IBM Software Thought Leadership White Paper

Aerospace and Defense, Automotive, Medical Systems and Electronics

Linking business strategy to technical execution

Enabling the critical analysis necessary to deliver successful product lines

Linking business strategy to technical execution

Keeping the focus on business in product line management

Just because a company can engineer and deliver a product doesnt necessarily mean that it should. Before the technical discussion even begins, successful companies assess their product portfolios to make sure that they are investing in the right offerings based on business objectives and marketplace conditions. The resulting portfolio investment strategy drives all subsequent product line management decisions. Linking business strategy to technical execution has never been more important. With software emerging as a primary differentiator for smarter products and systems, companies in such diverse industries as aerospace and defense, automotive, electronics, and healthcare have more exibility to explore new ideas. Software can provide a wide diversity of product features and functions within a product line portfolio, making it easier for companies to pursue many different market segments with precisely targeted product variations. Thats the good news. The bad news is that this new emphasis on software differentiation increases the complexity of an already complex product development environmentmaking product success much more difficult to achieve. When a company has dozens of innovative ideas from which to choose, how does it identify the product concepts that align most closely with the business strategy? How does it decide which concepts are most likely to

appeal to customers? And once the decision is made on the right mix of features and variants to be developed, how does the organization ensure that they trace back to the strategic objectives? Protable innovation begins with a clear focus on where business goals meet marketplace demands. This white paper describes a solution and approach to help organizations take winning ideas and turn them into successful product portfolios. It addresses how companies can manage product lines to make better decisions on where to apply limited company resources. And it describes how to integrate this innovation process into the product line engineering (PLE) process to help design, develop and deploy a portfolio in line with the goals of the business and the needs of customers.

Shifts in the marketplace: accelerating the move to value-driven PLE

Rapid technological change and heightened customer expectations are radically shortening product life cycles. Product uptake and peak sales occur earlier, and prots erode much sooner. Companies face shrinking timeframes in which to recoup return on investment from an innovation. In response, companies are focusing on ways to deliver winning products faster while reducing development costsand they see variations in systems and software as a key enabler. Changes in code are a cost-effective way to quickly offer enhanced capabilities within a product line to serve a target audience or create a new marketplace niche.

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The idea of engineering a product line is not new. Many companies have been doing this for years with varying levels of success. Referred to as PLE, this is a systematic approach to dening, developing and delivering a comprehensive portfolio of related products. This approach also allows for product line extensions in the future. The promise behind PLE is strategic reusehelping companies effectively design, develop and deliver a variety of unique products more quickly for different market segments, purposes and industries. Greater protability is achieved when common product or manufacturing assets can be used for different versions of a product. This ability to build multiple product variants is what is meant by the expression economy of scale in the product family. What is new is the fact that software and systems have emerged to play a critical role in how companies deliver value across practically every industry and almost every technology imaginable. As product differentiation moves from the physical attributes provided by mechanical components and electronics to software-based capabilities, the product line concept is making its way into software development. PLE is helping organizations achieve product diversity at the speed and efficiency it takes to satisfy customers. The focus of PLE is on the means of efficiently producing and maintaining multiple similar software products, exploiting what they have in common and precisely managing what varies among them.

This focus, however, begs the question, whats the point of delivering product variants to the marketplace more quickly and at a lower cost if they do not add value to the portfolio? PLE is about more than executing on technical requirements. Its about achieving business objectives by delivering the right mix of products that consumers value.

Assessing business outcomes of the portfolio and product lines

Releasing products that customers want and cant get elsewhere creates higher demand and allows the organization to charge a premium during the adoption period. In contrast, ontime delivery of products and services that have little appeal to the targeted market segment can send sales plummeting. The reality is that, unless the right offerings are launched at the right time to the right market segments, the probability of success is extremely low.

Time to market pressure drives process improvements A recent Aberdeen report indicates that the inability to exploit opportunities in the marketplace is the biggest hurdle that companies face when they try to optimize their product portfolio. Launching before competitors is a time to market pressure, which means companies are looking for better system engineering practices to improve the efficiency of their development processes so that they can get their products to market rst and capture market share.1

Linking business strategy to technical execution

With such a ne line between success and failure, the product portfolio and downstream product management and PLE decisions need to be based on well-documented, collaborative research and analysisnot guesswork, agendas, intuition or the loudest voice in the room. Yet in most organizations, the strategic management of the portfolioand subsequent processes for product management that drive requirements denition and technical specicationsis often highly compartmentalized, poorly dened, and seldom enabled by collaborative and automation technologies. In fact, most companies continue to manage these processes with spreadsheets and graphical presentation tools that dont provide deep understanding of the business impact of the various trade-offs required when dening a portfolio. Organizations must stop crippling themselves with poor product planning. Successful product innovation does not happen by accident. It is not an art; it is a process. An environment that nurtures high-performance portfolio management processes and a culture of innovation can attract innovators and give them a reason to stay.

and communicated across the enterprise, based on up-to-date, comprehensive information from the entire organization and business ecosystem. To properly manage the opportunities and risks, executives would have constant access to reliable and comprehensive business information, so they could quickly tell whether strategies were being executed properly and could take corrective action as necessary. And employees would be aware of the business decisions and risk for which they are responsible. The focus would be on the following:

Representing the best possible mix of innovative and sustaining offerings Delivering the appropriate blend of risk and return and of cost and benet Yielding the best trade-offs among customer demand, strategic objectives and competitive response Making the best use of existing human and capital resources

Managing the product portfolio as an investment

What would such an environment look like? It would enable the organization to manage its product portfolio as an investment. The portfolio investment strategy would be well dened

In this environment, the product portfolio represents the business strategy (see gure 1). It answers such questions as where the company should make investments and which product lines should be retired. The value a product offers to the business is typically assessed using various factors, including the net present value (NPV), competitive and marketplace assessments, and technical and commercial risk factors.

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PORTFOLIO MANAGEMENT

PRODUCT MANAGEMENT

PLE

Business strategy CEO Business case Product VPs Product managers

Business requirements

Level of effort Product engineering

Figure 1: Successful portfolio and product management solutions enable value-driven PLE.

Helping to ensure a marketplace focus

To accelerate product time to market and extend time in market, product portfolio and product line management teams must be able to keep their ngers on the pulse of the marketplace. Best practices enable organizations to capture and preserve feedback from industry and marketplace analysts, customers, distributors, technical support teams and services organizations for a greater understanding of how target market segments dene value. For example, understanding how an opportunity was won is often just as valuable as understanding why it was lost. An organization that has a disciplined process in place to make

effective use of winloss reports gains greater insight into the perceived value of the companys products. In addition, the ability to leverage the latest social media technology allows an organization to provide its customers and partners with a convenient forum for expressing their issues and priorities.

Creating a multidimensional view of the business case

Too often, each group involved in the product life cycle creates its own information repository. When individual teams work on products within product lines, the level of complexity increases exponentially. Sales teams maintain a customer

Linking business strategy to technical execution

database to help close deals. Support teams track product issues in a bug-tracking system. Engineering departments keep detailed system requirements and project plans in separate development systems. Marketing depends on marketplace research and competitive intelligence databases. And nancial back-end systems capture cost and revenue information. Each system tells only part of the story. Product portfolio and product line managers need a unied view of whats happening in the marketplace and in the business as a whole. They must also have ready access to the most up-to-date information relevant to their market segments and product lines, no matter where that information resides, either inside or outside the organization.

Prioritizing requirements against welldened parameters

Based on the companys product investment strategy, product management decides which product ideas to fund by balancing answers to many questions, such as the following:

What product features add the most value to the customer? Which of these features can realistically be delivered within a specied timeframe?

Effectively prioritizing customer requirements With IBM Rational Focal Point software, ABB can gather all customer requirements using a structured process and easily access them through a central repository. The pairwise comparison feature of the Rational software enables product managers to instantly visualize prioritized requirements, enabling more rapid time to market for competitive products while reducing development costs.

A disciplined, quantiable and consistent process for cost benet and trade-off analyses enables product managers to visualize the complexity of decisions and make the right choices. For example, stakeholders, such as existing customers, prospects, sales managers, product marketers and engineers, can contribute valuable assessment information that helps dene the needs of customers, including requests for enhancement, defect reports, marketplace analysis, warranty data and call reports. This information includes subjective observations and objective data. An efficient way of quantifying both types of information can help simplify analysis. Well-designed business cases allow decision makers to more easily assess the trade-offs among opportunity value, cost and risk factors and can also show where investments in delivery

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capability can provide signicant revenue potential. The effective opportunity assessment process enables business cases to be as simple or as comprehensive as needed to cover all the criteria deemed critical to business successwith the ability to combine qualitative and quantitative data in the decisionmaking framework. Process standardization helps ensure that input is gathered from all relevant stakeholders and that new ideas are evaluated against all of the companys strategic objectives. It is important that the methodology for dening relative value be exible enough to handle exceptional requirements, such as giving higher priority to key customers. In addition, it should enable rapid what-if analysis through simple adjustment of the relative weights of the different metrics to reect different business scenarios. A process that uses such quantiable models of risk and reward allows managers to compare projects objectively to determine the best return to the company. These models also help encourage transparency and build trust and buy-in among stakeholders.

business case drives the use cases used to dene technical requirements. Effective use of automation and collaboration tools helps ensure that changes to the one trigger the right corrective action to the other, whether it is a reevaluation of the portfolio or an adjustment to technical requirements. There is clear visibility into the status of requirements as well as traceability from each technical requirement to the system as a whole and from product features back to the idea source. Stakeholders across the organization have insight into how the different elements of the portfolio are linked to business strategy and to the underlying business architecture, information systems and technology infrastructure.

Why IBM?
As a leader in integrated systems engineering and embedded software development and product life-cycle management (PLM), IBM understands the need for a collaborative lifecycle approach based on open-standards-based development. And because todays products hardware, electrical, electronics and software components are often built in parallel, IBM recognizes the need to integrate and collaborate with a global ecosystem of suppliers and partners. To support value-driven PLE, IBM offers an innovation and portfolio management decision support system that extends decision support from the corporate portfolio, through lines of business and product groups, to product lines and individual

Aligning execution with strategy

To help ensure that what the business case requires is what is actually built, the strategic portfolio and project management processes must precede and link to the PLE processbridging the communication gap between the planning and the development sides of the business. With value-driven PLE, the

products, and all the way to individual features and their requirements. It integrates competitive analysis with requirements management solutions; gap analysis with prioritization; and marketplace denition with product, project and release planning. It provides sophisticated collaboration tools that can help an organization enforce best practices, develop workows and approval authority, and provide valuable data when its needed and in a format thats appropriate for each stakeholder in the portfolio and product management process.

Copyright IBM Corporation 2010 IBM Corporation Software Group Route 100 Somers, NY 10589 U.S.A. Produced in the United States of America October 2010 All Rights Reserved IBM, the IBM logo, ibm.com, Rational, and Focal Point are trademarks of International Business Machines Corp., registered in many jurisdictions worldwide. Other product and service names might be trademarks of IBM or other companies. A current list of IBM trademarks is available on the Web at Copyright and trademark information at
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For more information

To learn more about IBM Rational Focal Point software and the IBM Rational Software Platform for Systems solution, please contact your IBM sales representative or IBM Business Partner, or visit: ibm.com/software/rational/systems/ple Additionally, nancing solutions from IBM Global Financing can enable effective cash management, protection from technology obsolescence, improved total cost of ownership and return on investment. Also, our Global Asset Recovery Services help address environmental concerns with new, more energy-efficient solutions. For more information on IBM Global Financing, visit: ibm.com/nancing

References in this publication to IBM products or services do not imply that IBM intends to make them available in all countries in which IBM operates. The information contained in this documentation is provided for informational purposes only. While efforts were made to verify the completeness and accuracy of the information contained in this documentation, it is provided as is without warranty of any kind, express or implied. In addition, this information is based on IBMs current product plans and strategy, which are subject to change by IBM without notice. IBM shall not be responsible for any damages arising out of the use of, or otherwise related to, this documentation or any other documentation. Nothing contained in this documentation is intended to, nor shall have the effect of, creating any warranties or representations from IBM (or its suppliers or licensors), or altering the terms and conditions of the applicable license agreement governing the use of IBM software. IBM customers are responsible for ensuring their own compliance with legal requirements. It is the customers sole responsibility to obtain advice of competent legal counsel as to the identication and interpretation of any relevant laws and regulatory requirements that may affect the customers business and any actions the customer may need to take to comply with such laws. All customer examples described are presented as illustrations of how those customers have used IBM products and the results they may have achieved. Actual environmental costs and performance characteristics may vary by customer.
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Aberdeen Group, System Engineering: Top Four Design Tips to Increase Prot Margins for Mechatronics and Smart Products, Michelle Boucher, October 2009.

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