by Rita Gunther McGrath
This is a great article pasted on to me by Mark Podwysocki.
We often discuss the need to make the hard portfolio decisions to ensure the organization has the budgetary headroom to fund the critical growth initiatives. Rita in her lectures talks about the need to kill the “the walking dead”, those projects that eat up resources with little chance of success. This is part of the overall process to “manage the cost of failure, not the rate of failure “which is essential for a sustainable innovation process. The article also discusses what they call a barebones NPV that assesses such factors as launch time, ramp-up time, competitive response, total investment, and projected annual costs and sales. That is covered in complete detail in their book Discovery Driven Planning (http://www.discoverydrivengrowth.com/)
"Project escalation often derives from the best of intentions. Researchers have identified three major sources of entrapment in a failed initiative: psychological entrapment, in which team members feel personally committed to staying the course; rationalized entrapment, in which team members feel that success is just around the corner; and social entrapment, in which team members are reluctant to withdraw from a project because of commitments they have made to one another and to outside parties. A simple way to determine if the team is trapped is to ask each person in the group to anonymously agree or disagree with a series of statements. These statements can explain why smart, successful people might consciously or unconsciously have continued committing their talent and resources to projects that reasonably should have been shut down. They could include:
• I feel we will lose the respect of others if this project is shut down.
• Stopping this project would have a negative effect on my career or that of other team members.
• We made a public commitment to this project, and it would look bad to break it.
• We’ve made commitments to outside parties (investors, suppliers, distributors, customers) and inside parties (directors, management, other divisions, employees), and we cannot or should not break them.
• We have had some good results and are at a turning point; it would be premature to stop now.
• At this point, it would cost us more to stop than it would to finish.
• People who want us to fail (rivals, competitors) will gloat.
If most of the group’s members agree with about a third or more of the statements, the team is at risk of escalated commitment. In that case, we suggest you have a frank discussion with team members about the various pressures that have little to do with the commercial promise of their project, and that may be clouding their judgment. You’ll have to tell them that some tough calls will be made about the project, but they will be made as thoughtfully and gracefully as possible.
To discontinue a project, develop a disengagement plan. It’s just as important as the business plan you created to set up your growth initiative. But perhaps because people are so averse to failure, the disengagement plan is often neglected, resulting in lost value and much more misery than necessary. The disengagement plan should be short (five pages at most) but well crafted, a document developed by the venture team in conjunction with senior managers. It should formally address two critical issues.