Another striking—and often underappreciated—aspect of
–The Economist, “A genius departs“, 10/8/11
To fund or not to fund…
Asking most executives which projects should be killed results in Hamlet-like levels of self-introspection and angst. Why is it so difficult to say “no”?
The excuse we hear is that they don’t trust the forecasts, and without sound data can’t make a decision. Even if you believe this in your soul, the reality is that you’ll never have the “right” numbers. For the sake of argument, let’s say that a company possesses the only working magic 8-ball in the world, allowing their forecasts to be perfectly accurate. There are still a number of departments that contribute forecasts to each project’s valuation, and all of them operate on their own cycles for refreshing the data. This means there is never a point in time that the data is “fresh” from all of these departments, so the numbers are never perfect anyway.
The good news is that it doesn’t matter; what’s important is that the numbers are directionally–not absolutely–correct. With the old adage that all forecasts are wrong but some are useful, we need to remember that perfect numbers are not required to make decisions. Almost without exception, great projects will look great and worthless projects will not, regardless of how many decimal places are contained in the forecasts. In other words, a 10% difference in any project will become negligible in the portfolio as a whole, and–with very rare exceptions–not result in different decisions being made.
![caesar_crossing_the_rubicon]()
Alea Iacta Est
Alea Iacta EstSo if the accuracy of the forecasts isn’t the problem, what is? The short answer from psychology, and from our experience the most prominent cause in practice, is that people have an extremely hard time with “irrevocable” decisions. (They are also biased by sunk costs “we’ve already spent $X on this”, overconfidence “the past me thought this was a great idea, and that person was never wrong”, and others, but these appear to have less of an impact.)
The irrevocable decision problem is a challenging one from a corporate politics standpoint. If an executive kills a project that a competitor later successfully develops, the decision-maker runs the risk of looking foolish. Using some perverse logic, the decision-maker looks still more foolish if the project is successfully out-licensed to someone else, as we saw at one client:
An executive recognized that a project didn’t fit into the portfolio because it was aimed at a market segment they had no plans to enter. The technology was out-licensed, and the project was wildly successful. The company made a lot of money from royalties, but the partner made boatloads. The executive was pilloried for making such a “bad” decision. And yet, that decision allowed the firm to focus on their core business while still reaping licensing revenue from a platform they had insufficient resources to aggressively pursue.
Is there an alternative? We think so. Here are three suggestions.
First, Change the Conversation
One way to get around executives’ fear of killing projects is to not dwell on the projects themselves, but instead focus the discussion on the achievement of portfolio objectives. A project that does not materially contribute to portfolio objectives has no business being in the portfolio.
If the discussion does come around to individual projects, ask the question: “If this were a new project or a licensing opportunity, would we fund it?” This helps to disassociate the decision-maker’s bias towards a particular project with the cold hard facts, a la the infamous Judgment of Paris.
Second, Acknowledge the Zero-Sum Nature of the Portfolio
The companies best positioned to cancel underperforming projects are those with a long list of promising projects “on deck” vying for funding. If everyone sees promising projects lacking funding, it becomes easier to cancel less promising ones; those whose redemption always seems to be just around the corner. This reality underscores the need for effective new product idea generation, which deserves its own post (or two or three).
If you have a history of spreading resources around to all available projects, look for these symptoms that you may be starving all projects, thereby putting every project at risk:
- Your resource planning team makes unrealistic assumptions around utilization. Plausible, sustainable on-task utilization rates range from 50-80%, depending on your industry and task, yet we have seen some teams use figures as high as 120% utilization in capacity planning exercises.
- Project activities are subject to excessive delays as team members are stretched to the limit, spreading their time ineffectively across multiple projects.
- Quality of completed tasks declines as staff has less and less time to meet as a team and creatively problem solve on each individual project.
With evidence of these risk factors in hand, consider the true impact of staff spread too thin across the portfolio: A dramatic reduction in the fraction of projects executed successfully. Then you can paint a vivid picture of a more reasonable alternative: few projects attempted with a higher percentage of on-time, successful product launches.
If everyone acknowledges the zero-sum realities around staffing, appropriate out-sourcing and licensing of projects that are not a perfect fit for the organization will be seen as an effective tactic for staying focused on the agreed-upon strategy.
Third, Remember that Less is More
As the quote at the beginning of the post suggests, Steve Jobs is legendary for his ability to say no. Upon his return to Apple in 1997, he took a company with 350 products and reduced them to 10 products in a two-year period. This enabled him to apply the best available talent to every project in the pipeline. Picking winners means you also have to cull the losers. So if all else fails, just tell the executives that Steve Jobs would have cut the project in question. After all, what executive doesn’t want to emulate the Great One?
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