Why did it take an experienced team of managers so long to realize that a new product development project was doomed?, challenges Kim van Oorschot.

KNOWLEDGE @BI: Project Management

Implementing complex projects is an important organizational capability. Such projects constitute the lifeblood of functions such as new product development. However, a significant number of projects fail, often with disastrous consequences.

For organizations it is therefore important to put in place effective mechanisms for evaluating projects over their lifespan, revising their scope, or, if necessary, pulling the plug altogether.

TechCar was a major new product development project inside TechCo, a well-known semiconductor company with strong development capabilities. The objective was to develop a chip to provide functionality to entertainment systems of new-generation cars. An experienced team was in charge of the project. However, the project fell behind on all milestones for progress. After spending 85 weeks and €20 million, TechCo cancelled the project.

The root cause

Why did it take an experienced team of managers so long to realize that the project was doomed? Our analysis shows that the team failed to see through the haze of confusing events, gradually causing the project to get into deep trouble. A metaphor that is often used for the inability of people to react to changes that occur gradually is the boiled frog syndrome. If a frog is placed in boiling water, it will jump out, but if it is placed in cold water that is slowly heated, it will not perceive the danger and will be cooked to death.

The project suffered from one core problem: small but chronic understaffing that persisted over time. Understaffing is endemic to project environments because it takes time to hire and assimilate skilled staff, and because of natural attrition. As in many project environments, managers at TechCar did not do a particularly good job of coping with such delays. Understaffing had the effect of delaying TechCar’s progress repeatedly.

The project team’s response

To address the issue of project delays, TechCar’s managers needed to focus on the problem of understaffing. But this was not easily rectified. Instead they repeatedly resorted to short-term fixes. One such fix was to accommodate delays by extending the duration of the project’s current stage, while squeezing the time available for implementing future stages. By reducing the time available for future stages, they succumbed to the illusion that the project’s official slack was protected, when in fact it was being slowly eroded by the delays.

It was only in week 53 that the team realized that they had run out of slack. At that point they had no choice but to renegotiate with the customer. Our findings provide deeper insight into how, over time, a project management team slowly becomes more and more locked into a failing course of action, like the boiled frog.

Seeing through the haze in complex environments

Why did the highly experienced and competent team of professionals repeatedly miss the warning signals about the disappearing slack? Our analysis reveals that they could not see through the haze of a complex, dynamic environment that provided little visibility on actual project status and lags between decisions and outcomes. Consequently, they stumbled from decision to decision, even as the problems grew worse.

In particular, their decisions showed two specific patterns of dysfunctionalities. First, team members were unable to interpret ambiguous information. Second, in their attempts to fix the project, they were distracted by the ostensible – rather than the real – problem.

Interpreting ambiguity in information. The project team received a continuous stream of information on events that could be classified as being positive or negative to progress in the project. This mix of events led the team to conclude during most meetings that despite the bad news, the project – while delayed – was not in serious trouble. Thus ambiguity in the information stream lulled the team into a false sense of security that was not supported by the data.

Distracted by the ostensible – rather than the real problem. The “real” (or core) problem of staffing should have been the team’s focus throughout the project. However, in most meetings, the team’s attention shifted to other problems because they appeared to be more salient than that of staffing, like problems with the schedule or budget. Instead of solving the underlying staffing problem, the team chose to address other issues as standalone problems. Meanwhile, the underlying staffing problem remained unsolved and repeatedly returned with a vengeance. This pattern of getting distracted by the ostensible problem was repeated until the end of the project.

Recommendations for managers

Contemporary project environments such as in TechCo are information-rich, largely because organizations have invested heavily in systems to provide updated information on multiple aspects of a project. This is not an unmitigated blessing. As the TechCar case shows, simply having information available does not ensure that managers see through the haze. Rather, managers should focus on information that enables better diagnosis.

In project management meetings, managers usually discuss progress or problems that have occurred since the last meeting, i.e., they focus on rates of change or net flows. However, this can be misleading because events have longer-term consequences that linger over time. Over successive periods it becomes increasingly tough to ascertain the overall consequences of events.

Therefore managers should not only consider net flows, as in this case, but also how the consequences of events accumulate over time. Furthermore, managers should solve a problem when it is still small instead of repeatedly using a quick fix which reduces the visibility on the project’s status even more.

Reference:

Oorschot, K.E. van, Akkermans, H., Sengupta, K., Wassenhove, L. van. 2013. Anatomy of a decision trap in complex new product development projects. Academy of Management Journal, 56(1): 285-307.

This article is published in BI Leadership Magazine 2013/2014, an English/Norwegian language public outreach magazine published by the Depratment of Leadership and Organizational Behaviour at BI Norwegian Business School.

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