Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Look up keyword
Like this
1Activity
0 of .
Results for:
No results containing your search query
P. 1
Market Entry Decisions: Numbers or Politics

Market Entry Decisions: Numbers or Politics

Ratings: (0)|Views: 65|Likes:
Published by hans3910
A release decision is a trade-off where, in theory, the objective is to maximize the economic value. Inputs into the release decision are expected cash inflows and outflows if the product is released. What is the market window? What are the ad-ditional pre-release development costs when continuing testing and the expected post-release maintenance costs when releasing now?
A release decision is a trade-off where, in theory, the objective is to maximize the economic value. Inputs into the release decision are expected cash inflows and outflows if the product is released. What is the market window? What are the ad-ditional pre-release development costs when continuing testing and the expected post-release maintenance costs when releasing now?

More info:

Published by: hans3910 on Mar 26, 2009
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

11/28/2010

pdf

text

original

 
Market Entry Decisions: Numbers or Politics?
Market Entry Decisions: Numbers or Politics?
 Hans Sassenburg 
SE-CURE AG (www.se-cure.ch), CH-3775 Lenk, Switzerlandhsassenburg@se-cure.ch
 Abstract:
 In unpredictable software manufacturer organizations, it is difficult to determinewhen a software product will be released, the features the product will have, theassociated development costs or the resulting product quality. The NPVI-method is presented, enabling a software manufacturer to compare and evaluate different re-lease or market entry strategies. However, information has its price in time and cost, forcing decision-makers to make a trade-off between search costs and oppor-tunity costs. In addition, decision-makers simplify the real world, as they cannot escape the diverse psychological forces that influence individual behaviour. Com-bined with the potential presence of sources of conflict, this often leads to the situa-tion where different stakeholders experience difference aspiration levels. As such, satisficing behaviour where decision-makers try to find consensus and choose a satisfactory release alternative is a good characterisation of the software releasedecision-making process as found in practice. Successful adoption of the NPVI-method requires that software manufacturers reach the zone of cost effectiveness for the perfection of information; a zone where numbers make business sense, and can be convincingly used to support informed decision-making.
 Keywords
Market entry strategies, software releasing, decision-making, satisficing behaviour 
1
 
Introduction
A relatively unexplored area in the field of software management is the release ormarket entry decision, deciding whether or not a software product can be trans-ferred from its development phase to operational use. As many software manufac-turers behave in an unpredictable manner [1] [12], they have difficulty in deter-mining the ‘right’ moment to release their software products. It is a trade-off be-tween an early release, to capture the benefits of an earlier market introduction,and the deferral of product release, to enhance functionality, or improve quality. Arelease decision is a trade-off where, in theory, the objective is to maximize theeconomic value. Inputs into the release decision are expected cash inflows andoutflows if the product is released. What is the market window? What are the ad-ditional pre-release development costs when continuing testing and the expectedpost-release maintenance costs when releasing now?IWSM/MetriKon 2006 1
 
 Hans Sassenburg 
2
 
Maximizing Behaviour
A market entry decision is a trade-off between early release to capture the benefitsof an earlier market introduction (a larger installed base), and the deferral of prod-uct release to enhance functionality, or improve quality. For many software manu-facturers, especially those operating in mass markets, this is the point of no return.At first sight, this trade-off seems not to be of any special nature, from a strictlyeconomic perspective. If a software product is released ‘too early’, a softwareproduct with less functionality and/or significant defects would be released to in-tended users and the software manufacturer incurs post-release costs of later fix-ing failures. If a software product is released ‘too late’, the additional developmentcost, and the opportunity cost, of missing a market window could be substantial.These two alternatives need to be compared, to determine which alternativemaximizes economic value (revenues minus costs). When the perspective of maximizing behaviour is assumed, the primary objective of a software manufac-turer is to maximize long-term expected value. In that case, it is needed to be ableto evaluate and compare different market entry strategies: which strategy willmaximize economic value?
 
Product life-cycle models, as for instance frequently used in the semiconductorindustry, can be used to demonstrate the effects on revenues of a delayed marketentry [5] [6] [13]. By extending these models with cost functions for pre-releasedevelopment costs and post-release operational costs the effects on profits can becalculated as well. Based on these profit models, a method was defined using theNPV capital budgeting method. Different alternatives can be evaluated by com-paring their NPV values. Erdogmus introduces a method for comparative evalua-tion of software development strategies based on NPV-calculations, used to com-pare custom-built systems and systems based on Commercial ‘Off the Shelf’(COTS) software [2]. Erdogmus distinguishes comparison metrics for variousvariables that influence the NPV of a project. This method was used as the basisfor the definition of a method to reflect market entry decisions for software-intensive systems. The resulting so-called NPVI-method expresses the differencebetween two alternatives in a single variable. This variable, called the Net PresentValue Incentive, is calculated from various underlying metrics, and measures theeconomic incentive to favour one alternative over another. The metrics are classi-fied into premium metrics at the lowest level, advantage metrics at the mediumlevel and incentive metrics at the highest level. See Figure 1.2 Software Measurement Conference
 
Market Entry Decisions: Numbers or Politics?
     D     T     A
   D  e  v  e   l  o  p  m  e  n   t   T   i  m  e   A   d  v  a  n   t  a  g  e   (
  =   l  o  g   T
   b
  -   l  o  g   T
  a
   )
     E     E     P
   E  a  r   l  y   E  n   t  r  y   P  r  e  m   i  u  m
     P     F     P
   P  r  o   d  u  c   t   F  u  n  c   t   i  o  n  a   l   i   t  y   P  r  e  m   i  u  m
     P     R     P
   P  r  o   d  u  c   t   R  e   l   i  a   b   i   l   i   t  y   P  r  e  m   i  u  m
AVA
Asset Value Advantage(
= log C 
- log C 
)
     S     M     P
   S   h  o  r   t  -   t  e  r  m    M  a   i  n   t  e  n  a  n  c  e   P  r  e  m   i  u  m
     L     M     P
   L  o  n  g  -   t  e  r  m    M  a   i  n   t  e  n  a  n  c  e   P  r  e  m   i  u  m
OCA
Operational Cost Advantage(
= log M 
- log M 
     D     C     A
   D  e  v  e   l  o  p  m  e  n   t   C  o  s   t   A   d  v  a  n   t  a  g  e   (
  =   l  o  g   I
   b
  -   l  o  g   I
  a
   )
NAVA
Net Asset Value Advantage
DCI
Development CostIncentive
PVI
Present Value Incentive
NPVI
Net Present Value Incentive
 
Figure 1. Breakdown of NPV Incentive to Lower-level Metrics.
This method allows the comparison of different alternatives during different pro- ject phases, including release alternatives. At the lowest level, two categories of premium metrics are distinguished:
 
 Asset value premiums
. Three variables influencing the asset value are con-sidered, namely early market entry (
 EEP 
), product functionality (
 PFP 
) andproduct reliability (
 PRP 
).
 
Operational cost premiums
. Two variables influencing the operational costare considered, namely the short-term costs for corrective maintenance(
SMP 
) and the long-term costs for adaptive/perfective maintenance (
 LMP 
).The Asset Value Advantage
 AVA
is equal to the expected increase in future cashinflows (difference between the two alternatives
a
and
b
) and is the contributionof the Early Entry Premium
 EEP 
, the Product Functionality Premium
 PFP 
and theProduct Reliability Premium
 PRP 
:
 AVA = log
a
– log C 
b
 = log [
b
+ C 
b
. (EEP + PFP + PRP) ] – log C 
b
= log ( 1 + EEP + PFP + PRP ) (1)
IWSM/MetriKon 2006 3

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->