Fly-by-wire Portfolios: A Guide To 21st Century Management Of Technology Projects
If we stay within our ‘comfort zone’ – our immediate, predictable and familiar environment – project execution is easy and everything goes according to plan, but the potential value is already being extracted. The only way to find new sources of value is to leave our comfort zone, but this implies a higher risk of failing as we know less about the cause-and-effect relations and possible sources of value. Outside our comfort zone we need project management techniques that explicitly deal with uncertainty, reduce risks early and increase the chances of financial success.
Getting good at the guessing game – technology project investment has evolved
Home truth #1: current project investment practice is often inappropriate, misguided, and can be no more than guesstimates. What appears to be financial sense becomes nonsense. Digital transformation1 has become the status quo, and in this fast-cycle world, the management of technology opportunities and projects is complicated.
Fly-by-wire is a system that replaces the manual flight controls of an aircraft with an electronic interface. The fly-by-wire computers act to stabilize the aircraft and adjust the flying characteristics without the pilot’s involvement. Fly-by-wire reduces weight, improves reliability, increases damage tolerance, and can allow an agile aircraft to realize its performance potential. This report shows you how to create fly-by-wire portfolios of technology opportunities and projects.
In this fast-cycle world the management of projects is complicated
Digital transformation1 also carries unfamiliar risks, so internal investors want a cost-efficient solution from the start with the lowest possible investment committed. Most organizations can’t deliver this.
Current project investment practice is often misguided … financial sense can become nonsense.
The leading digital organizations in the fastest-changing sectors (such as news, financial services, media, retail and travel) are platform businesses that are moving beyond agile delivery to smart portfolios and smart projects, allowing agile investment decisions or fly-by-wire portfolios. Their programmes are changing from discrete initiatives to portfolios of smaller projects, managed by sophisticated investment techniques typically used by the venture capital and financial markets. These more sophisticated approaches reduce uncertainty, diminish risks, grow opportunities and enable better investment decisions. It makes sense that the faster the pace of change in a sector, the more agile investment decisions must be; but this requires a different financial culture.
Signals in the noise – predicting the lifecycle of demand, revenue & costs
Home truth #2: Throughout the project’s lifecycle, decision makers are poorly informed – particularly internal investors such as budget holders. Traditional IT opportunities and projects deliver less than expected. Even if a project is completed on time, to requirements and within budget, it is often not value-for-money.Every stage brings uncertainty, which can only be reduced by good intelligence
Every stage brings uncertainty, which can only be reduced by good intelligence
Project intelligence – information feeds to the project from sensing mechanisms such as market surveys – have a problem with four Vs: low volume, low velocity, low veracity and low variety. Poor intelligence creates uncertainty that makes it hard to adjust ongoing investment against predicted value. Financial losses from this uncertainty dwarf any savings from economies of scale and scope. We must separate signals of actual value from the noise of poor intelligence to more accurately predict demand, revenue and costs further ahead in the lifecycle. Uncertainty is only reduced by faster, higher-quality information from a more diverse set of proactive, haptic sensing mechanisms such as ecosystem partners, platform instrumentation, customer and supplier hackdays, and field forces. But even good intelligence is not enough. Traditional accounting and investment processes and metrics do not support the fast-cycle, agile delivery of digital technologies such as the cloud, microservices, or advanced technology architectures such as serverless.
Home truth #3: Organizations hobble portfolio management. This is another reason why projects and programmes deliver less value than expected: in traditional portfolio management, the siloed nature of organizations separates portfolios from each other and it is impossible to distribute risk or restructure them to redirect investment for better returns.
Organizations hobble portfolio management.
And finally, Home truth #4: Organizations do not use their internal and external platform ecosystems to unlock efficiencies from the management of digital components to bring cost reductions and value gains. Between poor information, outdated accounting, unintelligent portfolio management and inferior components, investment practice in technology opportunities and projects needs a reboot.
Between poor information, outdated accounting, unintelligent portfolio management and inferior components, investment practice in technology opportunities and projects needs a reboot.
Fly-by-wire portfolios – serverless forces the evolution of investment in technology projects
The trend towards serverless working is shifting the focus of financial effectiveness from organizations and applications to individual teams and even a single business process, binding delivered value directly with finances.
Serverless is shifting the focus of financial effectiveness from organizations and applications to individual teams and even a single business processes, binding delivered value directly with finances.
Serverless financials leap over silos and traditional accounting boundaries. They are changing the management and accounting practices of the organization alongside the shift toward small, autonomous teams, the decentralization of power and ubiquitous analytics. As this entrepreneurization of teams spreads, teams can become like financial investors improving their lines of business. Some internet companies are now focusing on building their business just around their IT stack.
Teams can become like financial investors improving their lines of business.
Traditional companies can benefit too. Serverless architectures show an accurate, current view of the cost of functionality. When IT is objectively benchmarked and has a per-call price tag, organizations can continually reassess whether their projects deliver a good return on investment.
Curiouser & curiouser – new norms need six counterintuitive rules
Big things have small beginnings. Small improvements in lowering the cost of failure or raising the probability of success bring significant gains across project and opportunity portfolios. This can be accomplished with six counterintuitive approaches that LEF recommends you adopt:
Tame failure – fail fast, save investment, learn lessons, upgrade components
To do this as the tech giants do, schedule a project so the most uncertain parts are executed first. You may come close to failing or even fail. Use that failure to learn fast, then pivot or close down the project and redirect investment elsewhere in the portfolio, making sure the learning improves your critical common components.
Shrink – smaller projects make smart projects and smarter portfolios
Small is good. The bigger the project, the more uncertain the costs and value, the greater the margins must be and the fewer investment opportunities a company can exploit. Small projects bring smaller risks and work better with lower margins. They can gradually reduce uncertainty and prepare the ground for bigger projects or unlock many small opportunities, forming a positive feedback loop. And more, smaller projects remove systemic risk in a portfolio. Since fail fast improves the risk:reward ratio and overall portfolio performance, you can choose to pursue either projects with smaller chances of success or those with lower margins.
Limit yourself – focus only on the best range of demand
Uncertainty is reduced by eliminating unprofitable ranges of demand, even at the expense of some scale. Proper investment in user research reduces the uncertainty of the project – for example, if you have the right data to estimate the size of the market accurately. Data from past projects is particularly useful. Reduced uncertainty reduces financial risk, so it affects both the project and opportunity portfolios.
Obsess – sharpen value propositions
Obsess about your value proposition. Although a cliché, painstakingly understanding your customer base and its needs significantly reduces uncertainty. Use sensing mechanisms such as platform instrumentation, ecosystem partners, customer-centred hackathons, a highly digitized field force and a diverse design team.
Trust the unknown – go outside for your components
Efficiency brings stability, which reduces uncertainty. So use mature, predictable components billed by consumption. This will also:
- Change step-like cost structures to linear ones
- Delegate risks
- Ensure future improvements in component efficiency
Loose control – use the platform business model, inside and outside
The platformization of components makes them available in the external market, reducing rework and duplication. Internally, use instrumentation to monitor component consumption and spot which project-specific components, if standardized a bit, could be reused and so reduce the cost and uncertainty of the entire portfolio.
The prize is a virtuous cycle, a self-reinforcing system of six Rs of value:
- Recognized actual value
- Redirected investment
- Reprioritized opportunities
- Restructured portfolios
- Revealed opportunities
- Rescoped opportunities