Theory of Value-Based Systems and Software Engineering.

Theory of Value-BasedSystems and Software Engineering

Context and Definitions – Value-Based SSE

Definition “the explicit concern with value (financial and

non-financial) in the application of science and mathematics by which the properties of computer systems and software are made useful to people”

Practicing VBSSE “integrating stakeholder value considerations

into the full range of systems and software development principles and practices”

Context and Definitions – Value

Origin from Latin “valere” – to be worth

Definition (Webster) relative worth, utility or importance

Financial or non-financial (Maslow, Kaplan and Norton)

Key non-financial corporate value drivers (Forbes.com with Wharton and E&Y)

Innovation, ability to attract talented employees, alliances, quality of major processes, products, or services, environmental performance

Key Observations from Literature

1. Organizations are social units – people-centric

2. Assume bounded rationality (Simon)3. No silver-bullets, not one-size-fits-all (Brooks)4. Stakeholder values are financial and non-

financial (Maslow, Forbes-E&Y)5. Timeless theories of physics will not apply

(from 1-4)6. Organizational systems affect the bottom

line (Burton and Obel)7. Engineering theories must take the

organization in context (from 4 and 6)

Successful Project? Multi-Contingency Organizational Context (Burton and Obel)

ORGANIZATION’L STRUCTURE

GOALS, MISSION

BOUNDARY

SIZE TECHNOLOGYENVIRONMENTMANAGEMENT

STYLESTRATEGY CLIMATE

Key Observations from Literature (contd.)8. Management theories usually take at least a decade for conclusive evidence9. Problem and solution space is huge, balance on breadth and depth (T-shaped)Therefore: Avoid reinventing the wheel, capitalize on existing research

What is a Theory? 1960s : System of general laws

Spatially and temporally unrestricted; nonaccidental

Does not work for systems and software

1994 : System for explaining a set of phenomena Specifies key concepts, laws relating concepts Not spatially and temporally unrestricted Better for people-intensive activities

“Your enterprise will succeed if and only if

it makes winners of your success-critical stakeholders” Proof of “if”:

Everyone that counts is a winner…(i) Nobody significant is left to complain…(ii)

Proof of “only if”: Nobody wants to lose…(iii) Prospective losers will refuse to participate, or will

counterattack…(iv) The usual result is lose-lose…(v)

Theory W – Enterprise Success Theorem

Making winners of your success-critical stakeholders requires

Identifying all of the success-critical stakeholders (and the contingencies they “bring-in”) (SCSs)…(i)

Understanding how the SCSs want to win …(ii)

Having the SCSs negotiate a win-win set of product and process plans…(iii)

Controlling progress toward SCS win-win realization, including adaptation to change…(iv)

Theory W – WinWin Achievement Theorem

Utility Theory

Theory W:SCS Win-Win

Decision Theory

Contingency Theory

Control Theory

How do contingencies affect value realization?

How to adapt to change and control value realization?

How do values determine decision choices?

How important are the values?

What values are important?How is success assured?

VBSSE Theory – 4+1 Model

Provides insights into various organizational and project contingencies

“What the best way to do x?” “It depends.” Spans socio-political, environment, cultural, technical

dimensions

Component theories include Benefits Chain, Model Clashes, Network Analysis

Primary contributions include Helps identify contingent success-critical variables Applies to whole (socio-technical) system Appeals to intuition that systems fail because of

mismatches.

Supporting Theories – Contingency

Environment – Framework (Porter, Burton and Obel)

Systems & Software Project Implications Process System Architecture System Capabilities

Uncertainty Equivocality Complexity Hostility

Buyers’ Bargaining Power

HIGH HIGH LOW LOW

Suppliers’ Bargaining Power

LOW HIGH HIGH HIGH

Threat of Substitutes

PROACTIVE REACTIVE PROACTIVE REACTIVE

Threat of New Entrants

LONG SHORT LONG SHORT

Inter-firm Rivalry

HIGH LOW HIGH LOW

INSPIRATION CONTROL INSPIRATION CONTROL

Environment – Propositions

Propositions for organization structure “If the environment has low equivocality, low

complexity and low uncertainty then formalization should be high, organization complexity should be medium and centralization should be low” (i)

“If the environment has low equivocality, high complexity and low uncertainty then formalization should be high, organization complexity should be medium and centralization should be medium” (ii)

“If hostility is extreme, then formalization should be low, and centralization should be very high” (iii)

…

Management and Leadership Style – Frameworks (Burton and Obel)

Systems & Software Project Implications Staffing Process

Leader Producer Entrepreneur Manager

Preference for Delegation

HIGH HIGH LOW LOW

Level of Detail in Decision-Making

LOW HIGH HIGH HIGH

Reactive/Proactive Decision-Making

PROACTIVE REACTIVE PROACTIVE REACTIVE

Decision-Making Time Horizon

LONG SHORT LONG SHORT

RiskPreference

HIGH LOW HIGH LOW

Motivation and Control

INSPIRATION CONTROL INSPIRATION CONTROL

Management and Leadership Style – Propositions Propositions for project structure

“If an individual is a leader, then “Centralization should be low (i) “Formalization should be low (ii) “Complexity should be medium (iii) “Incentives should be results based (iv) “Coordination and control should be loose” (v)

“If an individual is a manager, then “Centralization should be high (vi) “Formalization should be high (vii) “Complexity should be high (viii) “Incentives should be procedure based (ix) “Coordination and control should be tight” (x)

“If an individual is a producer, entrepreneur…

Technology – Frameworks (Perrow)

Systems & Software Project Implications Staffing Process System Architecture

CRAFT NONROUTINE

ROUTINE ENGINEERING

ILL-DEFINED

WELL-DEFINED

PR

OB

LE

M

AN

AL

YZ

AB

ILIT

Y

FEW EXCEPTIONS

MANY EXCEPTIONS

TASK VARIABILITY

Technology – Propositions vs. Strategy

“Nonroutine technology is a misfit with a defender strategy” (i).

vs. Management Style “Nonroutine technology is a misfit with a manager

leadership style, except in small organizations” (ii) vs. Organizational Climate

“Nonroutine technology is a misfit with an internal process climate” (iii)

vs. Organizational Environment “Nonroutine technology is a misfit with a high

equivocality environment” (iv) …

Technology – Frameworks (Al-Said, Boehm)

Systems & Software Project Implications Staffing Process System Architecture

Technology – Propositions Maintainer vs. Developer

Ease of transition is a misfit with freedom of COTS (i) User vs. Acquirer

High levels of service is a misfit with freedom of COTS (ii) User vs. Acquirer

Application compatibility is a misfit with freedom of COTS (iii)

…

Supporting Theories – Utility Provides a rich theoretical method to infer

subjective stakeholder value over a set of choices

Component theories include Maslow, Simon, Multiple attribute utility theory

Primary contributions include Helps determine Pareto optimality Works well with subjective preferences Provides rich fodder (stakeholder utility functions) for

other theories

Supporting Theories – Decision Provides a plethora of techniques and models to

enable decision making

Component theories include Game theory, options theory, statistical decision

theory

Primary contributions include Helps determine risks and opportunities Works well with uncertainty Not wedded to a particular decision theory, such as

bounded rationality, economic man, etc. Provides rich fodder (competing investment options)

for other theories

Supporting Theories – Control Provides theory augmented models for state

measurement

Component theories include BSCs, BTOPP, Risk management

Primary contributions include Helps determine necessary conditions for enabling

control Works well in situations requiring stability AND

adaptability Provides rich fodder (risks and opportunities) for other

supporting theories

VBSSE Theory – 6-Step Process

Utility Theory

Theory W:SCS Win-Win

Decision Theory

Contingency Theory

Control Theory

5a, 6c. State measurement, prediction, correction; Milestone synchronization

4b. Investment analysis, Risk analysis

1. Protagonist goals3a. Solution exploration6. Risk, opportunity, change management

4b, 6b. Prototyping

2a. Results Chains3b, 4b, 6b. Cost/schedule/performance tradeoffs

2. Identify SCSs

3b, 6a. Solution Analysis

4b, 6b. Option, solution development & analysis

4a. SCS expectations management

3. SCS Value Propositions(Win conditions)

SCS: Success-Critical Stakeholder

5, 6c. Refine, Execute, Monitor & Control Plans

4. SCS Win-Win Negotiation

The Incremental Commitment Model (ICM)

VBSSE – Phase Configuration

UTILITY θ CONTINGENCY θ θ W DECISION θ CONTROL θ

ProtagonistGoals

SCS (Market, Sociopolitical,Technical, Economic, People)

Dependencies

Solution Analysis

Cost, Schedule,Performance Tradeoffs

Stakeholder Value Propositions

ExpectationsManagement

Market, Sociopolitical,Technical, Economic

Dependencies

Stakeholder Value Propositions

Cost, Schedule,Performance Tradeoffs

Investment, RiskAnalyses

SolutionAnalysis

Cost, Schedule,Performance Tradeoffs

Cost, Schedule,Performance Tradeoffs

Stakeholder Value Satisfaction

Stakeholder Value Satisfaction

Prototypes

A

EXPLORATION

Risks, Capabilities

Plans, Control Variables

A

B

Conclusion

It provides a unifying theory for practicing VBSSE that is: Entirely theory-based

“There is nothing as practical as a good theory” – Karl Lewin

Built on existing research Empirically validated (TBD) Simple

Derived from simple rules, provides step-by-step guidance