Avoiding IT Catastrophe – McKinsey Study Reveals How

Black Swan

The failure of large IT projects is one of those stories that, unfortunately, never grows old. The media loves to showcase bad news while business and IT executives view with extreme skepticism every vendor claim of fabulous technology solutions.

The problem is probably getting worse. As a new McKinsey article, Delivering large-scale IT projects on time, on budget, and on value, points out, technology projects continue to get larger and more complex, and their failure can actually pose a survival risk to the company.

In a global review of large IT projects (more than $15 million), McKinsey and the University of Oxford found that more than half “massively blow their budgets” while the average project delivers 56 percent less value than predicted. Further, “17 percent of IT projects go so bad that they can threaten the very existence of the company.”

In one scary example, McKinsey cites a large retailer that failed with a $1.4 billion program to modernize IT systems, and followed that with a failed $600 million initiative to implement a new system for supply-chain management. “When that effort failed, too, the retailer had to file for bankruptcy.”

To avoid “black swans” and maximize chances for success, McKinsey suggests that companies need to focus on four dimensions of a “value assurance” methodology:

  • Managing strategy and stakeholders: Establishing clear business objectives, building and maintaining strategic alignment with all key stakeholders throughout the project, and taking special care to select the right vendors.
  • Mastering technology and content: Assigning high-performing experts to orchestrate all aspects of the program, with special attention to both business and technical concerns.
  • Building effective teams: Integrating business and technology contributors with a common vision, shared processes, and common incentives tied to overall project goals (vs. individual work streams).
  • Excelling at core project management practices: Investing in a strategic and disciplined project-management office with rigorous processes for governance, change requests, stage gate approvals and efficient delivery.

The recommendations are nothing new, but the reality, as McKinsey’s research again demonstrates, is these well-known good practices are too often ignored.

PTC research that focused specifically on product lifecycle management (PLM) projects suggests the benefits companies can achieve by following this value-based approach. For example, companies that achieve much greater business benefits with their PLM programs (e.g., faster time to market, greater product development efficiency) are much more likely to have invested in strategic alignment, value-based planning, and value-based project management.

One thing the McKinsey study may have missed, however, is the issue of organizational learning and adoption.

As is often the case with technology projects, the study focuses on project planning and execution. Of course, the ultimate focus is on value but we know from vast research and experience that the period following the “go-live” with new solutions is the most critical of all.

If companies fail to invest sufficiently in educating managers and users about the intent of the new program and in training and support for the new ways of working, adoption falls short and the promised value fails to arrive.

Indeed, the same PTC study shows that high performers in PLM were also much more likely to invest in a comprehensive program for learning and adoption, including cross-company awareness and role-based training on process change, as well as the new technology.

McKinsey’s work is another powerful reminder of the risks when compelling-sounding IT investments fail to deliver on their promises. A disciplined value-based approach to program strategy and implementation remains the key to success.

How has your company handled IT project management? Do you have any horror stories to share?

Photo: Joshua Ganderson on Flickr (CC BY 2.0)

This entry was posted in Best Practices, Strategy and tagged . Bookmark the permalink.

3 thoughts on “Avoiding IT Catastrophe – McKinsey Study Reveals How”

  1. Adam Dales says:

    Hi Rob:
    These are important insights/reminders. Thanks.
    Question – are these pointers (including the value-based consideration) just as relevant for, let’s say, creating a company’s business social collaborative site, much like PTC’s?

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