product process

Käppi, R. 2002

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Whole product model

Generic product – first implementation

Expected product – different user groups’ needs

Augmented product – with partners’ add-ons

Redefined product which includes all the functionality showing market interest

By Theodore Levitt

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Whole product cont.

Moore’s definition (Moore 1995, 21) of the whole product is more simplistic: “The minimum set of products and services necessary to ensure that the target customer will achieve his or her compelling reason to buy”.

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Geoffrey Moore’s work

Crossing the Chasm Inside the tornado Both books offer a comprehensive view on marketing and

product strategy Moore is one of the first succesful writers who has

concentrated on ITC-products and companies

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Geoffrey Moore cont.

Innovators and technology enthusiasts (techies) are characterized as “those who appreciate the technology for its own sake”, or as “Gyro Gearloose (Pelle Peloton in Finnish). They do not require a high level of productization; instead they are more interested in the architecture and technical features and benefits of the product. Companies with such type of enthusiasts are typical customers of software products in their early development stages.

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The second group of customers is the early adopters, visionaries. They are characterized as “people who have the insight to match an emerging technology to a strategic opportunity.” This group is still not requiring very highly productized solutions, although the requirement level is clearly higher than in the first group. The risk in this group is that they may want things that are not consistent with the product concept sellable to other customers.

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The third group, the early majority, pragmatists are people within the buyer company who do not want to be pioneers in the technology adaptation. They are characterized as more like the X-files’ Scully than Mulder, or more like Lethal Weapon’s (Tappava ase in Finnish) sergeant Murtaugh than Martin Riggs (Mel Gibson). This group requires a very high level of productization and proof in the form of reference list how the product has been performing in other installations. This group does not welcome risk in similar levels as the former groups.

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High margin, custom-made, product leadership

Medium margin, Customized, customer intimacy

Low margin, standard, operational excellence

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Activities in different phases of product development (Rajala et al. 2001,52)

Innovators,Technology enthusiasts

Early adopters, Visionaries

Early majority, Pragmatists

Product development

Core product development

Product-related services & features

Fully integrated, commoditized whole product

Servicing & Implementation

Lot of custom service

Product related services

Whole product services

Marketing & Sales

Direct (Partners can assist)

Indirect (Sales partners)

Various alternatives

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Tornados do not exist all the time, in some markets they may not exist at all

Paradigm shifts in technology, usage behaviours etc. are moments in time where successful new technological solutions typically emerge

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Product business can be complex and ambiguous

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Peter McHugh

Making it big in software McHugh offers an interesting view on European software

companies and their internalization efforts His research work is based on multiple case studies on

multiple leading software product companies in Europe Practical perspective

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Peter McHugh cont.

Concept transformation into strong software product offering = Customer-centric (software) product

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Peter McHugh – where do good software products come from?

Two main streams: business applications and technology software products– Business applications typically undertake an existing function

more efficiently, or facilitate a change in current business processes

– Technology products introduce a new concept or a way of doing things – Blue Sky approach

In the latter approach one should beware the technology-chasing-a-market-situation (Digi-TV, WAP, UMTS)

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Peter McHugh – examples of software products emerging in different ways

Vision for usage of new technology– Staffware is one of the leading workflow software vendors, their

product started as a new idea when their current financials software business was doing poorly – operations now in 30 count.

University research projects– Iona is a market leader in ORB-products. They started as a part

of EU-funded Esprit-programme and soon realized that they could develop a CORBA-compliant software product

Developed with a customer– London Bridge delivered a financials project to an English bank –

TSB, which could not find a suitable COTS product

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McHugh – company evolution and typical Management Strain Points

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Case study: HP’s product called Kittyhawk

Let’s combine break and the reading Everyone please read the case and we’ll reconvene after

30 minutes Please analyze what the company did well and what not

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Case study

How would you characterize the market analysis for the new product “release”?

What solid markets for the product were identified? What product attributes were really needed at the lower

end of hard drives? If one could develop a 50$ drive in that market situation,

to which market it could be targeted to? How realistic was the high end market vision? Technology chasing a market?

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Evolution and revolution

In software products (as in many other types of products) the product maturity rises as the time passes

With a software product, the management has to try to look ahead and decide which feature set will be competitive after n months, when the decided feature set is actually ready & offered to the market

At the time of introduction one’s software product must not lag behind compared to rivals

Equally important is not exceed the market requirements too much by offering a Revolution – Smooth Evolution is desirable

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Reasons for failure (Cooper, 2001)

Robert G. Cooper has examined reasons for product failure.

Poor marketing research. – Insufficient or faulty marketing research is what

managers cite most frequently as the number one cause of new product failure: “A lack of thoroughness in identifying real needs in the marketplace, or in spotting early signs of competitors girding up to take the offensive, is often the finding of a new postmortem.”

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Reasons for failure cont.

Technical Problems – The second most common cause of new product failure is

technical problems in design and in production. […] Insufficient marketing effort

– Here management is guilty of “assuming that the product would sell itself” and simply failed to back the product’s launch with sufficient marketing, selling and promotional resources. […]

Bad timing – Timing issues surface as a key reason for failure, not only in

these studies but in countless others. The penalties of moving too slowly, or too fast, stem not only from technical problems but also from flawed planning, organization, or control. Numerous new product failures result from not moving quickly enough, given a limited window of opportunity. […].

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Holistic, multilevel view on software companies

One needs strategy to guide and focus the efforts of the company

In a company larger than some 50 employees one must carefully design how different units and their responsibility areas actually play together and benefit the company

Deliver what you can, but don’t promise what you can’t deliver

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Stage growth model conclusions

In each level the software company must proceed through different phases in order to arrive to the position described on the right side of the figure. Each phase builds knowledge and know-how on top of the former phase. The last position described acts as a contingency factor for the software company to succeed in the selected segment / mainstream market

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Stage growth model conclusions cont.

The probability of the company not encountering any severe difficulties in the examined area is enhanced if the company follows each level of the model in parallel to the other levels. This suggests that it is beneficial to develop the company and its targets holistically, instead of trying to focus too strongly in the progress of any single level, causing other levels to come short in their ability to execute their required tasks

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McHugh: Delivery channels

Deal size and complexity affect the choice Volume channels are recommended for software

products under 5000 £ Resellers for products between 5000 and 75,000 £ Higher priced products typically involve direct selling at

least in the beginning of the product’s life cycle

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Case: Sage’s accounting software product

Price 100 – 300 £ per copy for companies under 100 employees and front-line support activity provided for each customer – what type of sales / delivery channels one would recommend?

Market leadership in four of the world’s leading markets and revenues approximately 200 million £

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Case: Sage cont.

Spends even 40% of all the revenues back into marketing First tried to set up a network of dealers Then set up a higher level of “wholesale” dealers to

service some of the smaller ones Most of the sales still came from the dealers co-operating

directly with Sage Further on, Sage requested monthly fee from the dealers

to be officially “Sage-dealers” and gave 40% discounts to dealers who generated more than 10,000£ annually

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Case: Sage cont.

Installed base acts as an important revenue source – not the only the sales of new licenses

Support contracts, software upgrades and business forms form 66% of the total revenue in the UK – average country figure is approximately 50%

As the installed base revenue is very important, Sage wishes to receive the user information in order to sell more to the same customer – the Sage product seizes to function after 30 days or 30 times of use without registration…

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Thank you for participating

Documents

SB Program University of Jyväskylä Key issues on International software products and companies Author: Rauli Käppi Date: 20.11.2002 Topic: Multi-level