Professor Holmström-Olsson: The Optimal Software Release Frequency is a Strategic Decision

Taking the Formula Apart

To understand how important this formula is from a strategic point of view, let’s break it down into its main parts and look at what each one stands for:

• There is an overall amount of value that your software creates for its users, which is shown as V. It shows how much your customers gain from using your software, which is related to how happy and loyal they are with it.
• Percentage of Customer Value Captured (V%): This shows how much of the value that was created your business can turn into money. It’s important to know how much of the value of a customer turns into money for your business.
• Cost of Development (CD): This is how much money it costs to make a new version of the software. It covers things like developer pay, tools, infrastructure, and anything else that is needed for the development process.
• Cost of Certification (CC): Software often needs to go through certification steps to make sure it follows all the rules and standards. Costs like these can be big, especially in fields with strict rules about accountability.
• There are N system instances. This is the number of cases where the new version will be put in place. It changes how some costs are spread out over a bigger base, which could lower the cost per instance.
• Manufacturing, Distribution, and Installation Costs (CMDI): These are the costs of getting the new program version to people who will use it. This includes the costs of shipping, installing, packing, and any other logistics.

What the Formula Can Teach Us About Strategy

1. Finding the Balance Between Value and Cost: The formula helps you find the balance between the value your software creates and the prices that come with it. It makes sure that the benefits of a new release are greater than the costs, which helps people make choices that are good for their finances.
2. Finding the Best Release Frequency: You can find the best release frequency for software by looking at the method. If there are too many releases, costs may go up without adding much value, and if there aren’t enough releases, you might miss out on market chances and customer needs being met quickly.
3. Making Well-Informed Choices: This method gives you a number-based way to make choices. It lets you use real-world financial numbers to show why you should spend in new releases, which makes it easier to get support from all stakeholders.
4. Getting a leg up on the competition: Regular updates at the right time can keep your product current and competitive. The formula keeps you from making hasty updates that aren’t well thought out or falling behind rivals with old features.

Dealing with Possible Problems

The method is a good starting point, but it’s important to be aware of and deal with possible problems:

• Market Conditions That Change Over Time: The value gained (V%) can change depending on the state of the market, the competition, and what the customers want. It’s important to keep your assumptions sensible by regularly analyzing the market and getting feedback from customers.
• Comprehensive Cost Analysis: Make sure that all the important costs are taken into account, such as marketing, long-term support, and possible costs linked to scale.
• Holistic View: Don’t just look at short-term financial metrics; also consider things like customer satisfaction, brand image, and strategic alignment.

In conclusion

It’s not just a technical exercise to understand and use the formula. it’s also important from a business point of view. It gives you the power to make choices based on data that optimize how often you release new versions of your software, making sure that each new version gives your customers the most value while still making you money. Utilizing this formula will put your business in a better position to achieve long-term growth, higher customer happiness, and a stronger market edge.

Using this strategic approach when making decisions will help you get through the complicated process of making and releasing software, which will eventually lead to the success of your business in the digital age.

If you want to know more, reach out to Professor Helena Holmström-Olsson and Jan Bosch. They can be reached at helena.holmstrom.olsson@mau.se, and jan.bosch@chalmers.se.