investiledysfunction

The November 3, 2008 issue of Newsweek contained a letter from Mayor Michael Bloomberg to the President-Elect (and now Barack Obama).  This blog is strictly non-political and will remain that way, but Mr. Bloomberg offers a great commercial for portfolio management applied at the public sector level.

In his letter to the president, Bloomberg writes,

“In exchange for legislation creating an infrastructure bank that funds projects based strictly on merit, agree to invest more money on the infrastructure our country needs most.  And you should also demand more from the states and cities that get federal money: hold them accountable for building on time and on budget.  Call it a “New New Deal”: investing more, more wisely and getting bigger returns.”

I’m not sure there has been a better encapsulation of what portfolio management is all about.  I am pretty sure that government and citizens ultimately would benefit significantly from the approach Mayor Bloomberg is advocating.  Competition for funding and holding people accountable for results always yields good results.

The July-August 2008 issue of the Harvard Business Review has an article entitled “Employee Motivation: A Powerful New Model” authored by Nitin Nohria, Boris Groysberg, and Linda-Eling Lee which talks about, as the title implies, motivating employees and the drivers behind motivation.  In it, the authors argue that there are four drives that underlie motivation and those are (directly quoted below):

1. The drive to acquire  - obtain scarce goods including intangibles such as social status
2. The drive to bond - form connections with individuals and groups
3. The drive to comprehend - satisfy our curiosity and master the world around us
4. The drive to defend - protect against external threats and promote justice

One of the organizational dimensions that drives motivation and specifically the drive to defend is what the authors detail as “fair, trustworthy and transparent processes for performance management and resource allocation”.  They cite some corporate examples but the overarching theme is that their should be transparency in the resource allocation process and that while pet projects may get killed, employees need to understand the rationale behind the decision.  Employees reporting that funding criteria and process are fair and transparent leads them to be motivated and to view the organization as a “just one.”

Corporate portfolio management which is a discipline to more rigorously manage and optimize resource allocation is often discussed in terms of the financial and strategic outcomes it enables.  The authors of the article hit upon an employee dimension which is often ignored or misunderstood in discussions of corporate portfolio management.  When we work with clients, we often talk about creating “an internal marketplace for project and investment funding” and in some instances, this idea of competing for funding scares organizations because they worry that this will demotivate employees who are the project/investment originators or who may be working on such projects.

In actuality, this marketplace concept is empowering.  Generally, resource allocation as it relates to project and investment selection is a game where people don’t know the rules.  And so people see projects/investment selections predicated on dubious, incomplete business cases or on the basis of relationships and decibel-driven (vs data driven) criteria.  Imagine for a second that you are playing a game where the rules were unknown or always changing.  It doesn’t sound like a very fun game does it?

When employees know the “rules of the game” around resource allocation, this makes the process and the organization stronger and is motivating for employees.  People come with their best ideas because they know those ideas are actually valued and have a shot at receiving funding.  By knowing the rules of the resource allocation process, they understand what is considered an investment, what is needed for an investment to be considered for funding and they also understand the methods by which their projects will be evaluated and funded.  Yes, there will be times when their projects don’t get the funding they desire but at least they can feel comfortable that the process underlying the selection was fair.

Corporate portfolio management (or it’s children in the form of IT portfolio management, project portfolio management) often fail to consider the organizational behavior that is required to make them happen.  More often than not, they also fail to consider the beneficial behavioral outcomes which they can enable foremost amongst them is more motivated employees.

I’ve previously written about the underwhelming success rates of multi-year projects whether they are managed by governments or the private sector (for example - Boeing’s well publicized snafus with their Dreamliner project).  This week, another multi-year project mess was highlighted that hits closer to home (literally and figuratively) and I’m talking about the World Trade Center rebuilding.

According to reports, the rebuilding of the WTC won’t be done until the middle of the next decade and will cost as much as $3 billion more than initially planned.  My wife and I live in Manhattan’s Financial District so personally, this is disappointing as the revitalization that would have accompanied the new WTC site would be great for the area.  Moreover, as someone who was at the WTC on 9/11, it would be nice if the memorial to the many victims was completed at least by the 10 year anniversary of the event.

But alas, as with virtually all other multi-year projects, the fate of this high profile project seems no different.   I fear the delays and budget overruns will only increase over time.  Despite the work of numerous smart people (and from the looks of it some not so smart ones as well), a likely army of project managers and the pressure of a city and country on the project planners to get this done, it seems nothing can save these gargantuan projects.

In virtually every post on multi year projects I’ve ever written, I always close asking people to provide me an example of one multi-year project that has gone well.  By gone well, I mean the project delivered on time and on budget.  I’ve yet to ever hear from anyone about such a project.  Despite all that is written about multi-year projects, is the success rate really zero percent.  Let’s hope not.

In the meantime, we’ll continue to wait and hope that the WTC site rebuilding is not delayed further.

One of the 7.5 Sins of Portfolio Management is that your portfolio management effort cannot be a tunnel but must be a funnel. By that, we mean that projects must get killed as part of your portfolio management effort to give it some teeth. This could mean killing projects at the proposal stage or shedding underperforming projects along the way. If you don’t do this, you’ve just created bureaucracy (checklists, business cases, etc) but you are really not changing investment and project selection processes and the behavior that goes along with them. If you really want to create useless work in your organization, there are probably other ways to do this. If, on the other hand, you genuinely think that there is no project in your organization that should be stopped or that should not have been started in the first place, then we should talk as I have some real estate in Florida which is expected to go up 100% this year which I’d like to sell you.

Given this sin, it’s nice to see a company living by this mantra especially in the area of R&D. One notable example is HP Labs where Prith Banerjee, the new labs director, is planning to unveil a list of 20-30 major projects down from the 150 or so currently being pursued.

According to Business Week, “The labs’ $150 million annual budget will remain the same, but he’ll group the most promising related projects while dropping those with little shot at a profitable payoff.”

Banerjee himself asserts that “Just because it’s scientifically interesting won’t do it. We need to create whole new business opportunities for HP.” He is also forcing researchers to compete for money by pitching projects and writing business plans and then having those goto a central review board that will approve ideas and track progress.

It sounds like HP Labs’ is avoiding many of the 7.5 deadly sins namely:

1. They’re making it a funnel by killing projects whose proposals are not good or that are not performing
2. They’re reducing the decibels in the decision making process by requiring more intensive business cases/plans
3. They are tracking results

It sounds like HP Labs is onto the right path. There will inevitably be culture change and resistance that emerges from such an overhaul, but if they can work through these impediments (not easy), HP will go a long way in making each R&D dollar go further.

A recent tournament for computer programmers crowned a champion whose winning secret was “avoiding bells and whistles, and asking questions until he knew exactly what the judges wanted his software to do.”

WOW! What a novel idea - do the basics right and really understand what the client wants. And don’t try to overwhelm them with a lot of fluff they don’t need.

We work a lot with clients looking to pick a project or IT portfolio management or innovation management solution, and it is amazing the sheer number of useless bells and whistles that the developers of these solutions show us during demonstrations. I presume the aim is that by showing us lots of potentially cool but ultimately useless features, we and our client will be so taken with the “shock and awe” that we will forget the real needs we have. Sorry guys.

Unfortunately, we’ve talked to companies who’ve already picked a solution and been lured by these features which will never be used and which they’ve realized after the fact.

Yes - it is true that 80% of the features in most of these tools will not be used. Figure out what is really important and pay for that. This requires understanding the processes and outcomes you are hoping for and not assuming that a slick system or a “solution” will save the day.

We’re pleased to announce the launch of an education and training offering called the Portfolio Management Game (www.portfoliomanagementgame.com). 

We created the Portfolio Management Game in response to feedback from clients and practitioners who often said it was difficult to get senior leaders, their peers and employees to fully understand and committed to the idea of portfolio management.  To build this understanding and commitment, The Game uses role-playing, brainstorming, collaboration and some healthy competition to illustrate the challenges of project and investment selection.  It also fosters creative thinking about how to solve these challenges.  It is an engaging, entertaining and interactive way to ensure people really understand the importance of resource allocation and the power of portfolio management. 

We built the Game to answer these challenges and based on research that indicated that employee learning is accelerated when you conduct education using games and competition.  The Portfolio Management Game leverages and builds upon this research. 

You can learn more about the game at the site but below is a quick high-level overview:

It is a role playing game that focuses on a fictitious company, Qaio, Inc which has 4 business units and within each unit, there are several functional groups, e.g. ,marketing, IT, R&D, etc

As part of the Game, each participant is assigned a functional role and a business unit and is given several investments (given out on Game playing cards).  Each investment has details supporting why it should receive funding including strategic rationale, financial projections and risk factors.

During the Game, people take on different roles (functional and business unit roles) and are given various scenarios where there are funding constraints.  Participants must work with their peers from other units and/or functional areas to determine which project and investments should get funding and why.  Doing this requires influencing and collaborating others, and ultimately working together to identify issues and develop solutions.

Expected discussion/outcomes from The Game include:

• Participants will understand and see firsthand the dysfunction that exists when it comes to investment/project selection
• Participants will develop ideas on how project & investment selection, e.g., resource allocation can be improved
• Participants will leave with a greater understanding of the fundamentals and the power of corporate portfolio management (this applies just as well to IT portfolio management, project portfolio management, etc)

Again, please check out the website at www.portfoliomanagementgame.com. 

If you have any questions or would like to learn more, please contact us via email by clicking here.

Given the vast amounts of unproductive complexity (UC) that resides within organizations, it is amazing how prone we are to believing silver-bullet strategies will transform the company and miraculously grow revenues, shareholder returns, profits, customer and employee satisfaction. 

When I talk about unproductive complexity, I’m talking about the absurd matrixed organization structures, transfer pricing issues, overly-detailed budget processes, steering committees, infighting due to silos, bizarre short-term oriented incentive structures and other ridiculous processes and practices organizations adopt.  Managers would have you believe that this complexity is an unfortunate consequence of being big and global or multinational, and to some extent, that is true.  But unproductive complexity is often a result of territorial and suboptimal behavior.  It’s end result is slow and often poor decision-making.  Unproductive complexity is the enemy of innovation.  It is good, however, at creating job security for a host of mediocre and incompetent people who can sneak by while they shuffle papers from left to right and churn out PowerPoint presentations and Excel spreadsheets.  And given their accomplices in the leadership ranks, this activity over accomplishment method becomes acceptable.  If you want to change organizational performance, focus on stamping out unproductive complexity.  This should be the focus on reengineering efforts - not knee jerk cost cutting and layoffs.

So with that rant about unproductive complexity out of the way, let me get back to the subject I wanted cover.  Given this UC, it perhaps makes sense that leaders are drawn to consultant, software, academic elixirs that are simple.  With all the day to day b.s. they have to put up with, it’s probably comforting to think that if they just do “this one great thing”, they’ll have changed company performance and arrived.  There is probably some psychological basis so I’ll just assume that there is some school of psychology that says “when people are overwhelmed, they take comfort in something that doesn’t overwhelm them.”

And as a result, consultants, academics and many software vendors who’ve realized this bring elixirs and other alchemy-in-a-box solutions to management and with great success, they sell them and make lots of money.  In fact, entire industries emerge around some of these practices.  This enables the leaders to not think too hard for a bit because the solution is just right in front of them.  It also often serves the dual purpose of making the leader seem bold, visionary, strategic, etc.  These are all nice appelations that we like.

Here are some of my favorite elixirs that appear to be hot these days.  Some actually have value but given everyone is hanging out their shingle and professing expertise in many of these areas, I worry that organizations will end up with a whole lot of nothing after investing in these efforts with these dubious experts.  

Here is my list which I hope to revisit over time and get input on.  The top elixirs, hot topics, etc are: business intelligence, IT portfolio management, innovation (always hot), corporate social responsibility, anything green, web2.0, social networking.