How to Kill an Underperforming Project
Most of us know that new product development and the creation of internal new ventures can have a huge impact on both growth and profitability. As a result, to proceed with or terminate new initiatives is one of the most important but difficult decisions leaders must make when growing their firms. Most often, it is a temporal issue. Initiatives might be ended too quickly, resulting in unrealized potential, or might be held on for far too long, resulting in prolonged commitment to a losing course of action. Whatever the case, failed new ventures can constrain a company’s resources for decades and cost hundreds of millions of dollars.
Is there a silver lining anywhere in these clouds? Perhaps. Previous research suggests that failure—specifically in the context of new product development and corporate entrepreneurship—provides valuable learning opportunities, such as a greater emphasis on innovation processes. However, this research tells us very little about how corporate entrepreneurs make decisions to stop new venture projects and how they capitalize upon the potential learning from these failed initiatives.
Gaining better insight into these issues is what motivated research I conducted with colleagues during the past decade. One recent research project with Fortune 100 companies, all of which were attempting to create internal new ventures with breakthrough products, focused on finding patterns in how corporate entrepreneurs think and act. We were examining their mental models or what psychologists call “scripts.” We held on-site visits with each firm and conducted follow-up phone calls every six months for more than three years. Our analysis of nearly 70 hours of interviews and supplementary documents suggests that corporate entrepreneurs often make use of different termination scripts: specific ways of thinking and acting to kill a new initiative. Moreover, we found evidence of learning resulting from the deployment of each kind of termination script. We describe our findings below, as we believe they can help corporate practitioners—especially those who want to become more entrepreneurial in thought and action—make better decisions.
Types of Termination Scripts
We found that corporate entrepreneurs use up to three specific types of termination scripts, which we label as undisciplined termination, strategic termination, and innovation drift (see Table 1). We discuss each of the scripts below and provide a summary of the symptoms that led us to differentiate among the scripts as well as interpret learning implications.
Undisciplined Termination – The undisciplined termination script is indicative of a quick decision to kill a project without regard for possible learning opportunities. Five of the 11 corporate entrepreneurs exhibited this subscript. We found that early kill rates were high in some companies and the corporate entrepreneurs admitted that termination of an innovation initiative may result in potential missed opportunities. As one corporate entrepreneur in a computer systems firm noted, “You need to be careful that the system doesn’t kill it prematurely.”
This indicates a need to balance a disciplined and rigorous innovation process with flexibility in order to explore and experiment to acquire more market and/or technical information. With tighter budgets for breakthrough innovation, senior management is looking for more immediate results from newly initiated projects, yet such a need for speed also can lead to missed opportunities, as illustrated in the quote below from an innovation leader in a large chemical manufacturer:
"And so if you’re going to an approach where you’re going to fund them to lower levels and require a shorter time frame to do it, one of the things you have to be willing to accept is you’re going to kill good ideas. Well, you’re going to. It’s inevitable."
Interestingly, the corporate entrepreneurs identified as using undisciplined termination
scripts led very rigorous innovation initiatives. Processes were methodical and tightly managed. Fledgling projects that had low probabilities for success were quickly terminated. Although the potential for missing a big opportunity was present, there was little cause for alarm given the systematic nature of their processes. We call this script “undisciplined” because there was little patience within the organization to experiment for any significant period of time. We found little evidence of learning; the priority was moving on to the next project. When the undisciplined termination script is employed, potential for learning is low because not enough time has passed to feel failure or capture learning. Little knowledge is gained, but few resources have been wasted. As a result, there is no need to fully justify learning at the expense of the organization.
Strategic Termination – What we term the strategic termination script emerged from the data on numerous occasions within our sample. Strategic termination is indicative of a concerted effort to acquire sufficient information to know when to terminate or to continue a project. The majority of our corporate entrepreneurs used this script. We found that the strategic termination script led to maximized learning because the corporate entrepreneur was willing to reflect on what went wrong and to capture the learning in order to move forward with other future projects. Central to the strategic termination script are processes used to measure project performance and the achievement of milestones in order to make calculated decisions about moving forward or termination.
Process and metrics bring objectivity to innovation. Within the domain of strategic termination, we found evidence that projects were terminated for various, yet all objective, reasons such as: the venture not reaching revenue targets; lack of technical progress; inability to reach markets or lack of market knowledge; and lack of strategic fit with organization goals. Establishing milestones with consequences for underperformance sent messages throughout the organization that time is of the essence and resources will not be wasted. However, the metrics and discipline used helped foster learning and innovation effectiveness as demonstrated by the following quote from one of our leaders:
"You have to look down the road 18 months or a year or whatever your vision is and say that I must accomplish this. If I want to do what I say I’m going to do in this initiative with the money I’m being given, I must have accomplished this, this, and this."
The vision-based, holistic orientation is characteristic of strategic termination scripts. The necessity for due diligence and goal setting prior to embarking on high uncertainty projects is a hallmark symptom that plans for strategic termination thinking and action are in place.
Learning appears to be maximized when strategic termination scripts are in use because the objectivity and controls within the process highlight success and any deviations from success. Additionally, because termination, failure, and killing projects are expected outcomes within breakthrough innovation initiatives, a process is put in place to capture learning.
Innovation Drift – Symptomatic of an innovation drift script is the tendency to let projects continue when the chances for commercial success are, at best, limited. The inability to kill projects in a timely fashion results in wasted resources that could be reallocated to other high-potential projects. And, because firms let these projects drift, no one is keen to secure learning. New opportunities gain their momentum at the organizational level and it often becomes difficult for a single individual to take appropriate action. Said one of our corporate entrepreneurs:
"They have far too many resources for what is really a concept stage project, and so once you build up momentum of a million-dollar project, it is very hard to kill it."
The presence of an innovation drift script is supported by research elsewhere, which explains that learning from failure is not automatic. More pointedly, the problem with success is that it deludes individuals and organizations into thinking everything is fine, believing no corrective response is necessary. Unfortunately, this is a mirage for corporate entrepreneurs who want to focus on securing the future of their firms because “...if the goal is to promote stability and short-term performance, success provides an excellent foundation for reliable performance. Success tends to encourage the status quo.”1
Most of the corporate entrepreneurs in our research project recognized and spoke about innovation drift. Although reasons for not terminating vary, the undertone is that no one is standing up to say, “It’s time to stop.” Issues of concern limiting the termination capacity of the company also stem from a lack of career paths for project members. In other words, once a project is terminated there may be no place for team members to go or there is a lack of clarity around redeployment. In addition, the lack of process in some of the companies prevented the objective measurement of progress that we found with the strategic termination script. As one corporate entrepreneur noted, “And just like anything, you can make something look pretty and kid yourself.”
It was widely acknowledged that some projects were not progressing and the chances for commercialization were slim, but corporate entrepreneurs were not stepping up to the plate to kill the project and reallocate resources even though this was known to be the optimal decision. Killing a project takes courage. A leader from a diversified industrial and consumer products firm explains:
"And one of the things that I’ve observed in this business, and I don’t know if we can generalize it, it’s always risky to do so, but sometimes I think the things that dwell in the pipeline are destined to die, and we just haven’t figured it out yet. The stuff that’s destined to succeed moves through relatively quickly. Now, you’ve got to be a little careful there because some of the stuff that kind of lingers in the pipeline, if it’s doing so for good reason, like a key piece of technology is missing, or, you know, I don’t know, we’re waiting for something to occur out in the market that hasn’t occurred yet, that might be a reasonable reason why something would linger. But, sometimes I think they linger because we just haven’t quite mustarded up the courage to kill it."
Learning is limited because projects linger and tie up valuable resources that could be better utilized in the innovation portfolio. Until someone in the company can admit failure and muster the courage to kill the project, there is little room for capturing learning. Accountability is lacking.
In sum, our work allowed us to identify the presence of different termination scripts used by the corporate entrepreneurs in our sample. We expected to find that companies primarily used one of these scripts, yet our analysis revealed that the majority of companies in our sample used more than one type. It also became evident that the learning that took place across the scripts varied significantly. This led the research team to identify patterns across the scripts, thus leading to a deeper understanding of learning from failure. Cross-case comparisons and deeper delving into the data led to the emergence of two broad types of learning-action learning and post-performance learning.
Three Ways to Ensure That Learning Occurs
We believe that it is important for all corporate entrepreneurs and managers to understand the importance of scripts and learn how to use them. Below we suggest tips to get started:
Develop your awareness of scripts. And while psychologists do not completely understand how individuals develop and use scripts, practicing entrepreneurs need to have at least some appreciation of how their use of various cognitive scripts affects their decision making and organizational actions.
Hone your domain expertise. It’s clear that individuals who have experience in a certain domain tend to develop a script for working in that domain. Additionally, individuals who have a great deal of experience in a particular domain have scripts that can be accessed more readily than those who do not. For practitioners, this is extremely important because it suggests the need to tie failure and learning more closely together.
Learn when, why, and how to fail. Corporate entrepreneurs cannot afford failure just for failure’s sake; they must learn from failure. Our research suggests that corporate entrepreneurs must embrace their failing projects more closely in order to gain an expertise and develop a script that can transform failure into learning. As the psychology literature suggests, the more work you do in a certain domain, the better you will become at handling it.
Strategic Termination Scripts and Learning Implications
– Kills projects without a developed understanding of market, technical, and organizational factors
– Organization uses a traditional stage gate system to monitor progress
– Organization uses incremental innovation metrics
– Organization focuses on lack of success of technical requirements without a focus on market potential
– Learning is stunted because opportunity was not allowed to develop.
– Ineffectiveness of incremental innovation metrics necessitates the organization to learn and apply more appropriate forms of project evaluation and review.
– Neither technology nor market issues can be successfully addressed
– Venture size – opportunity can be exploited but revenue potential falls below corporate needs
– Opportunity does not fit the resources, structure, or strategic plan of the organization
|– Concomitance of market, organization and technology factors allows individual and organization to realize the importance of all factors necessary for venture development and their interaction.|
– Individuals in the company talk about learning from failure but use this as an excuse to rationalize keeping projects in the system too long
– Lack of willingness or skill to terminate a project
– Organization focuses on success of technical requirements without a similar focus on market issues
– No landing zone; the project that develops is not aligned with the strategic direction of the organization
– Time lag diminishes the organizational memory and opportunity to learn from failure is restricted.
– Technical learning may be enhanced, but market learning and learning for commercialization suffers.
– Learning dissolves given lack of ownership of the innovation project. Project and learning is
This means corporate entrepreneurs must not stop failing projects too soon before getting close enough to assimilate and understand why the project needs to be terminated. Similarly, they cannot afford to let projects continue aimlessly, wasting time and other significant resources. By engaging these failing initiatives directly, practitioners might be able to develop a script that allows them to both terminate and learn simultaneously. We suggest that practitioners use Table 1 as a guide to build toward a strategic termination script that will allow for individual and organizational learning.
Through an examination of breakthrough innovation in Fortune 100 companies, we show that corporate entrepreneurs develop scripts for terminating projects that vary in success and vary in their ability to help both individuals and the organization learn. While not all scripts lead to optimal learning, and we suggest alternatives to remedy this situation in the accompanying table, there is no denying that failure is a part of the entrepreneurial process. Our study embraces this fact and suggests—perhaps paradoxically—that practitioners do the same in order to find success in the future.
1 Sitkin, S.B. (1996). Learning through failure: The strategy of small losses. In M.D. Cohen & L.S. Sproull (Eds.), Organizational Learning (pp. 541-577). Thousand Oaks, CA: Sage Publications.