Transcript Document

SB Program
Product Strategy Decisions in Small
Software Product Businesses –
A Framework and Experiences
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Submitted on 8.1.2003
Jarno Vähäniitty’s master’s thesis
Helsinki University of Technology
Edited by Rauli Käppi, Software Business Program
University of Jyväskylä
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Introduction
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Product strategy has been identified as the most
important management area of software product
business
Product strategy answers to the questions: (McGrath
2000)
– Where are we going?
– How will we get there?
– Why will we be successful
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The function of a product strategy is to link the company’s
product development to its business strategy (McGrath,
Anthony & Shapiro 1996)
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Introduction cont.
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The process for making product strategy decisions in a
company is referred to as the product strategy process
The formulation of product strategy can be more
systematic in larger companies – in smaller software
companies the activities are carried out in more ad hoc –
manner.
In smaller companies the formulation is more often based
on key personnel’s opinions than systematic decision
making process and fully informed decision makers
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Introduction cont.
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In small software product companies (below 50
employees) the roles of persons can be cross-functional,
relating to architecture design, deploying the system,
customer-specific tailoring, consulting and sales
The research carried out with larger software and / or
product oriented companies is not always applicable to
smaller companies
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Research problem
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How can product strategy decision-making in small
software product businesses be supported?
– What issues should product strategy decision-making entail?
– How well are these issues currently handled in small software
product businesses and is the state-of-practice satisfactory?
– What has been proposed in literature to support product strategy
decision –making, and how does this support fit the small
business context?
– Provided there is a gap between the needs and the support
found, how can this gap be overcome?
– Does the proposition for overcoming the gap between the needs
and support found facilitate product strategy decision-making in
practice?
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Methodology
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Answers are sought through literature study, the
construction of a framework, and applying the framework
to case companies
The construction process of the framework consists of
two approaches conducted in parallel, a theoretical and
empirical one, and of combining their results
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Scope
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The study is does not involve:
– Software development departments in large companies
– Hardware development
– Explicit analysis of the impact of business environment and
business model on product strategy decision-making
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Decision perspective to formulating and
enacting product strategy
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The main decisions made while setting up a product
development project are:
– Product strategy and planning
– Product development organization
– Project management
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Decisions made within a project
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Concept development
Supply chain design
Product design
Performance testing and validation
Production ramp-up and testing
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Decision making in small companies
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The division between in- and outside the project
decisions can sometimes be unclear
The decision-making roles are not always similarly
separate as can be assumed from the previous slide
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Common problems in New Product
Development (NPD)
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Cycle-time and pacing guidelines are not used to validate
development schedules
Poor execution of development due to lack of common
understanding of the development process, for example
cycle-time guidelines
Unclear product strategy process results in product
strategy being formulated superficially as part of annual
budgeting
No explicit consideration for company growth, product
mix or short and long-range emphasis in product
development decision-making
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Common problems in NPD cont.
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Product strategy is formulated without involving the
customer interface
Competitive positioning is unclear and the role of
competitor analysis shallow
Strategic decisions on where the product is going are
made in frustration by developers because senior
management has not made them
Decisions are made too late, for example when
considerable costs have already been committed
Fire-fighting decisions are made without the context of
development priorities
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Common problems in New Product
Development (NPD) cont.
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Failure to invest in current and future core technologies
Decisions are based on inadequate information because
the proper level of detail is unknown
Unnecessarily long development cycles because
technology development is not decoupled from product
development
Decision points or milestones are not defined
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3 small studied software companies
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In the beginning of the study the companies indicated
having many (if not all) of the aforementioned problems
Firefighting was reported as the most common mode of
operations
An implicit assumption (or hypothesis) of the study is to
be able to improve the situation of the 3 companies
through knowledge and guidelines
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Strategic planning
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Textbook approach to strategic planning is (Minzberg,
Ahlstrand & Lampel 1998):
– Analyze the industry
– Select strategy
– Build tactics around the selected strategy
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Critics:
– All is based on theoretical ideals
– Not in direct connection with the real world
– Outcome from the planning is almost always “off” from the later
discovered – original planning did not include all the factors
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Strategic planning cont.
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Regardless of the criticism, companies need to plan
things – the alternative is chaos
Important point to be learned here: The dilemma is to
commit to a future (with plans) while retaining the
flexibility to notice and adjust to the real future as it
arrives
Small companies should rely more on information
provided by analysis and less on intuition – the use of
analytical approaches should be increased
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Strategic planning cont.
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Strategic plans should be treated as a rough roadmap
and budgetary guideline, and not as a straitjacket that
limits from adapting to the future as in unfolds (Brown &
Eisenhardt 2002)
General conclusion in literature dealing with innovation
management is that strategic planning, as well as the
product development process itself should be no more
formal than absolutely necessary (Eisenhardt & Sull
2001), (Thomke & Reinertsen 2001)
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NPD – portfolio management
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New product development, managing development
projects / products as portfolios can be seen as a generic
link between the company’s strategy and its product
strategy
The objectives of portfolio management:
– To maximize the value of the development project portfolio
– To link it to the company’s strategy
– To balance it on relevant dimensions (short vs. long term, current
vs. new platforms, high vs. low risk, research vs. development,
etc.)
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NPD – portfolio management cont.
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Criticism:
– Multi-project, portfolio-based project screening approaches have
their roots in large companies with multiple product / project
alternatives and large managerial staff
– The direct applicability to small software product companies can
be questioned (due to lack of multiple product alternatives and
similar decision-making staff and process)
– Very little specific advice is offered how to actually develop a
software project incrementally in a small software product
company
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NPD and strategic planning
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Basic portfolio management principles are likely to be
useful for increasing small companies’ awareness of
essential product strategy decision-making issues
Many traditional techniques, such as roadmapping can
be adapted to small software businesses with reasonable
adaptation work
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The benefit in strategic planning in small
software product companies
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Increasing awareness of the strategic decision-making
and relevant process is the first step to actually improving
them
Awareness promotes Coherence
– Coherence means recognizing and dealing with the present using
actions that make inherently sense to the participants, rather than
focusing too much on the future and what company wants to be
(Lissack & Roos 2001)
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Different types of companies
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Characteristics of product business
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Amount of customer-specific effort is typically small
Financial and technical risks are carried out by the
company
Potential for higher marginal returns on scale
Competitiveness and new product versions
Role of product complementarity (supporting existing
products with a new one)
Relative relevance of management areas
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Characteristics of product business cont.
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Feature elicitation and valuation are based on dynamic
criteria and in-house domain expert’s judgment
Complexity of market segmentation (usage, rates,
customer and / or user capabilities, technology,
preferences and demographics) and product
differentiation (price, features, performance,
conformance, reliability, style, services, and image)
Pressures from time-to-market and increasingly
shortened release cycles
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Characteristics of product business cont.
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Iterative and incremental product development process
recommended
Simultaneous development of both technologies and
products may be necessary
Higher initial investments in the design of the product
architecture
Motivation for process improvement
Role of quality assurance
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Characteristics of small companies and
managerial implications
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Potential strengths from low cost-of-communication
Emphasized role of senior management
More roles than people
Individuals’ skills and competences
Pressures to secure financing
Local area of operations (indirect sales channels for full
market reach)
Small companies (appear to) have less need for formal
management procedures
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Characteristics of small companies and
managerial implications cont.
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Role of quality assurance (not enough people to have a
separate testing organisation)
Process improvement – potential strengths for small
company – also potential pitfalls
Start-up characteristics
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Constructing the theoretical framework
- key product strategy decisions of small
software product companies
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Organisational (by whom, and where?)
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Organisational model
Roles and responsibilities
Team staffing
Team physical arrangement and location
Investments in team collaboration
Portfolio management (what and when?)
– Sales and marketing, Distribution channels
– Servicing and deployment
– Release management (incl. Operational perspective: release
process and configuration management + strategic perspective:
release contents, roles, types and timing)
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Constructing the theoretical framework
- key product strategy decisions of small
software product companies cont.
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Requirements (what and when, specifically?)
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Elicitation
Specification
Allocation
Change management
Development strategy (how?)
– Development models (Incl. type of development process, pacing,
progress tracking and control and communication mechanisms
among team members
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Constructing the theoretical framework
- key product strategy decisions of small
software product companies cont.
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Technology (by leveraging which technologies?)
– Product architecture and employed technologies
– Development infrastructure
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Quality strategy (delivered with what emphasis?)
– Decisions on what kind of testing is conducted and why
– Project performance measurement
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More about the research
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Interviews in 3 companies how the product strategy work
is carried out
These results are then described using the framework as
a tool
The framework is analysed reflecting it with the
companies’ practices
Finally the framework is refined and generalised
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Case: Slipstream
Results of the interviews
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Founded in 1996 and re-focused to its current operations
in 1999
Develops software products to stream and package
audio and video over the internet.
Usage models / categories for their products have been
identified such as: corporate communications (internet
and intranet), web portals, banner ads, and video e-mail
campaigns
Total of 30 employees, 19 in product development, 5 in
sales, 3 in management and 3 in customer support
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Case: Slipstream cont.
Roles and responsibilities
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Product managers are responsible for the feature set to be
implemented in the project and end-user documentation
Project manager is responsible for progress tracking, how the
product is designed and the features implemented, internal productrelated documentation and post-release work such as bug-fixing
Test manager is responsible for the end product meeting the
specifications, test documentation and other test-related efforts
The project manager leads a team of developers who do the actual
implementation. The developers consult the product manager directly
on feature details if needed
Senior product manager is responsible of reporting the progress of
all ongoing development to the head of PD and the management
team who’s responsibility is to allocate resources to projects
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Case: Slipstream cont.
Product strategy and portfolio mgmt
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2 products form the offering of the company
– Basic video
– Create and stream synchronised rich media presentations
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Under evaluation is a product for mobile platforms
30-day free demo download is offered via web, this
includes free support for customers to set the product up
Main customer group is service providers sold directly by
Slipstream (80% of total sales) and agents (20%
respectively)
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Case: Slipstream cont.
Revenue logic
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80% of sales comes from licensing, maintenance fee
(includes helpdesk support and all updates to the
purchased product version) provides 20% of the total
revenue
In-house development and some outsourced developers,
the technical core was licensed from an outside research
institute with small sharing of Slipstream’s sales
Total sales 2001 were 170 000€ and Slipstream was
making a loss
In some cases customer-specific work, which is
becoming more common in the future
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Case: Slipstream cont.
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Ad hoc marketing process start after the product release
is finalised (after possible delays) “get it to the market as
soon as possible”
Maintenance of old releases is handled by letting the
customers download a new release from the web – this
has been forced by the quality level of older releases
Project personnel responsible for new product release is
sometimes forced to create service version of the older
release in short notice
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Case: Slipstream cont.
Requirements management
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Ideas for new features come from existing customers,
sales & marketing, PD and company management &
board. Important source is competitor surveillance
Product manager creates a requirements specification
(RS) from the feature database and other sources
Based on the RS-document (some 20-50 pages) the
project managers create functional specification
documents, project plans and project breakdown
documents
Product manager writes separate summaries for sales &
marketing
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Case: Slipstream cont.
Requirements management
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Focus changes
– In weekly project meetings some change requests often surface
– If something is to be left out the product manager must ask for
the permission of sales or the management team to authorise
them
– More important changes must be taken to the management team
for approval
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Case: Slipstream cont.
Perceived problems
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Development roles and responsibilities are not sufficiently
clear
The process for identifying the correct product mix and
focus is not sufficiently clear
Requirements process is document-heavy
Severe problems in effort (feature) estimations causing
projects to be delayed
Testing is not adequate
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Case: Slipstream cont.
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Suggestions made for Slipstream after assessing the
situation:
– More efficient requirements engineering process – reduce the
amount of documentation
– Enhance mechanisms for project tracking, effort estimation and
product feature control
– Improve testing practices
– Others…
– Initial feedback on suggestions was positive
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Case: Slipstream cont.
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Another interview was carried out 3 months later
Project and quality aspects had been improved since the
initial session – therefore the situation looked promising
Much of the process development work was still clearly
ahead
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Case: Cielago
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Founded in 2000, 15 employees of which 8 in PD, 4 in
sales and 3 in management
Hardware and software development teams (2)
Products offer wireless short-range network capabilities
to industrial applications (e.g. wireless meter reading,
condition monitoring, wireless point-of-sales, etc)
Customers are perceived as OEM manufacturers,
integrators and consultants
Customers are required to customise the product for 1218 months to reach a working solution
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Case: Cielago cont.
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Sources of revenue are: customer-specific training,
installation, and application development projects are a
significant source of revenue. Some revenue is also
coming from license sales
Relatively undeveloped process for software
development and ad hoc-style resource allocation
R&D decides product features, the sales is not able to
supply customer request information
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Case: Cielago cont.
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Suggestions made for Cielago after assessing the
situation:
– Improve communication between sales and R&D and develop
cooperation processes between the departments
– Introduce project progress tracking
– Start defect tracking with some basic tool
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Comments for suggestions:
– R&D and sales communication is not working – development is
driven by technology push (not market driven necessarily)
– Full rethinking of the company process from idea to after sales is
required with inputs, outputs, roles and responsibilities required
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Case: Cielago cont.
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Results after 4 months:
– Altered roles of some key personnel to support interaction
between R&D, sales and the customers
– New productisation process and more rigorous specification and
analysis of new product features
– Head of R&D was appointed as the head of sales to ensure
proper communication and information flow
– Explicit and systematic process for analysing new product
features allowed informed decision-making
– A phased process for NPD had been introduced
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Case: Cheops
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Founded in 1996 with 100 employees of which 40 in PD,
40 in sales and marketing and 20 are divided in
management, customer support and IT support
Offers performance measurement and process
management tools for enhancing organisational
strategies, objectives and business process improvement
Customers are large public and private organisations
reached through direct sales and 100 retail partners
2/3 of revenue comes from partners. 70% comes from
licenses and 20% from maintenance contracts
Revenue 2001 was 12M€ and profit 3M€, PD costs were
15% of the revenue
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Case: Cheops cont.
Perceived problems
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The PD-process needs to be improved and scaled up
with more structure and control
Product focus in the future is unclear
Requirements management should be enhanced and
feature value to customers is sometimes unclear
Automated product testing is not adequately used
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Case: Cheops cont.
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Initial suggestions:
– Improve customer feedback mechanisms for product features
– Product management and understanding where the product is
going should be developed
– Enhance requirement allocation for features with specified work
amounts for each feature
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Feedback on suggestions:
– Overall positive
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Case: Cheops cont.
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Results after 5 months:
– Requirements prioritisation was improved and feature
requirements had become traceable
– Production team responsibilities had been renewed
– Some minor enhancements
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Refining the framework based on
theoretical and empirical findings
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The original framework remained mostly the same. Under
Organisation –decision area Outsourcing was added to
reflect the significance found in 2 cases
Portfolio management –decision area did not experience
any major changes, the naming was slightly altered to
better reflect the issues
The area of Requirements did not change as a result of
the empiria
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Refining the framework based on
theoretical and empirical findings cont.
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In the area of Development strategy there were
additions: Communication among team members,
interaction to the customer interface / own organisation
and concurrency of different development methods
Technology area was added with A common conceptual
view of the structure of the product and involving
stakeholders in making important design decisions
Quality strategy decision area was added with test timing,
reporting, documentation, quality metrics and test
planning
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Decision area
Contents
Organisation
(by whom, and
where?)
Organisational model, Roles and responsibilities,
Team staffing, Team physical arrangement and location,
Investments in team collaboration, Use of outsourcing
Portfolio management
(what and when?)
For each product;
Marketing (incl. Timing), Servicing (incl. deployment),
Sales and distribution, Revenue logic,
Release management;
Operational (management; release process and configur. Mgmt)
Strategic (planning; release contents, roles types and timing)
Requirements
(what and when,
specifically?)
Elicitation
Specification
Allocation
Change management
Development strategy
(how?)
Development model(s); for each: Type of dev. Process, Progress
tracking and control, Communication mechanisms (within,
customers, rest of org., Concurrency of development models
Technology (by
leveraging which
technologies
Product architecture (incl. Asset sharing, common conceptual view
and design) and employed technologies. Development
infrastructure
Quality strategy
(delivered with what
emphasis?)
Testing: types, timing, reporting, test documentation, quality
metrics, test planning
Risk management: Release criteria, release success evaluation
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Thank You!
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Questions are welcome 
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