Introduction: The Challenge of Project Overhead
At a leading retail giant, the management landscape was overwhelmed by an immense bureaucratic structure that was both cumbersome and costly. With 2000 projects running simultaneously and involving 5000 developers, the complexity of operations had reached a critical point. Each project required its own detailed charter, a document that delineated objectives, scope, and financials, which itself became a significant source of inefficiency.
The process of creating these project charters was not just a procedural formality; it represented a substantial financial drain. Each charter consumed approximately $200,000 of effort to produce, translating into a massive expenditure when multiplied across the vast number of projects. Moreover, the organization was entrenched in the practice of tracking innovation tax rebates meticulously, a process tied directly to these project charters. This requirement further exacerbated the financial and administrative burdens, diverting essential resources from innovation and development into maintaining an outdated system of management.
The streamlining of this process was lead by fellow Agile Coach, Spencer Offenbacker. As a Team, our Agile Coaching team focused on the value stream mapping and alignment with a business architecture team. The project model was draining our resources. It had to stop.
This unsustainable model highlighted a critical need for change. The retailer was not only facing inefficiencies but was also bleeding valuable resources in an era where agility and swift adaptation to market changes were paramount. The situation called for a drastic overhaul of how projects were managed and funded, prompting a shift in perspective from project-based to product-based frameworks—a transformation that would soon lead to a groundbreaking evolution in the company's approach to management and development.
The Initial Setback: Compliance and Taxation Challenges
In the initial phase of our journey toward organizational transformation, the drive to streamline operations and reduce overhead was met with significant resistance, primarily due to rigid compliance and taxation requirements. Early efforts focused on simplifying the project management structure and minimizing the bureaucratic load carried by developers. However, these attempts soon encountered a formidable barrier: the deeply ingrained practices of tracking innovation tax rebates according to the hours logged on specific projects.
Our initial approach aimed at reducing the number of active projects and the complexity of project charters, which we hoped would alleviate some of the financial strain. Despite these efforts, we quickly realized that compliance mandates dictated a strict separation of development and operational costs. This separation was enforced through detailed tracking of every hour spent by developers and business analysts, ostensibly to meet tax reporting standards. Such measures not only stifled our ability to implement more agile practices but also locked us into a cycle of inefficiency that contradicted modern business dynamics.
The turning point came when we faced a glaring overbudget situation that could no longer be ignored. This financial shock forced a thorough reevaluation of our existing funding processes. The stark realization that our efforts were being undermined by outdated compliance practices led us to question the very foundations of our project management and financial tracking systems. As noted in Dr. Mik Kersten’s insights from "Project to Product," we recognized the necessity to shift our focus: "The first step to surviving digital disruption is shifting from project to product."
Armed with this new perspective and backed by metrics outlined in our OKR exercises—such as the aim to reduce project charter costs by nearly (by replacing with epics, OKR's and flow mechanics as per The Principles of Product Development Flow) and cut the administrative overhead —we sought a path that would align more closely with these modern principles. This critical financial juncture served as a catalyst, accelerating our move away from traditional project-based accounting toward a model that prioritized product innovation and agile responsiveness.
In this challenging phase, we learned an invaluable lesson about the importance of adaptability in business processes. As we navigated through these compliance and taxation challenges, the support from leadership and the clear, measurable objectives set forth in our OKRs proved essential in steering our efforts towards a more sustainable and effective operational model. This experience underscored the notion, echoed by industry leaders and frameworks like SAFe, that in the face of digital disruption, the flexibility to adapt funding and management practices is not just beneficial but necessary for survival and growth.
Learning from the Best: The Role of Agile Coaching
In our pursuit of a transformative shift from project-based to product-focused operations, the role of expert mentorship proved to be indispensable. Agile Coach Pat Reed, a visionary in the realm of agile practices and financial restructuring, played a pivotal role in guiding our strategic direction. With her extensive background, including her tenure as president of the Project Management Institute, Reed brought a wealth of knowledge and innovative perspectives that were crucial for our transformation.
Mentorship and Guidance:
Pat Reed's approach went beyond traditional coaching; she introduced us to advanced financial management techniques that had proven successful in other industry-leading companies like Intel and Maersk. Reed's philosophy was rooted in the belief that for organizations to truly adapt and thrive in a digital age, they must embrace a radical rethinking of their operational frameworks. She often quoted from influential figures in the agile community, reminding us that, as Mik Kersten points out, "Flow metrics provide a language that creates a fast feedback loop between the business and IT," which is essential for any successful transformation.
Drawing from the beyond budgeting principles observed at Maersk, Reed advocated for a shift towards more flexible, dynamic financial practices that could better support continuous innovation and responsiveness to market demands. Her training sessions emphasized the importance of understanding the full spectrum of agile financial operations, from strategic funding to tactical budget management.
Vision for Change:
Under Reed's guidance, our division was inspired to redefine our funding processes. We envisioned a system where funding was no longer tied to individual projects with predefined endpoints but was instead aligned with continuous product development. This shift was aimed at fostering a culture of innovation where teams could pursue long-term value creation without the constraints of traditional project timelines and budgets.
The proposed benefits of this transition were compelling:
Increased Flexibility:
By adopting product-focused funding, teams could pivot and adapt to changing market conditions much more swiftly, enhancing our competitive edge.
Enhanced Transparency:
Moving away from project-specific accounting allowed for a clearer understanding of costs and benefits, facilitating better decision-making at all levels of the organization.
Improved Efficiency:
With reduced overhead from eliminating detailed project charters and tracking, resources could be more effectively allocated towards direct value-generating activities.
This vision for change was not just about altering financial practices but was a fundamental shift in how we thought about work, value, and success. Pat Reed’s mentorship was critical in preparing our leadership and teams to embrace these new paradigms, equipping them with the tools and mindsets needed to drive the transformation forward. As we continued on this journey, the insights and principles gleaned from Reed's expertise and the successes of other industry leaders served as a constant source of inspiration and guidance, reminding us that, in the words of Dr. Mik Kersten, "Products are long-lived; projects are temporary." This realization was pivotal in our transition to a more agile, resilient, and innovative organization.
Breakthrough Conversation: A Meeting with the CEO's Accountant
One of the most transformative moments in our journey toward a more agile, product-focused operational model occurred during an unexpected conversation with the CEO's accountant—a meeting that would challenge and change our entire approach to fiscal management within the organization.
Critical Insight:
The encounter was initiated to address persistent challenges related to compliance and the taxing intricacies of our project-based system. As we delved into the depths of financial operations and the rationale behind the rigorous tracking of hours for tax purposes, it became increasingly clear that we might be adhering to outdated practices that no longer served our needs or aligned with modern business dynamics. The discussion was intended to find a way to streamline these processes while maintaining compliance.
During this critical meeting, as we presented our detailed logs and documentation practices, the CEO’s accountant listened intently before posing a simple yet profound question that caught us off guard: "Why are you still tracking every hour like this?" This question prompted a reevaluation of our practices, leading us to justify our methods based on assumptions rather than current fiscal realities or requirements.
Revelation:
It was then that the accountant shared a revelation that would pivot our entire approach: the real tax calculations were based on roles, not the hours worked. He explained, "Son, tracking hours for tax purposes in the way you do is an outdated model that doesn’t align with how modern cost accounting needs to be handled. The full cost of employees, including benefits, is accounted back per role at their total cost. It’s basic cost accounting."
This information was a fundamental shift in understanding for our team. The realization that the extensive tracking of hours was unnecessary and that a role-based model could satisfy tax requirements while simplifying our processes was enlightening. This conversation underscored the artificial nature of our previous tracking system and highlighted an opportunity to significantly reduce administrative overhead.
Emboldened by this new understanding, we began to question other longstanding practices that may have been based on outdated assumptions. This pivotal conversation marked a critical point in our transformation, leading us to reconfigure our financial tracking to align more closely with modern accounting practices and the agile methodologies we were striving to implement.
The accountant's insights provided a clear path forward to revamp our budgeting and fiscal management approach. This would enable directors to manage their resources more effectively under a fixed budget system, fostering greater innovation and agility across the organization. As we moved away from the meticulous tracking of hours, we embraced a new framework that prioritized value creation and strategic flexibility, setting the stage for the subsequent phases of our agile transformation.
Implementation and Results: Embracing a New Funding Model
Following the eye-opening insights from the CEO's accountant, our organization embarked on a bold strategic shift that would redefine how we managed and allocated our resources. This section of our journey was pivotal, as we moved away from the rigid, project-based tracking system to a more flexible and dynamic funding approach.
Strategic Shift:
The critical conversation with the accountant led to the adoption of a 'beyond budget' approach, where directors were given predefined budgets with clear accountability for their expenditures. This new model was designed to provide greater autonomy and encourage more strategic thinking about resource allocation. Directors were now responsible for managing their budgets within the set parameters but had the freedom to make decisions on spending in alignment with their product goals and team needs. This approach was aimed at reducing the bureaucratic overhead associated with project charters and hour tracking, thereby speeding up decision-making and responsiveness.
Outcomes:
Initially, this meaningful change in fiscal management practices led to some turbulence, notably reflected in the stock price due to tax amortization adjustments as the financial markets and internal stakeholders adjusted to the new model. However, the long-term benefits quickly became evident. Directors experienced enhanced control over their budgets, which translated into improved operational flow, increased throughput, and higher quality outputs. This shift not only boosted productivity but also enhanced overall satisfaction among teams who now felt more empowered and less constrained by administrative burdens.
The success of this new funding model was marked by its impact on our agility as an organization. The ability to respond to market changes rapidly and to innovate freely without the encumbrance of outdated financial tracking systems significantly strengthened our competitive position in the industry.
Reflections:
The journey from a project-based to a product-focused financial model taught us several invaluable lessons. Perhaps the most critical was the importance of continually questioning established processes. The conventional wisdom that had guided our financial practices for years was based on assumptions that, upon scrutiny, no longer held up under the evolving demands of modern business environments.
This transformation underscored the power of simple inquiries—a single question about why we tracked hours so meticulously led to a profound shift in our entire operational approach. It reminded us that sometimes, the practices we take for granted are the ones that most need reevaluation. Moreover, this experience highlighted the necessity of agility not just in our product development but also in our financial and administrative practices.
As we move forward, the lessons learned from implementing this new funding model continue to influence how we approach change and innovation. The journey has been a testament to the potential for significant organizational change that can arise from challenging the status quo and being open to rethinking how things have always been done. The success of this initiative continues to inspire other areas of the organization to seek out similar improvements, ensuring that our culture of continuous improvement and adaptation remains vibrant and effective.
Additional Reading
Here are some quotes from "Project to Product: How to Survive and Thrive in the Age of Digital Disruption with the Flow Framework" by Dr. Mik Kersten, SAFe (Scaled Agile Framework), and information on Maersk's beyond budgeting approach.
From "Project to Product" by Dr. Mik Kersten
1. "The first step to surviving digital disruption is shifting from project to product."
2. "Flow metrics provide a language that creates a fast feedback loop between the business and IT."
3. "Value Stream Networks are formed by connecting the organization around the flow of value."
4. "Products are long-lived; projects are temporary."
From SAFe (Scaled Agile Framework)
1. "SAFe promotes alignment, collaboration, and delivery across large numbers of agile teams."
2. "By organizing around value, the enterprises employing SAFe can achieve much higher levels of agility and quick response to the market."
3. "Decentralize decision-making to improve outcomes and enhance solution delivery."
4. "Lean budgets guard against excessive spending without stifling innovation."
Insights on Maersk's Beyond Budgeting Approach
1. "Beyond budgeting represents a management philosophy that enables organizations to become more adaptive to changes."
2. "Maersk's leadership emphasizes the importance of flexibility and responsiveness, moving away from traditional annual budget cycles."
3. "Empowering teams by providing them with the autonomy to make decisions based on current market conditions rather than static budgets."
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