All Posts by Bob Lewis

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Projects should have a positive return on investment – wisdom shared so often that our extra-ocular musculature has probably thrown in the towel by now.

Those less schooled in the mysteries of management decision-making might be forgiven for thinking this means projects should return more money to the corporate coffers than they company invests in them.

Those with a bit more financial sophistication add opportunity cost to the calculation. Projects, in this more-robust view, should return not only the initial investment, but also the dividends and interest that would have been earned on that money had it been invested in a financial instrument of some kind.

This threshold is called the hurdle rate. Not the hurl rate, although many discussions about project desirability contribute to this. Project governance mavens insist that proposed projects promise to clear a set rate of return – a hurdle in the run-fast-and-jump-high-enough sense of the word.

It’s a superficially plausible criterion that isn’t so much wrong as it is, as someone once observed, insufficiently right. Why it’s insufficiently right is something any chess player who has progressed beyond the novice level of play would recognize.

Novice chess players are schooled in ROI-based decision-making. Each chess piece is, according to this model, worth a given number of points. Why does it work that way? Don’t worry about it unless you’re just curious.

Anyway, ROI-based chess players will cheerfully trade any piece for an opponent’s piece or pieces that are worth more in total than the piece they’re sacrificing – trades, that is, that have a positive chess-piece-point-count ROI.

It’s a formula that’s as plausible and wrong for chess-playing as ROI-based decision-making is for project governance decisions.

The fault in ROI-driven decision-making logic stems from this characteristic of business (and chess): Strategies don’t have ROIs.

In chess, strategic decisions are based on whether a move will increase the likelihood of beating the opponent. Removing an opponent’s most powerful pieces certainly can contribute to this, but so can other moves.

In business, strategic decisions should, in similar fashion, be rooted in beating opponents – in a word (okay, in two words) – competitive advantage.

This is, by the way, the flaw in stock buy-backs. When a board of directors decides to buy back stock it’s spending money that could have been used to make products more appealing or customer-care more loyalty-building. Instead, the board reduces the number of stock shares profits are allocated to, artificially … and temporarily … inflating the company’s earnings-per-share calculation.

Nothing about this analysis makes a focus on ROI wrong. Sure, a project that delivers untold wealth to the corporate coffers is, more often than not, a good idea.

But not always. A project that, for example, makes a colossal profit by posting a few million more cat videos to YouTube is sufficiently horrific that it should be vetoed by all right-thinking (and, for that matter, left-thinking) individuals, ROI or no ROI.

But I digress. Getting back to the point, strategy doesn’t have an ROI. It might seem to – you’d sure think competitive advantage should generate countable currency – but that’s rarely the case. One reason is something that, in evolutionary theory, is called the Red Queen hypothesis. It proposes that newly evolved adaptive advantages don’t always confer lasting results because a species that evolves an adaptive advantage leads its predators, prey, or competitors to adapt to their adaptation with their own now-advantageous adaptations.

Bob’s last word: I trust the business parallel is clear. But we need to take this one step further: As with so many instances of organizational dysfunction, the insistence on ROI stems from an unhealthy emphasis on measurement.

ROI makes value measurable. Not really, but it looks like it. Competitive advantage, for example, generates a financial return, but the size of the financial return can’t be predicted in advance. It isn’t just that anyone who tries to predict future customer behavior is about as reliable a source as Nostradamus, although they are.

It’s also that predicting how competitors will respond to a company’s strategy is almost as hard, and arguably more important.

Bob’s sales pitch: About once a month I publish a piece on CIO.com under the heading “CIO Survival Guide.” They’re a bit longer than KJR. And as the title implies they have a more overt CIO focus. You can see them all at Bob Lewis | CIO .

New on CIO.com’s CIO Survival Guide: “Why IT communications fail to communicate.” The point? Never confuse documentation with communication. The purpose of documentation is to remind, not to communicate.

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|In: Organizational Effectiveness|Last Updated:

Decisions commit or deny staffing, time, and money. Anything else is just talking.

We’ve been talking about how organizations should make decisions in the context of governance-oriented decisions (“Who signed the Declaration of Independence?,” 2/20/2023, and “The fourth law,” 2/27/2023).

The conclusion: businesses should forgo the temptation to form steering committees … bodies whose members are responsible for representing their organizations to the committee at large. They should, instead, charter councils … organizations composed of members who bring to the council special focus and expertise on one or more business functions, but who think of themselves as leaders of the whole business.

In the world of Agile, governance, such as it is, is embodied in the product owner. And establishing a product owner does, in fact, contribute to agility: When one person has full authority to make governance-level decisions, the only impediment to making decisions is the product owner’s timidity.

This is a special case of the broader view of decision-making. Those responsible for governing (that is, governance), and beyond that those responsible for any kind of decision have five ways to make decisions:

Consensus: We all agree to it, even if we don’t all agree with it.

Consultation: Everyone with a stake in the decision shares their knowledge with the decision-maker and then trusts the decision-maker’s decision.

Authoritarianism: The decision-maker makes the decision and announces it.

Voting: There’s safety in numbers, so let’s just tally them. Nobody can blame the decision-maker for the wisdom of crowds.

Delegation: Turn the decision over to someone else and ask them to make it using one of the remaining four ways to make a decision. It’s the remaining four because delegated decisions shouldn’t be re-gifted.

These are, to be clear, decision-making styles, not decision-making processes. Continuing with the Agile example, the product owner in Agile development has full authority to make decisions the etymologically obvious authoritarian way.

But authority doesn’t constitute obligation. Wise product owners, like most other leaders, make consultative decision-making their mainstay, except for this: With non-governance-oriented decisions, consultative decision-making amounts to listening to a lot of people in order to become smarter about the subject, then making the decision.

Non-governance-oriented decisions are, that is, unstructured.

But when it comes to governance, decision-making should be structured and rule-oriented. This is true whether the subject is Agile’s product ownership, an EPMO’s (that’s “enterprise program management office”) responsibility for grooming the company’s project portfolio, or compliance-related reporting and assessment.

When it comes to governance, that is, consistency is essential. Without it, everyone who has to deal with the governance function will figure the game is rigged, and finding bypasses and workarounds is a better path to success than trying to minimize the second-degree burns to be inflicted by the function’s flaming hoops.

Bob’s last word: Read between the lines and you’ll find an unfortunate fact of life: Entrepreneurship doesn’t scale.

In a typical entrepreneurship, governance and the owner’s whims are, if not synonymous, pretty close to it. In the entrepreneur’s eyes, success comes from basing all of their decisions, starting with deciding to open their metaphorical doors for business and moving on from there, on their experience, smarts, and good judgment.

But beyond a certain size, the balance has to shift away from pure entrepreneurship to a more organized form of governance. It’s a transition many entrepreneurs bemoan as the organization becoming a bureaucracy.

But without this transition, employees stop admiring the entrepreneur’s vision and become, instead, leery of their arbitrariness.

The essence of bureaucracy, that is, isn’t sand in the gears of innovation, although that is often an unfortunate side-effect. With attention and care, the worst bureaucracy has to offer can be, to some extent, averted.

What it takes is to constantly remember that the essence of bureaucracy is enforced consistency. It might not be likable, but it’s often essential.

Bob’s sales pitch: I’m always in search of more subscribers. But KJR’s subject matter isn’t the sort of thing I can promote on social media. Or if it is, I haven’t found the magic formula.

The closest I have are subscribers recommending KJR to friends and colleagues who should be subscribers.

I presume the message is clear.

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