What You Can Learn from Sony about Cost Versus Value

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Sony, once a huge company and a pioneer of consumer electronics, is now worth a fraction of what it was ten years ago. And when you read about what changed in its business model, that should be no surprise. I was struck by how the company appeared to make decisions: What will make us the most money right now?

If you make your project portfolio decisions based on money and estimated cost, you, too, will have Sony’s problems. This is why your only question shouldn't be how much something costs; you should be asking, “How much value will this project provide?”

This is not a return on investment question. It’s a prediction question. And you can’t answer that question, either.

When you use cost to determine which project you should fund, you can guess right. But then you guess based on what you think the market will buy, not on what you decide is the right strategy for your company. There's a big difference.

That's why you want a mix of projects in your project portfolio: projects that keep the lights on, projects that keep cash coming in, and projects that are innovative and might have the power to transform your organization. The problem is that in software, you often can’t tell which is which.

This is why agile or lean is so wonderful: You don’t have to be able to tell. If you use incremental budgeting, an agile approach to your project portfolio, and an agile or lean approach to your projects, you can pivot when you need to.

Now, you might need to do a quick SWAG (scientific wild "tush" guess) for your project. Is this project bigger than a breadbox? Is it smaller than a space station? That’s not a project estimate—that’s a SWAG, an order-of-magnitude estimate. You do a SWAG with a few people in about an hour.

For the project portfolio, you make the evaluation decision based on your best guess of the project’s comparative value to the organization. This is why it’s so helpful to be able to deliver something in a short period of time, such as two to six weeks, when the project portfolio people will want to reevaluate the portfolio again.

Oh, and those Sony engineers who were laid off when Sony couldn’t keep their commitment to lifetime employment? Some of them went to LG. You know, the company that probably made your flat-screen TV. All I know is that in our house, we have LG TVs, and so does every hotel I stay in.

When you use value to make project portfolio decisions, you decide on the most valuable project. If you change your mind, you don’t can the people. You change what the people do—you flow work through the team. Is this more difficult with hardware? Of course. Is it impossible? No.

As Daniel Pink says, people want autonomy, mastery, and purpose. Give it to them. Tell employees what the number one project is and why. They will work for you to make it happen.

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Johanna Rothman

Johanna Rothman, known as the “Pragmatic Manager,” helps organizational leaders see problems and risks in their product development. She helps them recognize potential “gotchas,” seize opportunities, and remove impediments. She is working on a book about agile program management. She writes columns for Stickyminds.com and Gantthead.com, and writes two blogs on her web site, jrothman.com, as well as a blog on createadaptablelife.com.