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McKinsey Report Highlights Failure of Large Projects: why it is better to be small, particularly in IT

by Mark P. McDonald  |  October 29, 2012  |  37 Comments

A recent set of studies published by McKinsey Quarterly provides further evidence that the bigger they are the harder they fall.  Given that the McKinsey Quarterly’s audience is predominantly business executives rather than IT professionals, it’s important that CIOs are aware of the findings and have a reasonable response.

Large projects not only fail more often they deliver less.  According to the McKinsey/Oxford study half of IT projects with budgets of over $15 million dollars run 45% over budget, are 7% behind schedule and deliver 56% less functionality than predicted.  That means that:

At least half the time — achieving at least $15 million in benefits, requires spending $59 million

Obvious answers to an obvious question

The report goes onto suggest four disciplines that McKinsey calls “value assurance” and contains something that CIOs already understand.  The four disciplines include:

  • Managing stakeholders rather than budgets and schedules
  • Securing critical internal and external talent
  • Building effective and aligned teams
  • Excelling at core project-management practices, such as short delivery cycles and rigorous quality checks

Each of these ‘value assurance’ disciplines is self evident for large and complex projects.  CIOs know that they need to manage stakeholders, get the right people, put them into teams and manage them effectively.   Stating the obvious at best confirms what CIOs know and at worst suggests that they do not know how to do their job.

Should the causes of large project failure extend beyond the CIO and IT?

I believe they should.  The value assurance disciplines offered by McKinsey point the way.  Everyone in the enterprise is responsible for a large not just IT.  The failure of a large IT projects a business failure the responsibility shared across the entire senior leadership team.  Firing the CIO for a large project failure is a little like replacing the manager on a losing baseball team, sure an executive is gone but the poor performing team remains.

No organization can tackle a large IT projects without the right skills and they are foolish to try.  While hiring consulting firms, like McKinsey, can provide a temporary skills boost no amount of short-term skill injection can make up for years of under investing in IT personnel or their skills.   You need a highly effective enterprise and IT organization to tackle large projects.  Based on the Gartner Executive Programs CIO Survey data those highly effective organizations account for less than one in eight of all IT organizations.  You need to invest in IT capability and capacity before you insist on launching a large transformation program.  Otherwise you are planning just like the Blues Brothers who had a definitive recipe for success.

“It’s 106 miles to Chicago, we got a full tank of gas, half a pack of cigarettes, it’s dark… and we’re wearing sunglasses.”

Finally, the issue of alignment is more a function of time than an ongoing management activity.  The longer the project, the more it is exposed to changes in customer, market, business and technology context reducing its value potential while increasing its execution risk.  Given the reality of large-scale systems building, its complexity, the interlocking co-dependencies, etc. the idea that you can keep a large effort aligned rapidly becomes a fallacy.

Does this mean that it is impossible to execute a large process?  No, it is possible and currently many organizations are engaged in such projects and currently committed to their success.  The results of this study, like prior studies concerning IT project failure, point out the risks associated with these ‘transformation’ efforts.

There is another way – and that means getting small

The need for large complex and high-risk transformation programs should be shrinking in all but the direst circumstances.  Continuous investment in systems, coupled with the move toward services and the degree to which IT covers business process should dampen demand for high-risk transformation programs.

When business processes were manual, isolated and lacked scale, then this type of large program was necessary.  Transformation automated processes, integrated then and put them online.  CIOs have done most of that work making the future one more of rapid evolution rather radical revolution.  Organizations have also limited their future transformation potential via sourcing arrangements that are not conducive to transformation programs.

Digital technologies and next generation mobile, social, big data and cloud solutions do not require large and high-risk transformation investments.  These solutions work best when they evolve, response, configure and adapt themselves to consumers and the marketplace.  These lighter weight technologies leverage rather than displace corporate information and systems.  Reuse should be a larger part of your management playbook.  It is time to re-plumb your IT strategy  in the face of these realities.

Going small is an answer for all

Going small provides an answer for all.  By going small, I suggest that we concentrate our efforts on reducing cycle times, multi-tasking and competing priorities and turn IT from consumer of resources to a producer of business results.

That happens when IT recognizes its ‘production function’ in the organization as delivering speed, scale and choice.  With that background, CIOs and IT leaders need to realize that IT’s moments of value only occur when it completes and delivers business change.  The more frequent the delivery, from smaller projects, the greater the accumulated value delivered.    The larger and longer the project, the less frequent the value moments and the lower the value.

Breaking large projects into smaller components – something suggested in McKinsey’s ‘value assurance’ disciplines provides a partial answer that easily increases overall systems risk and reduces benefits as change is spread out over a longer period of time.

While its impossible to ‘eat an elephant in one bite’ it also takes a long time to consume the elephant in a series of smaller portions.  We do not need smaller portions; we need new ways of thinking about IT, its value and how it delivers results.   We call that thinking small and rather than repeating those points here, I suggest following the links below.

Get ahead of the ‘large project = risky project’ curve

The rate of IT project failure has been a topic of discussion since the Standish Group released their first large-scale study in 1985.  Now more than 27 years latter, the results of the McKinsey Survey confirm that the bigger the IT project, the harder and more likely it is to fall.   These findings, presented in a business journal can be easily construed as fueling the argument that IT is less capable and has less capacity than other organizations within the enterprise.

Get ahead of that argument, as there are no IT projects, particularly when they are enterprise transformation projects.   The modern industrial IT model  has outlived its relevance in today’s world of digital technology.  Its time to start discussing a post modern IT model, one that reflects future challenges rather re-casting old management practices into new management models.  That is the reason why IT needs an enlightenment rather than a renaissance.

Its time for CIOs to offer a different answer that goes beyond ‘value assurance’ imperatives that boil down to the recommendation to do large projects better.  Creating technology-intensive business transformation is everyone’s responsibility and an area where we need to find new answers to new questions.  Those answers start by recognizing the realities we all face rather than returning to past failures and failure modes.

Thinking small is part of the answer and discussed in more detail in the links below.

What do you think?  Should the days of the large-scale high-risk transformation project fade away?  If not, then what needs to be different – besides just doing them better?

Related Posts

It is time for IT to ‘get small.’

Have you lost your small project muscle?

Thinking Small — Creating value rather than controlling costs

Thinking Small about your IT organization: Mosaic vs. Monolith

Thinking Small means Thinking Value

Thinking Small means ‘dating the business’


Category: 2013  amplifying-the-enterprise  distortion  it-governance  small-it  

Tags: 2013-planning  change-leadership  it-leadership  small-it  symposium  transformation  

Mark P. McDonald
GVP EXP
8 years at Gartner
24 years IT industry

Mark McDonald, Ph.D., is a former group vice president and head of research in Gartner Executive Programs. He is the co-author of The Social Organization with Anthony Bradley. Read Full Bio


Thoughts on McKinsey Report Highlights Failure of Large Projects: why it is better to be small, particularly in IT


  1. […] McKinsey Report Highlights Failure of Large Projects: why it is better to be small, particularly in … […]

  2. Tebe says:

    Good point with going small. But “56 percent less” – its about value, not functionality. Those are not the same, i think..

  3. Mark P. McDonald says:

    Tebe

    The 56% less comment is about missing their original defined scope. Your right it could be 56% less because the business and IT over specified the requirements or less because IT failed to deliver. If the assumption that each requirement has value — a big assumption — then you can connect missed functionality with missed value.

    Going small is more about recognizing that the moment of value for IT is not in the project, but in the completed project and the more you bundle, delay, space out value moments the less valuable you are simply because you are delivering less frequently.

    It is a little like trying to date someone but only meeting with them once every 6 months, rather than going out on most weekends. It can be done, but very hard.

    Thanks for your comments and for reading the blog

    Mark

  4. […] Failure of large projects – why it is better to be small particularly in IT […]

  5. […] – report after report shows a high failure rate for large IT projects. For example a recent McKinsey / Oxford report, referred to by Gartner […]

  6. […] McKinsey Report Highlights Failure of Large Projects: why it is better to be small, particularly in … […]

  7. Barry Deane says:

    While the McKinsey report is in other ways expert, the very starting point of your reporting of it reveals a fundamentally flaw. You begin by listing the four disciplines of ‘value assurance’ adopted by McKinsey – presumably in their thinking about and assessment of IT project success.

    Establishing your thinking framework ahead of investigating any problem or phenomena is critical. Why? The framework or ‘mental model’ becomes the lens through which you view matters. The wrong mental framework will not allow you to see what might be critical isues for success. It will be as if those critical issues do not exist.

    And, project size is irrelevant in this regard – i.e. to their being vulnerable to a poor understanding of the reqirements for organising and mananing people.

    With respect to IT systems failure, what is clearly needed is a plausible/reliable, evidence-based framework which represents all of the essential elements (and their interactions) of a company’s organising meta system. McKinsey’s four disciplines of value assurance i.e.

    •Managing stakeholders rather than budgets and schedules
    •Securing critical internal and external talent
    •Building effective and aligned teams
    •Excelling at core project-management practices, such as short delivery cycles and rigorous quality checks

    don’t do that.

    If (as I suggest) the four disciplines proposed are inadequate, then subseqent critical evaluation will be limited by the the view through that lens. The analysis that follows will then be of little value.

  8. […] sites are:  Why Projects Fail, McKinsey Report Highlights Failure of Large Projects, and Gartner Survey Shows Why Projects […]

  9. […] of over $15 million dollars run 45% over budget and are 7% behind schedule, according to research from McKinsey. So, sadly, it’s not surprising that a project this big would have […]

  10. […] of over $15 million dollars run 45% over budget and are 7% behind schedule, according to research from McKinsey. So, sadly, it’s not surprising that a project this big would have […]

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  13. […] of over $15 million dollars run 45% over budget and are 7% behind schedule, according to research from McKinsey. So, sadly, it’s not surprising that a project this big would have […]

  14. […] of over $ 15 million dollars run 45% over budget and are 7% behind schedule, according to research from McKinsey. So, sadly, it’s not surprising that a project this big would have […]

  15. Dan P says:

    Mark – Overall, I do agree with your post. As petty as this may sound, I dont get your math. Assuming 15% budget overrun and only 44% of functionality delivered, I get $49M. (I am also assuming that original project budget = business value which is not always the case).

  16. Bill Sweeney says:

    Should the days of the large-scale high-risk transformation project fade away?

    While I agree with the main premise, smaller projects have a greater chance of delivering business benefits, I don’t believe the era of large scale transformation is over. Here’s why:

    Many corporations have under invested in technology upgrades over the years or had strategies designed to get the most out of what we have. Other corporations have grown through acquisition and have a hodge podge of overlapping legacy systems interwoven with back end data warehouses and new front end mobile applications.

    In these circumstances the “small” project can only nibble around the edges when what is needed is the new “large, transformational” project to eliminate the complexity, migrate to a rational architecture, and restore the flexibility that is needed to compete in today’s business world.

  17. […] year, a McKinsey report found half of IT projects with budgets of over $15 million dollars run 45% over budget, are 7% […]

  18. […] When it comes to massive multimillion custom-built computer systems, problems frequently happen. Half of IT projects with budgets of over $15 million dollars run 45% over budget and are 7% behind schedule, according to research from McKinsey. […]

  19. […] When it comes to massive multimillion custom-built computer systems, problems frequently happen. Half of IT projects with budgets of over $15 million dollars run 45% over budget and are 7% behind schedule, according to research from McKinsey. […]

  20. […] When it comes to massive multimillion custom-built computer systems, problems frequently happen. Half of IT projects with budgets of over $15 million dollars run 45% over budget and are 7% behind schedule, according to research from McKinsey. […]

  21. […] When it comes to massive multimillion custom-built computer systems, problems frequently happen. Half of IT projects with budgets of over $ 15 million dollars run 45% over budget and are 7% behind schedule, according to research from McKinsey. […]

  22. […] This is an unusual internal insight into how a multimillion enterprise computer project can go awry.  Almost half of them do, according to research from McKinsey. […]

  23. […] This is an unusual internal insight into how a multimillion enterprise computer project can go awry.  Almost half of them do, according to research from McKinsey. […]

  24. […] This is an unusual internal insight into how a multimillion enterprise computer project can go awry.  Almost half of them do, according to research from McKinsey. […]

  25. […] This is an unusual internal insight into how a multimillion enterprise computer project can go awry. Almost half of them do, according to research from McKinsey. […]

  26. […] article also quotes a McKinsey study stating that 45 percent of large IT projects run over-budget. The study also notes that […]

  27. […] article also quotes a McKinsey study stating that 45 percent of large IT projects run over-budget. The study also notes that […]

  28. […] the larger point: tech is a tricky thing. A recent McKinsey study, for example, claims that a majority of all IT projects “deliver less functionality than predicted”, but it’s rare to […]

  29. […] of over $15 million dollars run 45% over budget and are 7% behind schedule, according to research from McKinsey. Earlier this month, Bridgestone announced that it is suing IBM over a $75 million computer system […]

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  32. […] of over $ 15 million dollars run 45% over budget and are 7% behind schedule, according to research from McKinsey. Earlier this month, Bridgestone announced that it is suing IBM over a $ 75 million computer system […]

  33. […] of over $15 million dollars run 45% over budget and are 7% behind schedule, according to research from McKinsey. Earlier this month, Bridgestone announced that it is suing IBM over a $75 million computer system […]

  34. […] of over $15 million dollars run 45% over budget and are 7% behind schedule, according to research from McKinsey. Earlier this month, Bridgestone announced that it is suing IBM over a $75 million computer system […]

  35. […] of over $15 million dollars run 45% over budget and are 7% behind schedule, according to research from McKinsey. Earlier this month, Bridgestone announced that it is suing IBM over a $75 million computer system […]

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