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 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 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’ 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 system. The design describes the portfolio system from different perspectives which represent the viewpoint of 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 the scope of software line portfolio management.
Contents
1 Introduction
2 Purpose of the Research
2.1 Research Scope
2.2 Research Objectives
3 Organisation of the Research
3.1 Research Approach
3.1.1 Research Model
3.1.2 Research Method
3.2 Structure of Thesis
4 Fundamentals
4.1 Fundamentals of Portfolio, Program and Project Management
4.1.1 Overview
4.1.2 Principles of Portfolio Theory
4.1.3 Product Portfolio Management
4.1.4 Program Management
4.1.5 Project Management
4.1.6 Relationship of Portfolio, Program and Project Management
4.1.7 Critical Discussion
4.2 Fundamentals of Software Product Line Engineering
4.2.1 Overview
4.2.2 Principles of Product Line Engineering
4.2.3 Principles of Software Product Line Engineering
4.2.4 Software Product Line Engineering
4.2.5 Single-System versus Software Product Line
4.2.6 Project versus Product Paradigm
4.2.7 Critical Discussion
5 Portfolio Management System for Software Line Development
5.1 Role of Portfolio Management in Organisational Governance
5.2 Justification of Research Topic
5.3 Overview of Research Approach
5.4 Analysis of Software Line Portfolio Management
5.4.1 Analysis of Research Status in Portfolio Management
5.4.2 Analysis of Software Product Line Demands
5.4.3 Comparison of Application Domains and Building Blocks .
5.4.4 First Concept of Software Line Portfolio Management System
5.5 Design of Software Line Portfolio Management System
5.5.1 Overview
5.5.2 Logical View
5.5.3 Module View
5.5.4 Process View
5.5.5 Organisational View
5.6 Evaluation of Portfolio Analysis Methods
5.6.1 Overview of Evaluation Approach
5.6.2 Product Portfolio Analysis
5.6.3 Domain Portfolio Analysis
5.6.4 Asset Portfolio Analysis
5.6.5 Conclusion
5.7 Application of Software Line Portfolio Management System
6 Discussion
6.1 Strengths of Research
6.2 Limitations of Research
7 Summary
8 Prospects
Bibliography
Index
A Research Method
B Portfolio Management
C Expert Interview Guideline
List of Figures
2.1 Overview of EADS Group
3.1 Overview of Research Model
3.2 Overview of Thesis Structure
4.1 Overview of Portfolio, Program and Project Management
4.2 Subject of Product Portfolio Management
4.3 Strategic Triangle
4.4 Scope of Portfolio Management
4.5 Evolution of Portfolio Analysis and Classification
4.6 Boston Consulting Group Matrix
4.7 Common Portfolio Analyses
4.8 Portfolio Management System
4.9 Relationship of Portfolio, Program and Project Management
4.10 Scope of Portfolio, Program and Project Management
4.11 Portfolio versus Program and Project Management
4.12 Overview of Software Product Line Engineering
4.13 Product and Individual versus Standard Product
4.14 Product Life Cycle and Product Line Advantages
4.15 Variability in Real and Virtual World
4.16 Reuse Paradigms and Software Product Line Functionalities
4.17 General versus Software Line Concept
4.18 Example for Evolution of a Software Product Line
4.19 Internal versus External Variability and Variability Pyramid
4.20 Variability Tracing and Variant Packages
4.21 Overview of Software Product Line Engineering
4.22 Overview of Software Product Line Activities
4.23 Overview of Software Product Line Practice Areas
4.24 Software Product Line Framework
4.25 Domain Engineering Process
4.26 Application Engineering Process
4.27 Differences between Single-System and Software Product Line
4.28 Project versus Product Paradigm
4.29 Benefits of Software Product Line Engineering
5.1 Role of Portfolio Management
5.2 Justification of Portfolio Management for Software Lines
5.3 Research Approach for Design of Software Line Portfolio Management System
5.4 Hierarchical Concept of Portfolio Management System .
5.5 Portfolio Management Domains Addressed in Literature
5.6 Portfolio Management System Building Blocks
5.7 Overview of Stakeholder Groups
5.8 Application Domains and Business Objects
5.9 Analysis of Application Domains
5.10 Comparison of Application Domains and System Building Blocks
5.11 Concept of Software Line Portfolio Management System
5.12 Overview of 4+1 Architectural Views
5.13 Layer Model of Software Line Portfolio System
5.14 Component Model of Software Line Portfolio System
5.15 Identify and Categorise Portfolio Objects
5.16 Evaluate Portfolio Objects
5.17 Select Portfolio Objects
5.18 Identify Portfolio Risks
5.19 Analyse Portfolio Risks
5.20 Prioritise Portfolio Objects
5.21 Develop Portfolio Risk Response
5.22 Balance Portfolio
5.23 Communicate Portfolio Adjustments
5.24 Authorise Portfolio Objects
5.25 Monitor and Control Portfolio Risks
5.26 Review and Report Portfolio Performance
5.27 Review and Report Portfolio Performance
5.28 Product Portfolio Scoping Process
5.29 Domain Portfolio Scoping Process
5.30 Asset Portfolio Scoping Process
5.31 Comparison of Portfolio Organisation Models
5.32 Portfolio Hub and Spoke Organisational Model
5.33 Strengths and Weaknesses of Portfolio Analysis Methods
5.34 Overview of Portfolio Analysis Example
5.35 Overview of Evaluation Procedure
5.36 Evaluation of Solutions against Product Killer Criteria
5.37 Example of Product Map and KANO model
5.38 Evaluation of Solutions against Domain Killer Criteria
5.39 Definition of Domain Criteria
5.40 Weighting of Domain Criteria
5.41 Calculation of Total Attractiveness Score
5.42 Evaluation of Solutions against Asset Killer Criteria .
5.43 Recommended Software Line Portfolio Analysis Methods
A.1 Overview of Research Method
B.1 Overall Portfolio Management Organisation
B.2 Classification of Portfolio Analysis Methods
B.3 Popularity of Portfolio Analysis Methods Employed .
B.4 Dominant Portfolio Analysis Methods Employed
B.5 Acceptance Formula
B.6 Discriminance Formula
B.7 Result of Scoring Model
B.8 Example of Hybrid Domain Portfolio Analysis Method
B.9 Financial Method for Asset Portfolio Scoping
C.1 Product Line Technical Probe - Part A
C.2 Product Line Technical Probe - Part B
List of Abbreviations
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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.
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 thesis 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 thesis 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. The developed model will be exemplary approved in a case study with the program management of Cassidian, the defence and security division of EADS group.
Chapter 2 Purpose of the Research
2.1 Research Scope
The master’s thesis will be realized in cooperation with the program management of the defence and security division of EADS group - Cassidian. The EADS group is employing around 133,000 people at more than 170 sites worldwide. The corporate group covers besides Cassidian three other divisions Airbus, Eurocopter and Astrium (EADS, 2012). Airbus is a commercial and military aircraft company whereas Eurocopter is a helicopter manufacturer and Astrium is involved in worldwide space programs (Figure 2.1).
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Figure 2.1: Overview of EADS Group (EADS, 2012)
Cassidian itself is in a transformation process, which has been initiated by the company’s former CEO, Dr. Stefan Zoller through the consolidation of the former business units Cassidian Airsystems Cassidian Electronics and Cassidian Systems into one integrated company. The transformation will be continued by his successor Bernhard Gerwert with the complete reorganisation of the corporation, which will be finished in November 2012. Elements of the process are the harmonization of the business systems, techniques, tools as well as the identification of synergy opportunities between the former separately operated business units. The major goal of the transformation is to prepare Cassidian to become a global player with a worldwide business aspiration. But Cassidian’s present solutions have been designed on project specific decisions which led to customer-specific, heterogeneous and partly overlapping results, which cannot be reused for new campaigns or projects. In contrast to that Cassidian’s new vision of a worldwide acting security company needs standardized and flexible solutions to an acceptable price in order to be nearer and earlier to market.
For achieving this objective, Cassidian needs to establish a portfolio management for identifying and selecting the right projects and products as new standard solution for upcoming requests for proposal. For this reason, the resulting integrated portfolio management system of this master’s thesis for software line development will be exemplary applied in the program management of Cassidian. Finally, the portfolio model shall demonstrate how Cassidian can merge the gap between its current project and product management for the company’s future business.
2.2 Research Objectives
The major goal of the thesis is the evaluation and design of an ideal portfolio management 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 research 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 with the program management of the Cassidian company. The research objectives of this thesis 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.
- Exemplary application and concept validation: Implementation and val idation of the developed ideal portfolio management system in practice with a software product of Cassidian’s solution portfolio. The case-study shall carve out the possible benefits and expected effort of the integration of a software line portfolio management into Cassidian’s business system. Moreover the ex emplary application shall deliver first insights of the model in practice which finally lead to additional optimisations.
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 Cassidian product. The selected research approach and the chapters of the thesis 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 Cassidian 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 r esearch activities and research outputs. Research outputs cover constructs, models, methods and instantiations. Research activities comprise building, evaluating, theorizing on and justifying artefacts. Figure 3.1 thereby illustrates which cells at the intersection of research activities and research outputs are covered by this thesis. Each intersection contains a specific research objective of the overall portfolio management system and is addressed and explained in a specific section of the thesis.
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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 detailed 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.
Chapter 5 represents the main part of this thesis. 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 Cassidian 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.
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Figure 3.2: Overview of Thesis Structure (Own Figure)
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. Therefore 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).
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Figure 4.1: Overview of Portfolio, Program and Project Management (Own Figure)
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 unit1. A product portfolio can be established for example by delimitation and structuring criteria (Figure 4.2) (Schmahl & Gleich, 2009, p. 5):
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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.
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).
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Figure 4.3: Strategic Triangle (Wittmann, Reuter & Magerl, 2007, p. 61)
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):
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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).
- 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).
- 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 responsibility 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.
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):
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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 methods 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.
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):
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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.
- 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 strategic 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 attractiveness (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 different 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).
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).
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Figure 4.7: Common Portfolio Analyses (Schmahl & Gleich, 2009, p. 113-117)
Portfolio Management System
The term portfolio management system will be derived from the general definition of a system by Kerzner (2009, p. 54):
A system is a group of elements, either human or nonhuman, that are interacting, organised and arranged in such a way that the elements with their respective interfaces can act as a whole towards achieving a common objective.
In reference to the above definition, a portfolio management system is in this context:
A strategic framework which is linked to the business strategy and consists of a specific set of building blocks, processes and role definitions and key figures surrounded by interfaces to organisational units.
This means in detail (Figure 4.8):
- System: A framework, which forms interacting components to a structure which are named here in reference to Osterwalder (2004, p. 42) as building blocks.
- Building block: A specific element of a system with a dedicated function and role.
- Interface: A point at which independent systems or diverse groups interact.
- Role: A function or position in the context of portfolio management.
illustration not visible in this excerpt
Figure 4.8: Portfolio Management System (Own Figure)
4.1.4 Program Management
Definition
A program is in reference to Project Management Institute (PMI) (2008, p. 5) a group of related projects managed in a coordinated way to obtain benefits and control not available from managing them individually. Programs include elements of related work outside of a single project scope. In this context program management can be defined by the Office of Government Commerce (OGC) (2008. p. 5) as follows:
A program is a temporary, flexible organisation created to coordinate, direct and observe the implementation of a set of related projects. It involves aligning multiple projects to achieve the program goals and allows for optimised or integrated cost, schedule and effort.
The purpose of program management is to support the organisation’s projects in that way so that they can contribute their part to organisation’s strategic objects at best.
Characteristics of Program Management
Program management focuses on the project interdependencies and helps to determine the optimal approach for managing them. If the relationship among the projects is only that of a shared client, seller, technology or resources, the effort should be managed directly as a portfolio of projects without an intermediate program. The characteristics of program management are (PMI, 2008, p. 6):
- Supply of components: Coordinating the supply of components, work or phases.
- Resource resolving: Resolving resource constraints and/ or conflicts that affect multiple projects within program.
- Risk mitigation: Mitigating risk activities that run across components like con tingency planning.
- Organisational alignment: Aligning organisational and strategic direction that affects project and program objectives.
- Shared governance structure: Resolving issues and scope, cost, schedule and quality changes within a shared governance structure.
On the whole, program management provides a framework for managing multiple projects within the organisation which loosely coupled single projects never can achieve.
4.1.5 Project Management
A project is a temporary organization that is created for the purpose of delivering one or more business products according to an agreed business case. Therefore, project management can be defined according to OGC (2008, p. 6) as follows:
Project management is the planning, delegating, monitoring and control of a project, and the motivation of those involved, to achieve the project objectives within the expected performance targets for time, cost, quality, scope, benefits and risks. (OGC, 2008, p. 5)
Characteristics of Project Management
In contrast to business as usual which covers all the maintain of current business opera- tions, projects are always related to business change (OGC, 2008. p. 6). Thus, project management has numerous characteristics which distinguish it from business as usual:
- Change: Projects are the means by which organisations introduce change.
- Temporary: According to the above definition, projects are temporary in nature with a defined start and a defined end. Once the desired change has been imple mented, business as usual resumes and the need for the project is removed.
- Cross-functional: Projects often cross the normal functional divisions within an organization and sometimes span entirely different organizations.
- Unique: Every project is unique. Each project will be unique by for instance a different team, a different customer or a different location.
- Uncertainty: Every project covers something new. This will naturally introduce threats and opportunities over and above the business as usual.
4.1.6 Relationship of Portfolio, Program and Project Management
In understanding portfolio management, it is important to outline its interrelationship to program and project management. These relationships are shown in Figure 4.9:
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Figure 4.9: Relationship of Portfolio, Program & Project Management (OGC, 2008, p. 7)
1. Portfolio management represents the controlling instrument of the strategic man agement. It ensures that all investments are aligned to the company’s business goals and is responsible for selecting the right components like programs, projects, sub portolios for an effective and balanced portfolio (PMI, 2008, p. 6).
2. Program management comprises the controlling of multiple related projects that are initiated during the program’s life cycle. The program manager coordinates and supports the projects but does not direcly manage them (PMI, 2008, p. 5).
3. Project management is the last element of this relationship and mostly part of a superior program management. It is a temporary endeavor undertaken to create a unique product, service or result (PMI, 2008, p. 5).
In this context, portfolio management is responsible for the effectiveness of solution selection. It deals with the question whether we are doing the right things - like selecting, rejecting or abandon products, programs and projects for achieving our appointed business goals and what makes us think so? In contrast to that program and project management focus on the efficiency of the endeavors by asking how to do them in a right manner. This division of work between portfolio management and program, project management shall never become indistinct by any purpose (Figure 4.10).
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Figure 4.10: Scope of Portfolio, Program and Project Management (OGC, 2008, p. 154)
Finally Figure 4.11 summarises in a comparative overview the main differences between portfolio, program and project management:
illustration not visible in this excerpt
Figure 4.11: Portfolio versus Program and Project Management (PMI, 2008, p. 6)
[...]
1 A strategic business untit (SBU) is a division of a company with an independent performance measurement and distinct external market (Wittmann, Reuter & Magerl, 2007, p. 60).
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).
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).
- Quote paper
- Dipl.-Ing. (DH) Michael Lang (Author), 2013, Design of a Portfolio Management System for Software Line Development, Munich, GRIN Verlag, https://www.grin.com/document/215548
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