a portfolio model for the allocation of resources to standardization activities
DESCRIPTION
A Portfolio Model for the Allocation of Resources to Standardization Activities. Antti Toppila, Ahti Salo and Juuso Liesiö Systems Analysis Laboratory Helsinki University of Technology P.O. Box 1100, 02015 TKK, Finland http://www.sal.tkk.fi [email protected]. - PowerPoint PPT PresentationTRANSCRIPT
Helsinki University of Technology Systems Analysis Laboratory
A Portfolio Model for the A Portfolio Model for the
Allocation of Resources to Allocation of Resources to
Standardization Activities Standardization Activities
Antti Toppila, Ahti Salo and Juuso LiesiöSystems Analysis Laboratory
Helsinki University of Technology
P.O. Box 1100, 02015 TKK, Finland
http://www.sal.tkk.fi
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Helsinki University of Technology Systems Analysis Laboratory
Technical standardizationTechnical standardization Agreement on a property of a good
or service– E.g. railroad gauge, plug
Important part of R&D in the
Telecommunication industry– Compatibility and interoperability
– Access to a common pool of knowledge
– Economies of scale
Our client was Nokia– Worlds largest mobile phone
manufacturer (2007)» Spent more than EUR 5 billion into R&D
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Helsinki University of Technology Systems Analysis Laboratory
ResourceResource allocation into standardization allocation into standardization
Challenges in standardization portfolio management– Value from standardization are difficult to assess
– Hundreds of linked standardization activities to manage
– Investments need to be aligned with company core competences
– Contribution to market growth should be explicitly considered
Value capturing through widely adopted technologies– Widely adopted technologies yield more sales
– Widely adopted technologies need development
– Standardization contributes to the emergence of widely adopted technologies
– Widely adopted technologies may emerge without standards through intensive
technology development
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Helsinki University of Technology Systems Analysis Laboratory
Standardization activity modelStandardization activity model
Commit rS rD resources to an
activity
Standardization successful?
0
ps (rs )
no
Decision node
Uncertainty node
Value node
1- ps (rs )
yes
Sales
Widely adopted technology successful?
Widely adopted technology successful?
pd+(rD )
1-pd+ (rD )
yes
yes
no
Sales
pd- (rD )
1-pd-(rD )
noNo Sales
No Sales
rs = Standardization resources
rd = Development resources
ps = Standardization success probability
pd+ = Development success probability (assuming standardization success)
pd-= Development success probability (assuming standardization failure)
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Helsinki University of Technology Systems Analysis Laboratory
Standardization activity portfolio Standardization activity portfolio
Activities managed concurrently
– Shared budget constraints
– Interactions among activities
Portfolio model– Uncertainties of activities
modeled with decision trees
– Decisions variables: resource allocation to the activities
– Maximize portfolio expected sales
Discretized problem solved with Zero-One Linear Programming
A
B
C
X
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Helsinki University of Technology Systems Analysis Laboratory
Elicitation of parametersElicitation of parameters Current resource plan a point of
departure
Estimates of success probabilities and
prospective sales
– Sales expressed as an interval, e.g. [50,100] M€
– Resource levels discretized
» Standardization and (conditional) development
success elicited for -100%, -50%, +0% and
+100% changes to current level
Calculation of total success probability
ptot = ps pd+ + (1 – ps ) pd-
rs
ps
1
0
rd
1
0
pd+
pd-
Pro
b.
of s
ucc
ess
Pro
b.
of s
ucc
ess
ptot
-100% -50% +0% +100%
-100% -50% +0% +100%
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Helsinki University of Technology Systems Analysis Laboratory
Efficiency of the current allocationEfficiency of the current allocation
Optimal resource allocation significantly different from the current
Budget
Exp
ecte
d s
ales
Maximum expected sales with current resources
Minimum resource requirement for current expected sales
Current resource allocation
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Helsinki University of Technology Systems Analysis Laboratory
Activity-specific decision recommendationsActivity-specific decision recommendations Interval sales imply multiple optimal
resource allocations
Core Index for each activity-specific
combined resource allocation is defined as
the share of optimal portfolios with this
allocation (cf. RPM; Liesiö et al. 2007)
– Black: All optimal portfolios contain the allocation
– Gray: Some optimal portfolios contain the allocation
– White: No optimal portfolios with the allocation
Provides reallocation recommendations
Activity B
Standardization resources
-100% -50% +0% +100%
-10
0%
-50
%+
0%
+1
00
%
Dev
elop
men
t res
ourc
es-1
00
%-5
0%
+0
%+
10
0%
Activity A
r d
rs
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Helsinki University of Technology Systems Analysis Laboratory
Activity interactionsActivity interactions
Challenging to model– Numerous interactions identified
– Some of these difficult to quantify
– No statistical model for reference
Systematic elicitation and qualitative visualization of interaction networks useful
– Overview of linked activities
– Clustering of closely related activities
Used a heuristic to model pairwise interactions
Crit
icalC
ritic
al
Competes
Critical
Beneficial
Critical
Beneficial
Critical
Competes
Com
pete
s
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Helsinki University of Technology Systems Analysis Laboratory
Impact of heuristic interactionsImpact of heuristic interactions
Penalties/rewards for
decreasing/increasing
attractiveness of linked activities– Proportional to size of benefit, etc.
Decision recommendations with
and without interactions– Holistic view of the impact
– Reveals the interactions that affect the
decision» Not always the strongest interactions
– Enables revision of interactions
-100% -50% +0% +100%
-10
0%
-50
%+
0%
+1
00
%
Without interaction
-100% -50% +0% +100%
-10
0%
-50
%+
0%
+1
00
%
With interactions
CriticalA C
Standardization resources of AD
evel
opm
ent r
esou
rces
of A
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Helsinki University of Technology Systems Analysis Laboratory
ConclusionsConclusions
Complex decision making problem– Intangible conceptual structure
– Need for transparent parameter elicitation and analysis
Portfolio model for allocation of resources– Benefits of standards concretized through widely adopted technologies
– Robust decision recommendations for resource adjustments
Unified management framework for standardization
activities– Equitable treatment of all activities
– Common terminology to discuss resource allocation into standardization
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Helsinki University of Technology Systems Analysis Laboratory
References References
– Cooper, R., Edgett, E. and Kleinschmidt, E. (1997). Portfolio Management for New
Product Development: Lessons Learned from the Leaders-I, Research Technology
Management, vol. 40, pp. 16-19.
– Liesiö, J., Mild, P. and Salo, A. (2007) Preference Programming for Robust Portfolio
Modeling and Project Selection. European Journal of Operational Research, vol. 181, pp.
1488-1505.
– Salo, A. and Liesiö, J. (2006). A Case Study in Participatory Priority-Setting for a
Scandinavian Research Program. International Journal of Information Technology &
Decision Making, vol. 5, pp. 65-88.
– Sharpe, P. and Keelin, T. (1998). How SmithKline Beecham Makes Better Resource-
Allocation Decisions. Harvard Business Review, March-April, pp. 45-57.
– Shurmer, M. and Lea, G. (1995). Telecommunications Standardization and Intellectual
Property Rights: A Fundamental Dilemma? Standard-View, vol. 3, pp. 50-59.