Category Archives: Beyond Budgeting

Stop Typing. Start Testing.

dsc04714“If I knew where all the good songs came from, I’d go there more often”, so said Leonard Cohen when asked how he wrote classic hits like Suzanne and Hallelujah. Formulating the ideas behind timeless hits is not an easy task – serendipity, stimulation and skill all equally play their part.

Yet in large organizations, a lack of ideas is rarely the problem. Business leaders and executives are inundated with suppositions, proposals and pitches on how to increase, invent and imagine new revenue streams for their organization. Most often, the biggest challenge is not conjuring up the concept… it’s killing it as quickly and cheaply as possible.

In The Principles of Product Development Flow, Don Reinertsen’s research concluded that ~50% of total product development time is spent on the ‘fuzzy front end’ i.e. the pitching, planning and funding activities before an initiative starts formal development. In today’s fast paced digital economy the thought of spending half of the total time to market on meetings and executive lobbying with no working product to show isn’t just counterproductive and wasteful – it’s ludicrous.

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Furthermore, the result of all this investment is often an externally-researched, expensive and beautifully illustrated 100-page document to endorse claims of certain success. The punch-line presented through slick slide transitions is “All we need is $10 million, two years, one hundred people and we’ll save the business!” Science fiction, theatre and fantasy rolled into one.

What is really needed is a systematic, evidence-based approach to managing the uncertainty that is inherent at the beginning of any innovation process. Our purpose when commencing new initiatives is to collect information to help us make better decisions while seeking to identify unmet customer needs and respond to them.

New business possibilities are explored by quickly testing and refining business hypotheses through rapid experimentation with real customers. Our goal is to perform this activity as early, quickly and cheaply as possible. Lengthy stakeholder consensus building, convoluted funding processes and hundreds of senior management sign off sessions is not.

Decisions to stop, continue or change course must be based on the ‘real world’ findings from the experiments we run, not subjective HiPPO (Highest Paid Person’s Opinions) statements supported of how they’ve “been in the business for thirty years and know better”.

Imagine a world without costly executive innovation retreats, and where the practice of pitching business cases at annual planning and/or budgeting cycle meetings is extinct. Instead, a similarly sized investment is assigned to small cross-functional teams to explore given problems, obstacles or opportunities throughout the course of a year. Over a short fixed time periods a team creates a prototyped solution to be tested with real customers to see if they find it valuable or not.

We are investing to reduce uncertainty and make better decisions. You are paying for information. The question is really how much do you want to invest to find out?

In his book, How To Measure Anything, Douglas Hubbard studied the variables that hold the most information value when making investment decision is software projects. The results showed two important insights, how much a project cost and how long a project is going to take held little significance in terms of understanding if a project would be successful or not. What really matter was (1) will the project be cancelled, and (2) will anyone actually use it.

Now, let’s compare how investment decisions are made in the traditional and experimental worlds.

A traditional business case is a set of untested hypotheses and assumptions, backed up by subject matter experts, case studies and market research. In an experimental approach to innovation, real data is collected from working product prototypes that have been tested and informed by feedback from real customers. Which of these strategies do you believe will most effectively provide answers to Hubbard’s most valuable variables?

Similarly, what happens next? In a traditional world once a business case is signed off, detailed requirements are created and a project initiated to build, integrate, test and hopefully, release the entire recorded product requirement backlog – only once all the requirements have been captured, built and release will we find out if our customer will use any of it. With an experimental strategy, we already have validated or invalidated our early working product prototype upon which we can stop, pivot and/or immediately build new features and enhancements based on the customer feedback we collected through our early testing cycles.

Finally, and the most telling and critical piece, the most expensive way to find out if a product works is to build the entire product and then release it. The key to rapid experimentation is not to prove that all our ideas are winners, but to kill losing ideas early to cut out wasted effort, time and further poor investment.

Summary

Not all our ideas will have a positive impact on the business. By testing early and often with the real people we are designing for – our customers – we can use their feedback to make more informed and evidence-based investment decisions for the future success of our business.

Like Cohen said, “I think you work out something. I wouldn’t call them ideas. I think ideas are what you want to get rid of… [they].. dissolve into deeper convictions”.

Next time you have a new initiative in your organization remember these six principles:

  1. Stop typing documents. Start testing with real customers as soon as possible.
  2. Our mission is to discover as quickly and cheaply as possible the most valuable information to base further investment decisions on i.e. will the project get cancelled or will anyone use it. Optimize for this.
  3. Define success before you start experiments. You need to hold yourself accountable to the results of your experiments to make decisions to stop, change course or continue with your activities. Doing that after the fact isn’t an experiment. It’s “Experiment Theatre“.
  4. Form small cross-functional teams and equip them to explore problem domains at speed.
  5. When uncertainty is high favour shorter, faster feedback cycles to generate information to make the next decision.
  6. Remember true progress is as more about killing bad ideas early than proving you’ve discovered the next unicorn idea.

References

Leonard Cohen: ‘All I’ve got to put in a song is my own experience’

How To Measure Anything, Douglas Hubbard

The Principles of Product Development Flow, Don Reinertsen

Tradition vs. Lean and Agile PMO and Organisations

We are in one of the most interesting and disruptive eras of business change the world has known. The landscape and competitive environment is evolving at rates we have not seen before, and it’s only going to accelerate. The average life expectancy  for an organisation is plummeting from 67 years in the 1920s to 15 years today, according to Professor Richard Foster from Yale University. At the current churn rate, 75% of the S&P 500 will be replaced by 2027.

Below I have included a deck contrasting the differences between traditional and Lean/Agile PMOs and organisations, outlining the value a Lean/Agile approach can bring. I have been able to extended the deck with the help of David Joyce and Ian Carroll in order to start a discussion on how the future can look for organisations as they attempt to scale lean and agile practices and principles across the entire organisation.

Even though traditional models of how projects, portfolios and organisations are governed represent thinking that originated in the 1890s with Taylor (fixation on efficiency and utilisation) and Gantt (of Gantt chart fame) they seem remarkably impervious to change. Our challenge for organisations today is that they need to change to keep pace with our ever evolving business environment, otherwise we can never achieve true business agility.

I plan to post deeper insights into each area over the coming weeks, however for now I will paint the boarder picture of where the majority of organisations are at today, and how they need to start changing and learning to move forward and be competitive in this era of disruptive change.

As W. Edwards Deming said, “Learning is not compulsory… neither is survival”.

Key concepts;

  • How traditional PMOs and organisations are setup
  • Legacy mindset that are alive and still driving the majority of portfolio/organisation behaviours
  • Comparisons of traditional and lean/agile mindsets
  • Principles of lean and agile portfolio/organisation management
    • Organisational structure
    • Annual vs Incremental funding (Beyond Budgeting)
    • Limiting Work in Progress i.e. its only matters how many projects you finish, not start.
    • Managing and visualising capability
    • Coping with portfolio complexity through experimentation and validated learning
    • Removing the concept of projects and focusing on continuous delivery of value
  • Benefits of lean and agile portfolio/organisation management