1 Helsinki University of Technology Systems Analysis Laboratory Standardization Portfolio Management for a Global Telecom Company Ville Brummer Systems Analysis Laboratory Helsinki University of Technology P.O. Box 1100, FIN TKK Finland

Helsinki University of Technology Systems Analysis Laboratory Objectives n Support company’s standardization management by developing a portfolio model n Define concepts and mechanisms for target setting and business analysis –Create a framework for treating each activity as a measurable unit for business »Return on Investment (ROI) value »Uncertainties and risks »Balance with company’s strategies –Collect all activities as a part of one managed portfolio for decision making, analysis, discussion and consistent presentation n How should resources be allocated among standardization and development activities in order to maximize expected sales? n Additional questions –How efficient is the current allocation of resources between activities? »Expected sales »Risks –Is it possible to increase expected sales by shifting resources from standardization to development or vice versa, –What kind of activity resourcing changes would be warranted if more emphasis is placed on selected strategies (e.g. if 30% of resources are aligned with Strategy C) or sales channels (e.g. 20% of sales from channel 2)?

Helsinki University of Technology Systems Analysis Laboratory Standardization portfolio management Standardization activities - Enable sales increase - Uncertainties related to the standardization and development activities - Support strategic targets in different sales channels and time frames - Increase company’s IPR portfolio value B C F E A D Point estimates on - Costs - Probabilities - Sales increase - IPR - Strategic targets - Sales channels Evaluation Optimization - Standardization activities - Development activities Maximize expected sales increase A C F D B E Decision recommendations Increase funding Decrease (or end) funding Keep the present funding

Helsinki University of Technology Systems Analysis Laboratory Definitions n Activity –Unit of analysis –Activity is successful if company’s targets related to the activity are achieved »Only success or failure possible n Resources –Standardization resources –Develoment resources n Portfolio –Consists of activities where Standardization and Development resources are committed

Helsinki University of Technology Systems Analysis Laboratory Milestones of a standardization activity n Standardization success –Company’s standardization targets related to the activity are achieved –Depends on i)Standardization resources (R s ) n Development success –Development targets related to the activity are achieved –Enables sales increase –Depends on »Standardization success »Development resources (R d ) n Sales increase is estimated as value interval n Uncertainties are modelled through probabilities –p s = Probability of standardization success –p d = Probablity of dominant design concept success

Helsinki University of Technology Systems Analysis Laboratory Probabilities and resources Commit R s and R s resources Standardization successful? 0 ps(Rs )ps(Rs ) no Decision node Uncertainty node Value node 1- p s ( R s ) yes Sales Development successful? p d|s=1 ( R d ) 1-p d|s=1 ( R d ) yes no Sales p d|s=0 ( R d ) 1-p d|s=0 ( R d ) no No Sales

Helsinki University of Technology Systems Analysis Laboratory Probabilities and resources: Evaluations n Standardization and Dominant Design Concept success are evaluated at different levels n Probability of Development Success is evaluated conditional to both Standardization success and Standardization failure

Helsinki University of Technology Systems Analysis Laboratory Probability of Dominant Design Concept success Standardization resources Development resources Probability of Dominant design concept success Standardization resources Development resources Probability of Development success

Helsinki University of Technology Systems Analysis Laboratory Interactions among standardization activities n Activity A depends on activity B, if Standardization success and/or Standardization failure of B, essentially changes the probability of Standardization success of A. –Negative and positive correlations

Helsinki University of Technology Systems Analysis Laboratory The model n Objective function –Expected sales of the porfolio n Decision variables –Resource allocation of standardization and development resources for activities n Resource constraints –Available standardization and development resources n Other constraints

Helsinki University of Technology Systems Analysis Laboratory Portfolio balance requirements n Alignment with the company’s strategies –Resources can be allocated to support the diffent strategies n Sales distribution channels –Resources can be allocated so that certain percentage of total expected sales related to the standardization activities would come from the defined sales channels n Time distribution of future sales –Resources can be allocated so that certain percentage of total expected sales related to the standardization activities would be obtained within certain milestones

Helsinki University of Technology Systems Analysis Laboratory Portfolio indicators n Provide additional information on the portfolio –Reasons for sales increase characterizes how much sales increase will be achieced with diffent mechanisms –IPR value illustrates the IPR value of the portfolio –External necessity defines what “obligatory” activities are included the portfolio and what are not.

Helsinki University of Technology Systems Analysis Laboratory Analysis 1: Expected sales vs budgeting n Analysis on how the expected sales changes if total i) standardization or ii) development budget changes –x-axis: Budget –y-axis: Expected sales –In the analysis on the impact of standardization budget development budget is kept in the current level and vice versa n Pareto surface illustrates the portfolios that maximize the expected sales in certain rerource level –On each point in the surface, corresponding portfolio can be identified

Helsinki University of Technology Systems Analysis Laboratory Illustrative results: Pareto Surface Current resource allocations Optimal resource allocation that would enable current expected sales Optimal expected sales if current resources were allocated optimally

Helsinki University of Technology Systems Analysis Laboratory Illustrative results: Pareto surface Current resource allocation Optimal resource allocation that would enable current expected sales

Helsinki University of Technology Systems Analysis Laboratory Illustrative results: Decision recommendations

Helsinki University of Technology Systems Analysis Laboratory Illustrative results: decision recommendations

Helsinki University of Technology Systems Analysis Laboratory Analysis 2: Expected sales vs risk n Analysis on what expected sales can be achieved in different risk levels –x-axis: Risk –y-axis: Expected sales n Pareto surface illustrates the portfolios that maximize the expected sales in certain risk level –On each point in the surface, corresponding portfolio can be identified

Helsinki University of Technology Systems Analysis Laboratory Illustrative results: Pareto surface Pareto surfaces with different resource levels