IBM SoftwareRational

Four steps to creatingproduct valueCreating smarter products with portfolio, product, projectand performance management

2 Four steps to creating product value

Creating value by delivering resultsThe smartest products delivered in the most efficient ways candrive value for your business. Value for your investors. Value formanagement. And, perhaps most important, the right productdelivered at the right time can create value for your customers.Consistently delivering value will make your customers want tostand by you, help you strengthen your hold on the marketplaceand create strong returns for your business.

On the other hand, the wrong product—or even the right prod-uct delivered at the wrong time—can limit your success and costyou customers. Poor product delivery can lead to a loss of repu-tation and market share and can increase your customer servicecosts. Financially squeezed customers have no time for secondbest—in either quality or utility—so you have to know that whatyou are delivering is right. Efficiency in product delivery canincrease the odds in your favor. Now more than ever, deliveringvalue to your customers when they want it is an important pathto success.

The potential to drive value by creating new, innovative products is substantial. According to a report from The BostonConsulting Group, “Globally, on an annualized basis, innovatorsoutperformed their peers by a whopping 12.4 percentage points[in total shareholder return] over three years and by a moremodest but still significant 2 percentage points per year over tenyears.”1 Innovation today is defined by how smart you can makeyour products—how interconnected they make people feel andhow integrated they are with other products and services.Mobile devices, for example, connect users to their banks, theirmusic, their calendars and more.

The process of innovating, however, is not easy. Internally, youneed to ensure that your product aligns with your target marketsegments, technology strategies, growth objectives and corecompetencies. Externally, you need to deliver not just what thecustomer needs but also the most compelling and competitivevalue proposition in your products. You must be able to deliver a business plan that builds stakeholder confidence in an investment-constrained environment.

Traditionally this means dealing with seemingly conflictinginformation: many different internal and external stakeholders,many different factors to balance, and numerous perspectives onthe best direction to follow. Being able to capture subjectiveinput into an objective decision-making process can help ensurethat you don’t only hear the loudest voice in the room and thatyou arrive at decisions you can confidently act on. Getting a bal-anced view of competing priorities that takes into considerationthe input of internal stakeholders and the voice of the customercan help ensure that plans are delivered according to objectives.

There are four key, sequential steps to address this challenge:

1. Portfolio management2. Product management3. Project management4. Performance management

IBM Software 3

Product, project, portfolio and performance management solutions from IBM

Portfolio management

Making the right investments

Align portfolio investments with

business priorities

Project management

Doing things right

Manage and optimize project execution

Performance management

Measure performance against business

objectives

Measure team performance and

project results

Best practice processes and guidance

Rational software and systems delivery platform powered by

Product management

Improve predictability of product success

The right market segment, the right

time, the right scope

Figure 1: Portfolio, product, project and performance management flow together.

Aligning portfolio investments to addressbusiness prioritiesPortfolio management is the first step in aligning your strategieswith the overall objectives of the business. It helps ensure thatyour focus is on building and maintaining products for marketsegments that are going to deliver the best returns for your busi-ness. Effective portfolio management identifies opportunities notonly for launching new products and opening up new marketsegments but also for eliminating existing, nonstrategic segmentsand discontinuing underperforming products.

The top priorities for product portfolio strategies include evalu-ating alignment with business objectives, performing competitiveanalysis, determining the size and attractiveness of market seg-ments, understanding technical feasibility and associated risk,and assessing return on investment (ROI). The inputs that driveportfolio strategies come from a variety of sources in a multitudeof formats. Successful portfolio management consolidates theseinputs from across the value chain. It captures internal stake-holder needs that define scope and objectives. It identifies themarketplace needs that will return value to the business.Capturing this information in one place can help ensure that all inputs are given due consideration and the best ideas become reality.

4 Four steps to creating product value

Even with all of the inputs in one place, the information canseem somewhat subjective, and competing priorities can pushgroups in your organization in different directions. Establishingclear criteria to evaluate these inputs is important. Again, under-standing the relative importance of all the criteria is critical forsuccess. Evaluating inputs from various sources against thedefined criteria can reduce the subjectivity of decision making.

Because you can demonstrate that your investment decision isbased on objective analysis that includes a wide range of inputsand scenarios, you can help ensure internal buy-in and consistentexecution across all levels in the organization. Every investmentdecision carries a certain amount of execution risk that can be

understood by quantifying variables in the portfolio process,allowing appropriate mitigation actions. Good portfolio manage-ment sets a decision-making framework that is consistently fol-lowed across the organization.

Portfolios should organize product priorities around value.Using prioritization tools to identify and prioritize investmentsby the value they deliver can also provide the ability to quicklyadjust to changing marketplace and business needs. Sometimes,the hardest decision is not figuring out the best investments butdetermining which products to scrap and which product variantsto discontinue. Once this strategic alignment is in place, you canbetter define the products that will deliver your success.

Define successcriteria

Collect information

Define investmentmodel

Analyze investment outcomes

• ROI calculation

• Competitive assessment

• Marketplace assessment

• Technical risk

• Commercial risk

Market segment(size, growth, etc.)

Competitive analysis

Fit (with core competencies, tech. skills, etc.)

Alignment withbusiness strategy

Extent of differentiation

Projections of revenue

• Objective criteria

• Subjective criteria

• Criteria that need to be maximized

• Criteria that need to be minimized

• Decision-making framework

• Relative weighting

• Simulation Investmentdecision

GO/KILL

Portfolio management process

Figure 2: The portfolio management process collects and evaluates relevant information to reach investment decisions.

5IBM Software

Improving product management to drivethe predictability of product successWhereas portfolio management requires balancing the prioritiesof the marketplace with the priorities of the business, productmanagement serves an interdisciplinary role providing a conduitbetween business and engineering. The objective of productmanagement is to ensure that customer preferences and businessobjectives are accurately reflected in the product that is devel-oped. Product management helps you deliver the right designbased on the market segment and timing identified by the portfolio management process. Organizations must reassessinvestments and resource requirements continually during devel-opment to help ensure that the products are still on target toaddress marketplace needs.

To develop smarter products, organizations first need to under-stand customer expectations. Organizations need to cultivate avalue-based approach to developing and prioritizing product fea-tures that are accurately aligned with customer needs. Failure todo so may cause the addition of costly features that aren’t sup-ported by your core competencies or business objectives. Themore robust your product management process, the greater yourability to efficiently tailor your product designs to address changing marketplace needs.

Making the right decisions on product features is never easy.Inputs from the marketplace are often difficult to gauge. Forexample, if you ask your customers what features they value, theanswers will likely be very subjective. By using a technique suchas pairwise comparison, transforming this subjective data intoactionable objective information is possible. This informationhas to be evaluated against constraints such as required cost andtime to incorporate the feature. Once you have a complete viewof the information, a more accurate cost–benefit analysis is

possible. A robust product management process allows you tovary the relative importance of each of the factors—such as cus-tomer preference, cost and time—and simulate the effect on thenet value to the customer. By doing this, you will be able to rankcorrectly the features that add the most value to the customer.

All product design involves compromise between different stake-holder needs. The more you organize work around customerneeds, with the ability to perform cost–benefit and trade-offanalysis to make informed investment decisions, the better youwill be able to make the best compromises and deliver productswith features that provide the most value to the customer.

Optimizing project execution to createproduct flexibilityThe best laid plans can go awry when organizations forget toapply the same principles to their project execution as they applyin their strategic processes. Inasmuch as product managementdefines the right product, effective project management priori-tizes work around value. Planning and scheduling tasks, allocat-ing resources, and tracking and reporting progress are all vital toefficient and predictable product delivery. Project managementmust be a dynamic, collaborative activity that is linked to stakeholders and workflow.

To improve execution, integrating project and product manage-ment through a unified, collaborative environment can helpreduce delays and mistakes. For example, as product require-ments change, project managers can be notified practicallyimmediately, and they can analyze the effect of those changes ontimelines and deliverables. Similarly, product managers can usethis information to perform release planning. Automating andintegrating project management with workflow tools can helpensure that work is organized with roles, responsibilities, activities and deliverables clearly identified.

6 Four steps to creating product value

Delivering value to your customers is a team effort. Improvingvisibility in your product delivery process by communicatingplans, progress and results can build enduring confidence in thecommunity of internal stakeholders. Project management canprovide a high-level structure into which best practices can befitted across the enterprise to deliver products with consistency

and predictability. Helping the organization continually managecost, scope, benefits and risks can lead to the efficient redeploy-ment of resources in the face of changing business conditions.Improved teamwork can lead to lower development costs andfaster time to market.

Define successcriteria

Collect information

Define analysismodel

Analyze feature outcomes

• Value to customer

• Cost to build

• Technical risk

• Impact on schedule

• Impact on margins

Requests for features and enhancements

Market data

Voice of the customer

Effect of features on sales effectiveness

New technology requirements

Problem tickets

Analyst expectations

Competitive analysis

• Objective criteria

• Subjective criteria

• Criteria that need to be maximized

• Criteria that need to be minimized

• Relative weighting

• Simulation

• Release planningFeature prioritization

Product management process

Figure 3: Decision-making process for product management

7IBM Software

Measuring performance and results toimprove the project processWith increased pressure to do more with less, organizationsneed to identify ways to improve project efficiency. By focusingon performance management, organizations can create a culture that understands the value of ongoing improvement.Performance analysis can also give you the ability to forecast andpredict problems before they occur.

Successful performance management delivers accurate andactionable information to the right stakeholders at the righttime. It helps you tune your project management to improve itseffectiveness and can also be used to improve your businessprocesses.

Performance management relies on consolidating and analyzingmultiple data sources to create actionable information. Becausethis information is often scattered across your organization,automating the collection and analysis of performance data canreduce workloads associated with data gathering and formatting,improve consistency, and help identify problem areas sooner. Ina dynamic process, identifying problems faster can help speeddelivery, reduce costs and improve quality. Being able to under-stand the root of the problem in relation to your businessprocesses can help you identify opportunities to improve those processes.

As you look to make decisions around allocating or reallocatingresources, different stakeholders may need different views of per-formance information, or they may need information deliveredat different time intervals. Performance management tools canautomate the process to provide updates to stakeholders whenand how they need them, providing a single source of accurateproject information that enables them to make confident decisions.

Using IBM Rational solutions to drivevalue-based decisionsPortfolio, product, project and performance management solu-tions from IBM transform the way organizations define anddeliver value through products. They help teams align productinvestments with business objectives, improve predictability andproduct success, manage and optimize project execution, andmeasure team performance and project results.

IBM Rational® Focal Point™ software helps you objectivelyevaluate investment scenarios to align product and project portfolio decisions with overall business value. It provides collab-orative decision-support capabilities to efficiently aggregate andanalyze inputs from stakeholders across the enterprise.

IBM Rational Team Concert™ software is a collaborativedevelopment environment providing agile planning, source codemanagement, work item management, build management andproject health monitoring along with integrated reporting andprocess support. It is designed to connect dispersed developmentteams to increase individual and team productivity, compressdevelopment cycles, and rapidly deliver high-quality software. Itprovides a collaborative project and resource management solu-tion designed to improve project delivery while helping teamsadapt to continual change through an integrated approach tolife-cycle execution.

IBM Rational Insight software is an automated performancemeasurement and management solution that helps you improveproject and process performance with objective dashboards customizable to the needs of different stakeholders to providetransparency and analysis of risks, status and trends.

Please Recycle

We use smart phones. We drive smart cars. Our doctors prescribe smart drugs. Our energy is provided on a smart grid.Practically no industry is immune to the effects of this wave oftechnological innovation. The speed of change is creatingfiercely competitive market segments where the need for align-ment of business objectives with marketplace and customerneeds has probably never been greater.

As the Aberdeen Group pointed out in a report on innovation,“The Best-in-Class enjoy much greater profitability with 25 percent more of their revenue coming from new products. …The Best-in-Class have enjoyed a profit margin increase 2.9-times that of the Industry Average, clearly indicating they aremaking better decisions about their product portfolio as a wholethat is leading to greater success. … Finally, the Best-in-Class arealso better at assessing value as their products are 44 percentmore likely than the Industry Average to bring in expected revenues.”2

Although a complex, multifaceted issue, achieving best-in-classresults can be broken down into key challenges that can beaddressed through formalized processes—portfolio, product,project and performance management. IBM Rational solutionscan help you with best practice offerings that can improve yourprocesses and help ensure product strategies that address busi-ness objectives in an efficient, cost-effective way designed toreduce risk.

For more informationTo learn more about how you can use IBM Rational solutions tobetter manage your portfolio, products, projects and perform-ance, contact your IBM sales representative or IBM BusinessPartner, or visit: ibm.com/software/rational/ppm

Additionally, financing solutions from IBM Global Financingcan enable effective cash management, protection from technol-ogy obsolescence, improved total cost of ownership and returnon investment. Also, our Global Asset Recovery Services helpaddress environmental concerns with new, more energy-efficientsolutions. For more information on IBM Global Financing, visit: ibm.com/financing

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The information contained in this documentation is provided forinformational purposes only. While efforts were made to verify thecompleteness and accuracy of the information contained in thisdocumentation, it is provided “as is” without warranty of any kind, express orimplied. In addition, this information is based on IBM’s current productplans 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, orotherwise related to, this documentation or any other documentation.Nothing contained in this documentation is intended to, nor shall have theeffect of, creating any warranties or representations from IBM (or itssuppliers or licensors), or altering the terms and conditions of the applicablelicense agreement governing the use of IBM software.

1 The Boston Consulting Group, Innovation 2010, April 2010,http://www.bcg.com/documents/file42620.pdf

2 Aberdeen Group, Managing the Innovation Portfolio, Michelle Boucher,August 2009, http://www.aberdeen.com/Aberdeen-Library/6097/

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