Both executives had to find a way to save face and avoid the humiliation of having to admit that they squandered a few million dollars on two useless R&D projects. This could very well impact their year-end bonuses.
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BACKGROUND
Two executives in this company each funded a “pet” project that had little chance of success. Despite repeated requests by the project managers to cancel the projects, the sponsors decided to throw away good money after bad money. The sponsors then had to find a way to prevent their embarrassment from such a blunder from becoming apparent to all.
STORY LINE
Two vice presidents came up with ideas for pet projects and funded the projects internally using money from their functional areas. Both projects had budgets close to $2 million and schedules of approximately one year. These were somewhat high-risk projects because they both required that a similar technical breakthrough be made. There was no guarantee that the technical breakthrough could be made at all. And even if the technical breakthrough could be made, both executives estimated that the shelf life of both products would be about one year before becoming obsolete but that they could easily recover their R&D costs. These two projects were considered as pet projects because they were established at the personal request of two senior managers and without any real business case. Had these two projects been required to go through the formal process of portfolio selection of projects, neither project would have been approved. The budgets for these projects were way out of line for the value that the company would receive and the return on investment would be below minimum levels even if the technical breakthrough could be made. Personnel from the project management office (PMO), which are actively involved in the portfolio selection of projects, also stated that they would never recommend approval of a project where the end result would have a shelf life of one year or less. Simply stated, these projects existed for the self-satisfaction of the two executives and to get them prestige with their colleagues. Nevertheless, both executives found money for their projects and were willing to let the projects go forward without the standard approval process. Each executive was able to get an experienced project manager from their group to manage their pet project.
GATE REVIEW MEETINGS
At the first gate review meeting, both project managers stood up and recommended that their projects be canceled and the resources be assigned to other more promising projects. They both stated that the technical breakthrough needed could not be made in a timely manner. Under normal conditions, both of these project managers should have received medals for bravery in standing up and recommending that their projects be canceled. This certainly appeared as a recommendation in the best interest of the company. But both executives were not willing to give up that easily. Canceling both projects would be humiliating for the two executives that were sponsoring these projects. Instead, both executives stated that the projects were to continue until the next gate review meeting, at which time a decision would be made for possible cancellation of both projects. At the second gate review meeting, both project managers once again recommended that their projects be canceled. And, as before, both executives asserted that the projects should continue to the next gate review meeting before a decision would be made. As luck would have it, the necessary technical breakthrough was finally made, but six months late. That meant that the window of opportunity to sell the products and recover the R&D costs would be six months rather than one year. Unfortunately, the thinking in the marketplace was that these products would be obsolete in six months and no sales occurred of either product.
Both executives had to find a way to save face and avoid the humiliation of having to admit that they squandered a few million dollars on two useless R&D projects. This could very well impact their year-end bonuses.
Is it customary for companies to allow executives to have pet or secret projects that do not follow the normal project approval process?
While the case serves as a warning about the dangers of pursuing “pet projects” without due diligence, it’s not uncommon in the business world for executives to have pet or secret projects. That said, the nature, scale, and scrutiny of these projects can vary significantly across companies and industries. Some firms, particularly those in tech and innovative sectors, actually promote so called “skunkworks”-projects. These are often clandestine or semi-secret initiatives developed outside the regular R&D channels. Well-known products, like Lockheed Martin’s U-2 spy plane and Google’s Gmail, have emerged from such undertakings.
The logic behind these projects is the potential for significant breakthroughs or novel product lines. The idea is that granting some level of autonomy and sidestepping standard bureaucratic processes can lead to faster and more revolutionary innovation. Nonetheless, even in companies that endorse pet projects, there’s usually some oversight or budgetary restriction. In this case, the allocation of $2 million for each initiative is substantial. In many businesses, sums of this magnitude wouldn’t pass without rigorous substantiation and monitoring.
Corporate culture also plays a role. Companies that prize transparency and accountability might be more resistant to projects that lack a clear business rationale or bypass customary approval mechanisms. On the other hand, in organizations that are more structured or influenced by dominant personalities, the senior leadership may have more leeway. It’s worth noting that even projects that fail to meet anticipated financial outcomes can offer invaluable insights or tech advances that benefit the company in other ways.
However, the continuous bypassing of standard approval processes or making hefty gambles without due oversight can pose ethical dilemmas and tarnish a company’s reputation. Such practices can also dishearten other teams that adhere to strict criteria for their initiatives. In essence, while some degree of autonomy for innovative projects is not rare, best practices advocate for a clear business justification, alignment with company strategy, and some oversight to manage risks and maintain accountability.
This case, and questions, is take from the book “Project Management Case Studies – Sixth Edition” – 2022, by Harold Kerzner.
