3.4.2 Taxation

The second model is where product teams agree on a form of taxation where each product team, based on size, profit and expected use of the shared components, agrees to contribute development effort or financial support. The taxation may be implemented through the initiation of a separate component team or by product team itself committing to the development some shared component. This model is basically an investment model and is more formal than the “barter” model, i.e. the investment is quantified and delivery schedules agreed upon.

Advantages. The model provides a more formal agreement, increasing the level of trust towards the initiative. Also, it becomes feasible to develop explicit roadmaps and release plans based on the available investments.

Disadvantages. The investment in product family engineering becomes explicit in the budget and, in the case of a component team, in the organizational structure. Also, especially in the case where a taxation-based component team exists for a number of years, there is often a tendency to developing “perfect” components rather than helping product teams addressing their immediate concerns due to lacking market pressures.

3.4.3 Licensing/royalty

Once a usable version of a shared component is available, it becomes feasible to move to a royalty or licensing model. In this case, the component team is not funded through taxation but through the royalties that it receives based on product sales of products that contain the shared component. The component team may be in direct competition with other component teams in the organization or with external COTS components and consequently under substantial market pressure. Also, in the case of too high royalties, product teams may decide to develop the component themselves.

Advantages. This model provides the market pressures for the component team that are necessary to keep it focused on satisfying customers and on innovating and evolving their components. Also, once the team is unable to fund itself based on its royalties because lower priced COTS components have become available, it provides a natural way to dissolve the component team and to assign its members to other tasks.

Disadvantages. The model should not be applied until the shared component has achieved a level of maturity that allows the component team with a realistic budget for component evolution and innovation. In the case it is decided that the shared component represents core competences that the organization should maintain, this model is not appropriate as the market pressure is lacking.