How to get better at killing bad projects

FAIL fast, the adage goes, and move on to the next big idea. Most innovation managers know that few of their initiatives will succeed, so they keep multiple projects running at the same time and create processes for quickly separating winners from losers.

One popular way to make decisions about what stays and what goes is the use of stage gates. This is when project leaders present their progress to date and executives decide whether to unlock funds for further development. For example, a project might have to pass reviews at one-, threeand six-month milestones to determine whether it continues to promise return on the innovation investment.

Stage-gate processes improve on more laissez-faire steering methods in several ways: They aim to improve innovation effectiveness by separating project leadership from resource decision-making to avoid conflicts of interest, formalize points at which discontinuation decisions can be made and nudge executives to compare projects critically with others.

Yet, even with stage gates, firms struggle to kill bad projects. Anyone who has ever had to pull the plug on a colleague’s work knows how difficult it can be. Even supposedly ruthless venture capitalists often struggle to end projects at the right time.

Our research shows that the conventional use of stage gates can be part of the problem, impeding project discontinuation in counterintuitive ways. To reach this conclusion, we undertook a review of decision-making processes at the former handset maker Sony Ericsson, from its inception in 2001 to its dissolution into the Japanese parent in 2009.

This unique historical analysis of the entirety of a firm’s innovation portfolio (for a total of 200 handset projects) reveals the opportunity costs of not failing fast enough even when stage-gate processes are adopted. Only onesixth of projects were discontinued before launch. Sony Ericsson had some notable successes, but many phones brought in lackluster returns. With the development of flops drowning out more promising projects, the firm could not muster enough innovation firepower to respond to the smartphone trend that eventually sealed its fate. The company struggled to correct the priority order of its projects when making stagegate decisions, continuing to fund projects whose business cases no longer looked good and preventing investments elsewhere.

How can the organization of your innovation function act quickly on environmental changes and information gains? We recommend three modifications to your stage-gate approach to ensure that you’re stopping projects efficiently:

Forego proof of failure:

When you’re dealing with the uncertainty of a new product or market, there is no reliable proof that a project is going to fail and no stage gate will offer you that proof. What may ultimately be more useful for making continued go or no-go decisions is a qualitative assessment of changes to the main assumptions underlying the business case that led you to invest in the project in the first place.

Sony Ericsson typically used seven stage gates, beginning with “concept” and concluding with “ship.” Few projects offered sufficient visibility to track reliable financial key performance indicators in the early stages. Concrete figures were often either not provided or not reliable. A lack of solid figures does not mean a lack of reasons to discontinue a project, however. For example, Sony Ericsson

could have quickly noticed changes in customer preferences for specific features of the handset, even if exact revenue figures were hard to come by. Qualitative insights available about customerpreference changes could have permitted a reallocation of development resources even if quantifying the likelihood of success of a product was not possible yet. In a hunt for conclusive proof that something would fail, resources were locked up in failing projects, starving others of much needed support.

Sleuth the business case:

It’s easier to refine project-return estimates as a project nears launch. The unfortunate reality at many firms, including Sony Ericsson, is that near launch, attention shifts to delivery and few like to disrupt execution. As a result, project managers often do not feel the need to bother with updating business cases with the latest insights. Sony Ericsson all but ceased project discontinuations about halfway through its development process.

Even if it’s late in the game, however, discontinuation remains hugely important, considering that most projects consume the majority of their development resources in those later stages, as things move toward mass production. A single late-stage project can prevent dozens of alternative early-stage ideas from being funded. Failing to update business cases near launch, and thus missing signals of failure, can be disproportionately expensive.

To counteract the shift in priorities in the later part of stage-gate processes, it may be advisable to create the roles of business case sleuths. Free from the pressures of project execution, such detectives could go after changes to business case assumptions when others have lost interest in evaluation and are focusing only on getting across the finish line. Independent sleuths allow decision-makers to build on new information about technological advancements, customer preferences, competitors’ moves or other factors with bearing on business cases when these have the greatest implications.

Don’t sweat the kill:

Once a project showed a clearly deteriorating business case, Sony Ericsson spent a disproportionate amount of time discussing it, often postponing and revisiting decisions. Instead of discontinuing its worst performers, the company downgraded expectations and thus made it look as if targets were met. Such attentional inertia can be reduced by minimizing the scope for interpretation and discussion. Setting clear discontinuation criteria beforehand ensures more automatic responses, preserving stage-gate decisionmakers’ emotional energy for worthier pursuits.

Overall, our analysis offers a cautionary tale. Using stagegate processes has on occasion been criticized for the tendency toward bias against more daring innovation; less known has been the potential to escalate commitment, the very bias stage-gates are intended to avoid. As a resource allocator, you should understand the impossibility of reducing commercial uncertainty in early stages as well as your staff’s natural reluctance to reduce uncertainty in later stages.

Finally, don’t let decision paralysis set in when performance lags. Selective project progression is key in markets where investment occurs before knowing, and where learning during development determines the chances of success.