Playing it too safe?
BY SARAH FISTER GALE * ILLUSTRATION BY MATT KENYON
The recession did more than ruin economies. It scarred many companies, destroying their resolve to take a chance on projects that may not necessarily offer an instant payoff.
The days are long gone when executives trusted their gut, casually investing in a cool new project without fretting over what would happen if it didn't pan out. For the past few years, organizations have been focusing on practical cost-cutting efforts—often at the expense of innovation. Yet while that philosophy might have made sense at the height of the downturn, it could now come back to bite them.
“Some myopic organizations used the recession as an excuse not to innovate—but the recession actually exacerbated the need for innovation,” says Michael Bills, executive in residence, Fisher College of Business at The Ohio State University, Columbus, Ohio, USA.
By remaining hyper-focused on avoiding risk, companies are missing out on the fresh thinking they need to fully recover from the financial crisis. This in turn, gives smaller, more nimble organizations the opening they need to disrupt the market with game-changing projects, he says.
“Customers demand greater value for their dollars, and companies need to think creatively about how to deliver that value,” says Mohamed Khalifa, PMI-RMP, PMI-SP, PMP, PgMP, director of consulting and solutions at Lifelong, a project management training center in Safat, Kuwait. “Project managers should always be looking for ways to enhance their processes, to be more flexible in planning and to understand what their project drivers are.”
A SIDE OF INNOVATION
Customers may be more cost-conscious, but they're still clamoring for the latest technologies and services. It's innovate or die in many industries.
But companies seem afraid to take a risk on anything even vaguely unproven, leading to a potentially troubling trend: The adoption rate of new technology among consumers is outpacing that of businesses, according to Ivo Mokros, director of IT infrastructure at Canadian Blood Services, Ottawa, Ontario, Canada. “Ten years ago, all the latest tools and software came out of the business world, but now it's the reverse,” he says. “Consumers are using text, mobile media and Facebook to communicate, and we're still using e-mail.”
Part of the problem is that it's harder to get funding approved for innovative projects since the recession hit. Mr. Mokros has had a particularly difficult time securing budgets, as his projects are funded by taxpayer dollars. “It's tough to prove the business value of investing $2 million in an unproven technology, even if you know intuitively that it will work.”
Some myopic organizations used the recession as an excuse not to innovate—but the recession actually exacerbated the need for innovation.
—Michael Bills, Fisher College of Business, The Ohio State University, Columbus, Ohio, USA
Project managers can better manage the inherent risk of innovative projects by focusing on elements that cut costs and incorporating small, original solutions into larger, conventional projects.
“Our philosophy is that when you build a new system, don't just focus on one piece,” Mr. Mokros says. “Use it as an opportunity to extend the technology to achieve less tangible goals.”
He's currently in the midst of a massive initiative to transfer 100 million paper-based patient records to electronic format. The project should deliver substantial cost savings to the organization by streamlining patient information and reducing errors. And that's exactly how Mr. Mokros' team made the business case for the project and secured buy-in from executives.
He then used the projected ROI of the technology to make a pitch for more innovative features—electronic signature sign-off, automated travel claims, web-based training—that are harder to quantify on their own. His team has spent the last year building the system and transferring documents, and will add in the extras as the project progresses.
passing the test
There's nothing wrong with going “out on a limb” with an innovative project—as long as you've done due diligence.
“The more data you have to support your idea, the less risky it becomes,” says Brad Gold, executive vice president at Adams Foam Rubber Co., a cushioning manufacturer in Chicago, Illinois, USA.
Five years ago, Mr. Gold began looking for a green alternative to his family's line of foam products. Working with KTM Industries, his company contributed to the development of a biodegradable material it calls “Green Cell Foam.”
At the time, the economy was terrible, particularly in his industry. But Mr. Gold forged ahead, devoting 18 months to evaluating the science behind the foam so he'd have independent, verifiable evidence that it worked—if and when stakeholders demanded it.
While KTM conducted lab tests to verify the material's technical specifications, Mr. Gold's team members conducted their own field tests. They wrapped one product in conventional foam and another in Green Cell Foam, shipping the sets all across the country to see how the materials compared.
High on their list of priorities was making sure the foam wouldn't attract the wrong kind of interest: One environmentally friendly packaging product was made with cornstarch, which has simple sugars very attractive to mice, rats, birds and ants. That creates problems in warehouses, Mr. Gold says. “In the factory, you could pull the cord to release the cornstarch peanuts and a rat would fall into the box.”
To be sure Green Cell Foam didn't have the same appeal to vermin, Mr. Gold and his project team set a series of traps. They scattered pieces of the foam on the warehouse roof, in their yards and in squirrel traps around the building.
Nothing took the bait.
“Testing eliminated a lot of our risks,” he says. “It gave us the confidence that when we brought this product to the customer they couldn't ask us any question that we couldn't answer.”
It added to the project timeline, but for Mr. Gold the investment was worth it.
“Time is the project manager's most valuable asset,” he says. “Rushing an innovative new product to market without verifying how it will function under every conceivable condition hurts the viability of the product and the company.”
Doing business means taking risks. But you can create a structure and culture to manage the risks and improve your odds of success.
—Mohamed Khalifa, PMI-RMP, PMI-SP, PMP, PgMP, Lifelong, Safat, Kuwait
“In this economy, the only way we can make the business case for innovation is by linking it to a larger capital project,” Mr. Mokros says. “Organizations are going to spend that money anyway, and we can show them that by spending 5 percent more they will get a lot more out of it.”
IT'S NOT THE SAME
Some companies are taking a harder look at how they define innovation and what it means for their customer base. What consumers want in emerging markets, for example, is very different than what's in demand in developed nations, says Flavio Campos, engineering director at Delphi South America, the São Paulo, Brazil headquarters of the global automotive technology supplier.
“Emerging markets have a different perspective on innovation,” he says. “Mature economies have a stable customer base that wants the latest technology, while in small growing markets the goal is to bring in more consumers. The demands are totally different. South American consumers don't want high-tech. They want good technology that fits their budget.”
To accommodate those needs, Delphi South America developed an advanced engineering group, with the directive to look for innovative technologies that would address the demands of the local market.
That research led to a project dubbed MAPEC (multiple application electrical center), which was created with the goal of streamlining elements of an engine's electrical design, thereby reducing cost and improving efficiency.
In a typical engine, individual fuses, relays and electronic modules manage functions such as the horn and windshield wipers. MAPEC centralizes the automotive energy distribution into a single system. Although the idea was popular with Delphi engineers and customers, the trick was taking the idea out of the advanced engineering group and moving it into the more formal project management process.
“It's different when you are dealing with new technology,” says Fabio Pitorri, PMI-RMP, PMI-SP, PMP, PgMP, program manager at Delphi South America. “There are more unknown risks and many activities that you don't know how to deal with, such as forecasting costs and timing.”
To deal with the high level of uncertainty, the project team adheres to a more rigorous project management structure and much stricter oversight. “We double-check every assumption and every detail when we are planning the project to reduce the risks,” Mr. Pitorri says.
The project plan includes more stage-gate reviews to ensure progress stays on track. The team also relies on constant collaboration with the advanced engineering group, as well as with other departments involved in design, engineering, manufacturing and sales.
“Failure costs a lot of money and there is a scarcity of resources today,” Mr. Campos says. “Our project management process minimizes the risk of failure by finding problems early on and creating counter measures—because it's okay to fail if you can correct your course.”
The first version of MAPEC eliminated 40 circuits and 20 meters (66 feet) of copper wire. This not only reduced the cost of the overall electrical architecture by roughly 25 percent, it improved the system's reliability.
The product is currently sold across South America and Africa, and engineers are working on MAPEC 1.5, scheduled for release next year.
“In today's economy, you have to create a culture where it is okay to try new things and look to the future,” Mr. Campos advises. “And the only way to do that is through strong management support.”
That means executives must allow teams to break the rules every now and then.
“You need to be willing to encourage people to be innovative, even when it results in failure,” he says, though he admits that “a lot of companies are adverse to that.”
All that said, companies still need to keep track of their innovation efforts to make sure teams aren't going too far over the cutting edge.
“You need a framework that incents innovation, and includes measures, scorecards and methods of review to manage the risks,” Mr. Bills says.
Putting measures and gate reviews in place to track the progress of innovation can dramatically reduce the risk of failure and help project teams adjust their plans as needed.
Project managers should also consider bringing in the gatekeepers from finance, legal and purchasing from the beginning to help guide decision-making, Mr. Bills suggests. This might prevent key players from weighing in (and possibly killing a project) after time and money have already been invested.
Even in tough times, innovation is a necessary risk. That risk just has to be mitigated.
“It's not a matter of taking the risk or leaving the risk,” Mr. Khalifa says. “Doing business means taking risks. But you can create a structure and culture to manage the risks and improve your odds of success.” PM
Even in tough times, innovation is a necessary risk. That risk just has to be mitigated.
PM NETWORK SEPTEMBER 2010 WWW.PMI.ORG
SEPTEMBER 2010 PM NETWORK