Product Line Development as a Rational, Strategic Decision ABSTRACT 1 Product line development requires a certain amount of up front investment in order to make assets reusable. This investment often keeps organizations from planning and realizing their products in a product line. But there are also major advantages of doing product line development which are often not taken into account when deciding for or against product lines. In this paper we present problems that need to be addressed in the strategic planning of tran- sition towards product lines. These aspects include the involvement of uncertainty, the interdependence of technical solution and decision making, and the interdependence among the decision making and the market aspects. An approach which covers these aspects will determine an objective valuation of a product line. Key Words: Product Line Transition, Strategic Development, Real Options, Scoping, Business Case 1 INTRODUCTION Transforming a classical, stove-pipe development organization into a product line organization is a major shift. Performing this shift requires major investments in reuse, but may also produce major benefits to the organization [Coh01]. Obviously, a decision of such importance should be driven from a strategy and should be the result of a thorough analysis of the pros and cons of introducing product line development for a family of products. In this paper, we will discuss some problems that need to be addressed when analyzing this decision in an objective, eco- nomically adequate manner. When doing market driven development (as opposed to customer driven development), there are no contracts when starting product development. A product is planned for a certain market, development starts at one point in time and at a later point the product is released to the now different or even decaying market. Classically, strategy development is purely driven from the business objectives of an organization and results in a business development plan, which typically stretches over a multi-year time-horizon. In the particular situation of product line develop- ment, the business objectives usually refer to aspects like cost reduction, time-to-market reduction, or quality improvement and the corresponding question is whether a product line development approach should be imple- mented or not. In the rational case this decision is based on answering the question whether product line develop- ment will produce more benefits than its implementation will cost. This question is fully analogous to the scoping problem [Sch00]. The scoping problem is to identify in a rational manner the specific assets that should be developed for reuse. Basically, scoping and business case analysis differ only in terms of size of the object under study. Scoping addresses planning the amount of reuse to be made, busi- ness case analysis addresses whether to reuse at all. The arguments we will present in this paper apply equally to the formulation of business cases (i.e., on the overall product level) — whether they are formulated in the context of the big-bang introduction or in the context of incre- mental product line introduction, as well as on the level of scoping a reuse infrastructure (i.e., for individual fea- tures). Thus, throughout our paper we will not further make this distinction explicit. 1. The work presented in this paper was partially supported by Eureka Σ! 2023 Programme, ITEA project ip00004, Café. Fraunhofer Institute for Experimental Software Engineering (IESE) Sauerwiesen 6 D-67661 Kaiserslautern, Germany ++49 (0) 6301 707 {158, 250} {Klaus.Schmid, Isabel.John}@iese.fhg.de Klaus Schmid and Isabel John