In Search of Best Practice
Enduring Ideas in Strategy & Innovation
International Forum on COCOMO
and Systems/Software Cost Modeling
November 5, 2009
Based on the 2009 13th Annual Clarendon Lectures
in Management Studies, University of Oxford
Michael A. Cusumano
© 2009
MIT Sloan School of Management
cusumano@mit.edu
1
Oxford Clarendon Lectures
• Task? Write a synthesis of my career research
– Focus: Attempt to understand “best practices”
– Context: Strategy, operations, & technology or
innovation management in the auto, consumer
electronics, software/internet sectors
– Methodology: Reflection on 25+ years of research,
mostly inductive cases, some large sample studies
– Lectures Theme: Simple but potential “enduring ideas”
• Inspiration?
– Some popular books attempting the same, but mostly
Theodore White, In Search of History (1978)
2
1985
1991
1995
1998
1998
2002
2002
2004
In
Search
of Best
Practice
2010
3
“Best Practice” in Management?
• Lots of popular books & academic research,
though mostly case studies, small samples, or limited analysis
• Hard to generalize; what works in one firm, time period,
industry or nation may not transfer
• Partially a problem of knowledge (what do we really
know) as well as context (“controls” & management issues)
–
–
–
–
–
–
Imitation (best to common to non-differentiating practices)
Industry or technology lifecycle (new, mature, disruptive)
Type of technology or innovation (product, process, service)
Industry (industry structure, business or firm differences)
Institution or environment (country, government)
Luck or population ecology (timing, survival bias?)
4
For Example: Japan vs. US/West
• US and Europe once center of best practices
– Japan in 1950s and 1960s: cheap, low-quality goods, but
fastest growing economy
• Japan later overtook the West in some areas
– “Best practices” in manufacturing, quality, HR, product
development, industrial policy
• Since 1990, many Japanese “strengths” turned
into “weaknesses”
– Beyond company practices to government policies and social
or cultural characteristics
5
Tom Peters & Robert Waterman,
In Search of Excellence (1982)
• Of 62 of McKinsey’s best clients, focused on top 43
• Key success factors: (1) action bias, (2) close to customer,
(3) entrepreneurship spirit, (4) people focus, (5) hands-on
management, (6) focus on what firm is good at, (7) lean staffing,
(8) tight centralized values with decentralization
• Hard to disagree with these qualities, but …
• No statistical or historical analysis; can’t tell which factor
impacts what, or what is “enduring”
• Many “excellent” firms later struggled or failed
– Atari, Data General, Delta Airlines, DEC, IBM,
6
Kodak, NCR, Wang, Xerox
Jim Collins,
From Good to Great (2001)
• Analyzed 1500 companies to find best performers in
stock market value; focused on top 11
• Key success factors: (1) Internal CEOs, (2) focus on talent,
(3) focus on internal strengths, (4) fact-based performance goals,
(5) disciplined commitment culture, (6) reinforcing use of
technology, (7) momentum built from early successes
• Again, hard to disagree with these qualities, but…
• Again, no analysis of what effects what or how other
firms with similar characteristics performed
• Again, trouble, takeovers, or bankruptcy…
• Abbot, Circuit City, Fannie Mae, Gillette, Wallgreens
7
General Observations
• Some practices seem more enduring than others
– Though unpredictable catastrophes (“black swans”)
can disrupt any market and any firm
• What is lasting “best practice” surely DEPENDS
– E.g., in manufacturing Ford (Model T) “best” until
surpassed by GM (variety) and then by Toyota (JIT)
– E.g., in various areas, “Japan, Inc.” in 1980s “best”
while economy growing & competition limited
• Need to state qualifying “conditions” or context
– But, for managers, specific practices moderated by
formal “contingency frameworks” get complex fast
8
My Six “Enduring” Ideas
Not original to me, but underlie my work & have
decades of empirical & theoretical research behind them
1.
2.
3.
4.
5.
6.
Capabilities, Not Just Strategy
Pull, Don’t Just Push
Scope, Not Just Scale
Flexibility, Not Just Efficiency
Platforms, Not Just Products
Services, Not Just Products (or Platforms)
9
Enduring Ideas & Competitive Advantage
Flexibility
Pull
Platforms
Services
Capabilities and Economies of Scope
New Way of Thinking About
New Way of Thinking About
FIRM
AGILITY
ECOSYSTEM
STRATEGY
How anticipate emerging customer
needs or market change, and lead or
adapt quickly ,flexibly – and effectively
How move to new capabilities within
an industry ecosystem, and influence
markets & adapt to commoditization
1. Capabilities, Not Just Strategy
• Focus not simply on formulating strategy or a vision of
the future (i.e., deciding what to do) but equally on
building distinctive organizational capabilities and
operational skills (i.e., how to do things) that rise above
common practice (i.e., what most firms do).
• Distinctive capabilities center on people, processes, and
accumulated knowledge. Reflect a deep understanding
of the business and the technology and enable the firm
to offer superior products and services as well as exploit
foreseen and unforeseen opportunities for innovation.
11
“Capabilities” Intellectual History
Unique/Distinctive “Resources” (sometimes “Capabilities”)
Penrose (1959); Chandler (1962); Richardson (1972), Wernerfeldt (1984); Barney
(1991); Grant (1991); Peteraf (1993), etc.
Incremental Strategy & Domain Knowledge
Bower (1970); Quinn (1980); Hayes and Abernathy (1980); Pascale (1984);
Mintzberg (1987, 1994); Hamel and C.K. Pralahad (1989, 1990); Brown and
Eisenhardt (1998); Burgelman (2001), etc.
How Much Does Industry (vs. Management) Matter?
Porter (1980); Schmalensee (1985); Rumelt (1991); McGahan and Porter (1997)
“Dynamic” Capabilities & Apsorptive Capacity
Leonard-Barton (1992); D’Aveni (1994); Teece, Pisano & Shuen (1997); Markides
(1999); Eisenhardt & Martin (2000); Teece (2009). Cohen & Levinthal (1990) 12
My Examples
• Strategy and capabilities development at Toyota
(“indirect tech transfer”) vs. Nissan (“direct”),laying
foundation for Toyota’s revolutionary process
innovations (M. Cusumano, The Japanese Automobile Industry, 1985)
• Strategy and capabilities development at JVC and Sony,
leading to mass-production and design skills used to
create the home VCR (R. Rosenbloom and M. Cusumano,
“Technological Pioneering and Competitive Advantage: The Birth of the VCR
Industry,” California Management Review, 1987)
• Strategy and capabilities at Microsoft unique to PC
software (M. Cusumano & R. Selby, Microsoft Secrets, 1995)
13
Lessons for Managers (Idea 1)
• Essential to couple strategy with distinctive
capabilities to implement and evolve that
strategy as needed.
• Unique benefits to have people at hand who
have the knowledge, skills, and creativity to
produce the product and process innovations –
planned or unplanned – that truly differentiate
firms over the long run.
14
2. Pull, Don’t Just Push
• Emphasize a “pull-style” of management that reverses
the sequential processes & information flow common in
many firms for manufacturing as well as product
development, service design and delivery, and other
operations and activities.
• Link each step in key processes backward from the
market to respond in real-time to changes in demand,
customer preferences, competitive conditions, or
internal operational difficulties. Continuous feedback &
adjustment also facilitate rapid learning, elimination of
waste, and incremental product & process innovations.
15
“Pull” Intellectual History
Push vs. Pull in Marketing, Scientific Invention, Supply Chain
(Dodgson, Gann, & Salter (2005); von Hippel (various)
Toyota & “Lean” Production – Early: Managerial
Sugimori et al. (1977), Ono (1978), Monden (1981 and 1983), Schonberger
(1982), Hall (1983), Cusumano (1985), Krafcik (1988), Womack, Jones, and
Roos (1990), Oliver & Wilkinson (1992), etc.
Toyota & “Lean” Production – Later: Theory, Analysis
Lee (1989), Fujimoto (1999) , Holweg and Pil (2004), Holweg (2007), etc.
Iterative Product Development – Software & Other
Basili & Turner (1975), Boehm (1988), Aoyama (1993), Ulrich & Eppinger
(1994); MacCormack & Verganti (1999) , Kelley (2004), Thomke (2004)
16
My Examples
• Toyota Just-in-Time (Kanban/Lean) production system
(which uses half the workers of conventional
manufacturing &minimal inventory, with higher
productivity , quality and short-cycle learning dynamics)
(M. Cusumano, The Japanese Automobile Industry, 1985)
• “Iterative” or prototype-driven software development
such as at Microsoft, Netscape, et al., compared to plandriven sequential or “waterfall” processes for product
development (M. Cusumano and R. Selby, Microsoft Secrets, 1995; M.
Cusumano and D. Yoffie, Competing on Internet Time, 1998)
17
Lessons for Managers (Idea 2)
• The pull concept is a fundamental philosophy of
management, emphasizing real-time information
and continuous improvement.
– Pull versus push in everything from strategic
decision making to planning and operations
management.
• Managers can set the pace of feedback &
adjustment with mechanisms that set the
“heartbeat” of the processes: kanban exchange
or the (daily) build cycle.
18
Process
ProcessSpectrum
Spectrum
Early/Often
High
XP
Rapid
Prototyping
User Feedback
During Project
Agile or
Iterative
Methods
Uncertainty in
Requirements
Late/Occasional
Low

Traditional Waterfall,
Approaches
1

Incremental
Number of Cycles or Releases
Many
Source: Adapted from Bill Crandall (formerly of Hewlett-Packard)
19
20
Synch & Stabilize Process Flow
Synchronize-&-Stabilize
Product Vision/Architecture Design
Functional Specification 
Milestone 1




Milestone 2




Milestone 3
Iterative Design
Code
Usability test
Test
Daily builds
Test
Redesign
Debug
Integrate
Stabilize
Iterative Design
Code
Usability test
Test
Daily builds
Test
Redesign
Debug
Integrate
Stabilize
Iterative Design
Code
Usability test
Test
Daily builds
Test
Redesign
Debug
Integrate
Stabilize
Buffer time
Alpha release
Buffer time
Beta release
Buffer time
Feature complete
Beta release
Visual freeze
CODE COMPLETE
Final test
Final debug
Stabilize
Final release
21
Toyota “Lean” Production
Microsoft “Agile” Development
Manual demand-pull with kanban cards Daily builds with evolving features
JIT “small lot” production
Development by small-scale features
Minimal in-process inventories
Short cycles and milestone intervals
Geographic concentration – production
Geographic concentration -development
Production leveling
Scheduling by features & milestones
Rapid setup
Automated build tools & quick tests
Machine/ line rationalization
Focus on small, multifunctional teams
Work standardization
Design, coding, and testing standards
Foolproof automation devices
Builds &continuous integration testing
Multi-skilled workers
Overlapping responsibilities
Selective use of automation
CA tools but no code generators
Continuous improvement
Postmortems, process evolution
22
3. Scope, Not Just Scale
• Seek efficiencies even in activities not suited to scale
economies, such as research, engineering, and product
development as well as services. Usually see scope as
corporate strategy: synergies across lines of business.
But potentially more practical & valuable are scope
economies within the same line of business.
• Require systematic ways to share product inputs,
intermediate components, or other key elements of
product, process, or customer knowledge across diverse
groups and projects. Scope economies also eliminate
redundant activities and are an important source of
23
competitive differentiation.
“Scope” Intellectual History
Economies of Scope Definitions & Theory
Teece (1980), Panzar & R. Willig (1981), Helfat & Eisenhardt (2004)
Corporate Diversification (across lines of business)
Chandler (1962), Rumelt (1974), Bettis (1981), Ravenscraft & Scherer (1987),
Ramanujan & Varadarajan (1989)
Limits vs. Benefits of Scale in Manufacturing
Abernathy & Wayne (1974), Abernathy (1978), Hounschell (1985)
Scope Examples (within a line of business, across activities)
Leggette & Killingsworth (1983), Matsumoto (1984), Chandler (1990), Henderson
& Cockburn (1996), Hansen, Nohria & Tierney (1999), Hallowell (1999).
Hansen et al. (1999), Christensen, Grossman & Hwang (2008)
24
My Examples
• Software factories, from US to Japan to India, for
building custom applications and standardized products
(M. Cusumano, Japan’s Software Factories, 1991; M. Cusumano, The Business
of Software (2004); M. Cusumano et al., “Software Development Worldwide:
The State of the Practice,” IEEE Software, 2003)
• Multi-project management and concurrent technology
transfer in product development, at Toyota et al., to
balance project management with technology reuse
through in-house platforms and knowledge management
(M. Cusumano and K. Nobeoka, Thinking Beyond Lean, 1998)
25
Lessons for Managers (3)
• Economies of scope potentially as valuable to
efficiency as traditional economies of scale, and
probably more important to firm-level
differentiation – precisely because this is
difficult to achieve!
• Managers also must be smart enough to balance
or eliminate the potential tradeoffs – e.g., with
efficiency & quality
26
4. Flexibility, Not Just Efficiency
• Place as much emphasis on flexibility as on efficiency in
manufacturing, product development, and other
operations as well as in strategy and decision making.
Firms need to adapt to change in market demand,
competition, and technology, and exploit opportunities
for innovation and new business development.
• Moreover, rather than always requiring tradeoffs,
flexible systems and processes can actually reinforce or
facilitate efficiency and quality, as well as encourage
innovation.
27
“Flexibility” Intellectual History
Organizations, Environments & Strategy
Lawrence & Lorsch (1967); Aaker & Mascarenhas (1984), Harrigan (1984).
D’Aveni (1994); Tushman & O'Reilly (1996); Volberda (1996, 1999); Brown &
Eisenhardt (1997, 1998), Gemawhat & Sol (1998), Birkinshaw & Hagstrom
(2002), etc.
Manufacturing – Flexibility-Efficiency-Quality Tradeoffs
Skinner (1974) , Jaikumar (1986), Krafcik (1988), Garvin (1988), Sethi & Sethi
(1990), Pine (1992), Gerwin (1993), Upton (1994), Adler et. al. (1999), Pagell &
Krause (2004), etc.
Product Development – Autos & Software Examples
Womack et al. (1990), Clark & Fujimoto (1991), Sanchez (1995), MacDuffie et al.
(1996), Sobek et al. (1998), Adler (2005), etc., as well as the “iterative”
literature discussed under “Pull” idea
28
My Examples
• Manufacturing : Printed-circuit boards study, with some
exploration of Toyota concepts (F. Suarez, M. Cusumano, and C.
Fine, “An Empirical Study of Manufacturing Flexibility in Printed-Circuit Board
Assembly,” Operations Research, 1996)
• Product development: Scaling up flexibility of small,
“autonomous teams” for larger projects (M. Cusumano, “How
Microsoft Makes Large Teams Work Like Small Teams, MIT Sloan Management
Review, 1997; A. MacCormack, M. Cusumano, C. Kemerer, and B. Crandall,
“Trade-offs between Productivity and Quality in Selecting Software
Development Practices,” IEEE Software, 2003; M. Cusumano, The Business of
Software, 2004)
• Strategy and entrepreneurship – Netscape (vs. Microsoft)
(M. Cusumano and D. Yoffie, Competing on Internet Time,1998)
29
Lessons for Managers (Idea 4)
• Flexibility comes in different forms and these
can be powerful strategic levers
• Rather than worrying about tradeoffs with
efficiency or quality, use flexible processes and
structures to enhance organizational
effectiveness when dealing with change – in
strategy, customer needs, manufacturing,
product development, technology disruptions,
and unforeseen opportunities for innovation
30
5. Platforms, Not Just Products
• (At least, for firms affected by digital technologies as
well as “network effects”) should move beyond
conventional thinking about strategy and capabilities
to compete on the basis of platforms, or complements.
• A platform strategy differs from a product strategy in
that it requires an external ecosystem to generate
complementary innovations and build “positive
feedback” between the complements and the platform.
The effect is much greater potential for growth and
innovation than a single firm can generate alone.
31
“Platform” Intellectual History
In-House Product Platforms & Product Modularity
Meyer & Utterback (1993), Ulrich (1995), Sanchez & Mahoney (1996), Meyer &
Lehnerd (1997), Baldwin & Clark (1999), etc.
Standards & Dominant Designs to Network Effects
Utterback & Abernathy (1975), David (1985), Farrel & Saloner (1986), Arthur
(1989), Katz & Shapiro (1992), Shapiro & Varian (1998), Bresnahan &
Greenstein (1999), etc.
Multi-Sided Markets (Industry Platform + Complementors)
Parker & Van Alstyne (2005), Eisenmann (2006), Evans, Hagiu & Schmalensee
(2006), Eisenmann, Parker &Van Alstyne (2006), Yoffie & Kwak (2006), Adner
(2006), etc.
32
My Examples
• Platform leadership, based on Intel case study and
comparisons, especially to Microsoft (A. Gawer and M.
Cusumano, Platform Leadership, 2002)
• Product vs. platform strategy (Sony and Apple vs. JVC
and Microsoft) and how to turn a product into a platform
(Google, Qualcomm, et al.) (M. Cusumano, Y. Mylonadis, and R.
Rosenbloom, “Strategic Maneuvering and Mass-Market Dynamics: Triumph of
VHS Over Beta,” Business History Review, 1992; M. Cusumano, “The Puzzle of
Apple,” Communications of the ACM, 2008; A. Gawer and M. Cusumano, “How
Companies Become Platform Leaders,” MIT Sloan Management Review, 2008)
33
Lessons for Managers (Idea 5)
• Enormous differences between a product versus
platform strategy – with equally enormous
economic consequences for users and entire
industry ecosystem
– Four Levers: Scope of the firm, Product technology,
External relationships, Internal organization
• Even if multiple platforms persist, platform
thinking useful for in-house product
development as well as strategic marketing
34
6. Services, Not Just Products
• (Product firms, or services firms that offer standardized
services treated as products) should use service
capabilities and innovations to sell, enhance, and even
“de-commoditize” product offerings or standardized
services as well as create new sources of revenues and
profits, such as an ongoing maintenance stream.
• The goals should be to find the right revenue balance
and then “servitize” products to create new valueadded opportunities and “productize” services to
deliver them more efficiently and flexibly, using
information technology & service automation.
35
“Services” Intellectual History
Definitions of Services versus Products
Judd (1964). Rathmell (1966), Bell (1973), Levitt (1972, 1976)
Theories of Service Innovation
Barras (1986), Thomke (2003), Mansharamani (2007)
Services/Servitization Strategies & Economic Value
Teece (1986), Potts (1988), Bowen et al. (1991), Quinn (1992), Knecht et al. (1993),
Gadiesh and Gilbert (1998), Nambisan (2001), Oliva & Kallenberg (2003), Slack
(2005), Neely (2009)
Computers and Software Industry Example
Campbell-Kelly and Aspray (1996), Gerstner (2002), Campbell-Kelly (2004),
Cusumano (2004), Campbell-Kelly and Garcia-Schwartz (2007)
36
My Examples
• Rise of services among software product and
computer hardware/systems firms (M. Cusumano, The
Software Business, 2004, and “The Changing Software Business: From Products
to Services,” IEEE Computer, 2008; F. Suarez, M. Cusumano, and S. Kahl,
“Services and the Business Models of Product Firms: An Empirical Analysis of
the Software Industry,” WP 2008)
• How services and services innovation help product
firms and platform leadership (M. Cusumano, F. Suarez, S.
Kahl, “A Theory of Services in Product Firms,” WP 2008; F. Suarez and M.
Cusumano, “The Role of Services in Platform Markets,” forthcoming in A.
Gawer, ed., Platforms, Markets, and Innovation, 2009)
37
Software Products Business:
Extreme Example of Innovation & Commoditization?
• Massive Industry Consolidation!!
– The data are clear
• Decline of Enterprise Sales (or Prices?)
– Only exceptions are hits & “platform” products?
• Growth of Services & Maintenance Revenues
– Freeware/open source driving prices to zero?
– Customers rebel against costly products?
• Emergence of New Business & Pricing Models
 Software as a Service/Cloud Computing – cheaper products,
bundled support/maintenance (Salesforce, Amazon)
 Free, But Not Free, Again – supported by advertising (e.g., Google)
or services (Red Hat), or multi-sided market (Microsoft & Adobe, Facebook
38
et al.)
Public Software Product Firms
Listed on US Stock Exchanges (SIC 7372)
0
50
100 150 200 250 300 350 400
Number of Firms in the Industry - All Sample
1990
1992
1994
1996
1998
fyadj
2000
2002
2004
2006
39
Public IT Services Firms
Listed on US Stock Exchanges
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
100
200
300
400
500
Number of Public IT Service Firms (1990 - 2006)
Year
(SIC codes 7370, 7371, 7373 for computer services, and mgt consulting IT services 8742)
40
20
20
20
20
20
19
19
19
19
19
04
03
02
01
00
99
98
97
96
95
% of Total Revenues
2
2
2
2
2
1
1
1
1
1
00
00
00
00
00
99
99
99
99
99
4
3
2
1
0
9
8
7
6
5
$ million
Sie be l
1200
1000
800
600
NewProd
400
ServMain
200
0
Siebel
100
90
80
70
60
50
40
30
20
10
0
NewProd
ServMain
41
20
05
20
04
20
03
20
02
20
01
20
00
19
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
% of Total Revenues
2006
2004
2002
2000
1998
1996
1994
1992
$ million
Or acle
12000
10000
8000
6000
4000
2000
0
New Prod
ServMain
Oracle
70
60
50
40
NewProd
30
ServMain
20
10
0
42
Service Revenue %, Select Hardware Firms
70%
60%
50%
IBM
% Sales
HP
40%
Sun Microsystems
EMC
30%
Cisco
Dell
20%
10%
0%
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Calendar Year
40
43
90
80
70
60
50
40
30
20
10
0
Products
ce
s
Se
rv
i
So
lu
t io
ns
Services
Hy
br
id
Pr
od
uc
ts
% of Total Revenues
Business or Life Cycle Models?
Source: M. Cusumano, The Business of Software (2004)
44
7
Different S-Curve Dynamics –
Product Platform Disruptions Generate New
Services & New Business Models?
Maturity
Performance
Platform
Disruption
Takeoff
New Services?
New Business Models?
Ferment
Time
45
New Business Model Dimensions
Revenue Model
Free (revenues
from services
Free but not
free (bundled)
Transactionbased
Advertistingbased
Subscription/
Software as a
service
Up-front
license fee
Mainstream consumers
Early-adopter consumers
Small businesses
Traditional

Local Client Local Server Remote
Remote
Installation Installation proprietary Web-based
(e.g. hosted
SAP)
Bundled as
part of a
hardware
product
Delivery
Model
Mainstream enterprise customers
Early-adopter enterprise cust.
Customers
Source: MIT student team K. Boppana, A. Göldi, B. Hein, P. Hsu, T. Jones (The Software Business, 15.358), 2006
46
Web-Based Enterprise Software Vendors
Year of Company Formation
25
120.00%
Frequency
20
100.00%
Cumulative %
80.00%
Frequency
15
60.00%
10
40.00%
5
20.00%
0
.00%
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1977
1975
1972
1911
Year
Source: Andreas Goeldi survey (MIT master’s thesis, 2007) n=108
47
108 Web-Based Enterprise Software Vendors
100
80
Frequency 60
n=180
40
20
0
Monthly Fee
89
Free
Upfront License Fee
Traditional

Professional Services
29 30
Open Source
16
6
7
2
Business Models
Source: Andreas Goeldi survey (MIT master’s thesis, 2007)
Advertising
Pay Per Use
48
Software Product Firms
and Other Research
• M. Cusumano, F. Suarez, S. Kahl and students
• Public software “products firms” -- Identified ca. 500 (listed on
US stock exchanges) under US SIC code 7372 – PrePackaged
Software
• Since 2003, downloaded data from Compustat, Mergent, and
directly from 10K reports
• Over 3000 yearly usable observations
• Average 10+ years of detailed financial data from 1990
• Also now databases on all IT Services firms and S&P 1000 with
products and services revenues
49
.8
Service vs Product as % Sales - Average All Sample
.2
.3
.4
.5
.6
.7
Excludes video games
SaaS counted as product revenue
Services include professional + maintenance
Note: Services including maintenance
(about 55% of services revenues for firms breaking this out)
1990
1992
1994
1996
1998
fyadj
(mean) servpctsales
2000
2002
2004
2006
(mean) prodpctsales
50
Includes video games
SaaS counted as product revenue
Services include professional + maintenance
51
Service/Maintenance vs. Product Revenues
e.g. SAP
e.g. Novell
52
52
Service/Maintenance vs. Product Revenues
e.g. Business Objects, Cognos
e.g. Oracle
53
53
Service/Maintenance vs. Product Revenues
e.g. Microsoft
e.g. Adobe
54
54
Scale, Scope, Learning
Economies?
Stuck
in
the
Middle?
Products
Services
Se
rv
i
ce
s
60%
So
lu
t io
ns
20%
Sweet
Spot?
Hy
br
id
90
80
70
60
50
40
30
20
10
0
Pr
od
uc
ts
% of Total Revenues
Services Impact on Profits & Market
Value: Sweet (vs. Sour) Spots
55
7
Lessons for Managers (Idea 6)
• Many if not most product companies today are
really hybrids that have to manage both a product
business and a services business – two
organizations in one
– Servitize products = innovate around the product to
generates value-added customization, support,
training, consulting, new pricing/delivery models
– Productize services = software factory-like
customization, automated service delivery
• Former partners (IT services firms + product
firms) now must fight for the same services pie! 56
The Search for Best Practice
Should Begin with Practice,
But Not End There!
Thank you
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