Why digital initiatives in large enterprises are failing way too fast due to traditional corporate budgeting processes

Today most large enterprises have a digital agenda and want to make the transformation toward a lean enterprise. Enterprises are struggling with this transformation and the focus is too much on technology. A lot of digital initiatives within the enterprise fail and in a lot of cases the technology that is being implemented takes the blame. Mostly it is being considered too expensive and/or too complex to use and maintain.

In my 18 years as a management consultant I have helped many different clients in many different industries building their digital platforms. In these years I have been involved in great successes, but also have witnessed digital initiatives fail miserably. In most of the latter cases, technology related issues were not the main reason why these digital initiatives failed. The culture, organization and organizational processes were in most cases the real reasons why these initiatives failed.

Let’s examine one of the examples why digital initiatives fail way too early within large enterprises.

The traditional corporate budgeting process

In most large enterprises there is a yearly budgeting process in place which starts relatively early in the year before. In this process the different functional departments are expected to come up with their budget projections for the coming year including a portfolio of transformational programs and projects. Budget will be allocated to projects that will be initiated within this portfolio in the coming year. These projects are expected to have a projected start and finish date and to be delivered within a certain budget. After go-live the project results will be handed over to the standing organization.

This may have worked very well in the old days when there was a lot less uncertainty and these days it will still work for projects with relatively little uncertainty (for example when you want to optimize current operations). However, this will not work when you want to build a state-of-the-art digital platform or develop and launch new innovative business models. In these cases, there is a lot of uncertainty about what is needed to be successful in the market place. A user centric approach is key. Input and feedback from real customers and employees will determine what too focus on when building a successful digital platform or introducing a successful innovation. In addition, the time horizon for these kinds of initiatives will be typically much longer than one year. A digital platform within a large enterprise will continuously evolve based on ever changing customer needs and market conditions. As a result, these initiatives should not be run as projects but as product development initiatives and will need to be funded in a different way.

Funding a digital platform initiative

As discussed, a digital platform within an enterprise will continuously need to evolve based on ever changing customer needs and expectations and market conditions. Therefore, it is best practice to start small when building this platform. For example, you can start in only one geography targeting a relatively small customer segment. After proving that the platform works for this initial segment, you can scale up to more customer segments within this first geography. Only after success has been proven in the initial geography, you should start rolling out to other geographies. Next to this you cannot start with integrating all systems needed to be successful in the long run, as this will dramatically impact time-to-market of the first (minimum viable product) version of the digital platform. Expect that building this digital platform will be a continuous endeavor and hence needs a budgeting method that supports building a successful digital platform in the most effective way.

There are different ways to organize the funding of a digital platform initiative, but these should in my opinion adhere to the following principles.

Principles

· Fund for product development instead of projects: building a digital platform should be approached like building a product. The product owner should be able to make decisions on how to best spend the available budget to build a digital platform that delivers most value to its users. This will not be a project that will be finished in a certain timeframe, but a product that will need to continually evolve based on changing customer needs and expectations and market conditions. Development will continue after the first go-live and therefore the product development team will continue to work on the platform for a long period of time. After the first go-live there will also need to be an operations team in place. As this team will need to collaborate closely with the development team, it is recommended to work in a DevOps constellation.

· Leave room for uncertainty: it is impossible to know what the needs and expectations of your customers will be upfront, so you should leave enough room for uncertainty within the budget to cater to these wants and needs.

· Bring work to your teams, instead of bringing your teams to the work: as the development team will continue to work on the digital platform for a longer period, it is best to bring the work to the team. This will make sure that less overhead is needed and that knowledge around the platform will be optimally managed within the team. The size of the team will determine the burn rate and therefore how fast the available budget will be burnt (the length of the runway). To get the most value out of the team there needs to be a way to prioritize the work to be done. This is where the fourth principle comes into play.

· Allocate funds based on (lightweight) business cases: the team should always work on features that will bring most value to the customer. To determine which features should be prioritized, a lightweight business case will need to be created per feature. Speed is of the essence, so these should not be very lengthy and time-consuming exercises. One method is to calculate the Cost of Delay of introducing a new feature on the platform, but more methods exist to create these lightweight business cases.

It is still needed to reserve a budget upfront for developing the digital platform. Basing this on the estimated costs of delivering a certain scope will not be helpful as this scope cannot be predicted upfront. It is a better approach to base this budget on assumptions around the team (capabilities, number of people) that is needed to build and operate the digital platform. How the money within this budget will be allocated should be more flexible than in traditional approaches. You can be creative in how you want to allocate these funds to different epics and features, but I would strongly suggest following above principles. You can, for example, prioritize every epic and feature based on lightweight business cases or even ask product owners to pitch epics and features including the associated business cases to an investment board. This investment board should consist of senior executives who have a stake in the value that these epics and features bring to their customers.

In short, the budgeting and funding of a digital platform should be in line with and support the lean-agile methods that are being used to continuously develop, operate and improve your digital platform. In this way you leave enough room to address uncertainty by testing assumptions you have via different experiments, so you can fail fast but not too fast…