This morning in my feed I saw an article from HBR titled “Why Bad Projects Are So Hard to Kill.” Intrigued, I read the article (from 2003.) I found the parallels in this article and the recent blog post from our CEO, Peter Schroer, about sunk costs and loyalty in PLM initiatives uncanny.
Investopedia has a great definition and breakdown of sunk cost here. The real key is the breakdown example which I’ll translate to PLM parlance:
A company that has spent $5 million building a PLM System that is not yet complete, has to consider the $5 million sunk, since it cannot get the money back. It must decide whether continuing implementation to complete the project will help the company regain the sunk cost, or whether it should walk away from the incomplete project.
Today is my first day back in the office after a very successful ACE2016. Much of the excitement that our current and prospective customers shared with us at ACE is that Aras Innovator is the fix for their PLM projects that have failed to meet many of their original goals. But not all companies are ready to hit the eject button, instead citing the significant sunk costs have been incurred. I’ve heard this chorus from firms large and small – including fortune 50 companies. My question is WHY? Not to place blame, rather from a desire to understand how various firm’s cultures drive decision making.
In the HBR article, Dr. Isabelle Royer’s (IAE Lyon) research found that project failures resulted “from a fervent and widespread belief among managers in the inevitability of their projects’ ultimate success.” She also identified that organizations reinforce this inevitability with what she calls a “collective belief.”
We see this collective belief in two ways. First, in new PLM implementations there is the manifest destiny that Dr. Royer refers to where project enthusiasm is a key driving factor. Secondly, in projects that have made it past implementation and are limping along with one foot in the underground we hear an enthusiasm to retain the status quo.
When I reflect back I recognize that I have been both of these. It’s true. I was the zealot driving new projects. I was also the guy defending projects that should have been shut down. If only I knew then what I know now…
Here is my point: The most important thing we hear is a call for help! There comes a point when a firm will eject from a PLM project that is missing its goals. Firms buy PLM software as a means to an end – really all Enterprise software falls into this bucket. Firms make different things in different ways. But one immutable fact is that they need to operationalize their business processes to be better, faster, and cheaper. When a PLM implementation fails to deliver on its promises it is like an aircraft losing its engines – the firm’s progress stops, financial capital is wasted, and human capital are struggling to avert the crash. This is where the eject button is needed, or as Schroer stated, “Let it go. Write it off. Take a bold step…”
Many of you are probably asking “OK, how do I know when to eject?” While the answer depends on how your firm runs projects, I feel that you MUST use objective metrics to gauge the success of your project. AND There MUST be a solid element of quality included in whatever method you use, hitting schedule is NOT success – else everything looks rosy and you are really no better off. In Isabelle’s article she gives three recommendations that I agree with:
1. Include skeptics along with believers in the project teams from the outset
2. Control procedures and criteria for evaluating project viability at each stage of development
3. Establish an exit champion
We are seeing a shift where leadership is letting go of previous Legacy PLM loyalty and looking at their firm’s flight path. They are looking more closely at the effectiveness and value of Legacy PLM. If the metrics are missing or trending down – it is time to pull up or eject. PLM software is intended to help businesses be successful – not stall their efforts to take flight.
-Dave
Posted Tue, Mar 22 2016 3:27 PM by David Ewing Jr.