Measuring your Return on Failure (RoF) - Vital for Sustainability

Organised By:

Malaysian Institute of Corporate Governance (Institut Tadbir Urus Korporat Malaysia)

Speaker

Sharath MartinRisk Management

Strategist and Coach

SPEAKER II: MEASURING YOUR RETURN ON FAILURE (‘RoF’): VITAL FOR SUSTAINABILITY

Organised By:


2015 Boston Consulting Group survey:

79% Innovation the top most priority or top 3 priority

“The best and hardest work is done in the spirit of adventure and challenge…Mistakes will be made.” 3M chairman William McKnight

“Mistakes aren’t a necessary evil. “They aren’t evil at all. They are an inevitable consequence of doing something new….and should be seen as valuable.” Pixar’s president, Ed Catmull

Organised By:


31% Risk-averse culture key obstacle to Innovation (BCG 2015)

What has this got to do with Procurement?

• Central to Innovation - new investments, new projects, new products and services.. as well as routine operations

Organised By:


Overly conservative

Aggressive risk taking

Lack of productivity, innovation

Repeated failures

Balance is illusiveManagement processes … viz. budgeting, procurement, resource allocation, investments, new products or services, risk control

… premised on Predictability and Efficiency.

EXECUTIVES GET PROMOTED BY SHOWING THEY ARE IN CONTROL!

Organised By:


Return on Failure (RoF)

Supported By:

Organised By:


Return on Failure (RoF)*

“Assets” gained from the experience

Investment in resources

=

• Systematically derive value from past failure.

• Identify, measure and improve returns on failure, boosting benefits while controlling costs.

• Quantitative and qualitative

* Concept introduced by Julian Birkinshaw, Professor of Strategy @ London Business School and Martine Haas, Assoc Professor of Management @ Wharton School, Univ of Penn

Organised By:


Return on Failure (RoF)

“Assets” gained from the experience

Investment in resources• Keep investments

low; or• Sequence

investments till major uncertainties have been resolved

Information about • customers;• markets, • self and team, and • operations

How do we improve RoF

Organised By:


1. Study failed Procurement initiatives

2. Spread insights across the organization.

3. Corporate-level survey

Steps involved in Return on Failure (RoF) process:

Organised By:


Step 1: Learn from Every Procurement Failure

• Getting people to reflect on purchases or projects that disappointed doesn’t come naturally

• It isn’t just tedious; it’s painful.

• Most of us would prefer to invest our time looking forward, not back.

Supported By:

Organised By:


Step 1: Learn from Every Procurement Failure (contd.)

Begin with the “Assets” - what have we learnt about:

• Customers and market dynamics;

• The organization’s strategy, culture, and processes;

• Yourself and your team; and

• Future trends

Supported By:

Organised By:


Step 1: Learn from Every Procurement Failure (contd.)

Next the “Investments + liabilities” - what have we learnt about:

• The procurement initiative’s direct costs in time and money;

• Internal indirect costs (e.g. excessive management attention); and

• External costs (e.g. reputation)

Supported By:

Organised By:


Step 2: Share the Lessons Organization-Wide

• Share the information, ideas, and opportunities for improvement from an unsuccessful project in one business area to another

• Reflect on the positives, build trust and goodwill • Regular meeting of senior leaders (across a unit or the whole organization)

to share their respective failures. • Triple F reviews - fast, frequent and forward-looking• Increases the likelihood of future initiatives succeeding.

Supported By:

Organised By:


Step 3: Review Your Pattern of Failure

• Macro view of the organization and ask whether your overall approach to failure is working

• Are we learning from every unsuccessful endeavor?

• Are we sharing those lessons across the organization?

• And are they helping us improve our strategy and execution?

Supported By:

Organised By:


Examples of Businesses that have adopted principles of RoF through “Failure” awards:

• Tata• Grey• NASA (public sector)

Supported By:

Organised By:


Tata – “Dare to Try” Award

• Sincere attempts to create a major innovation that failed. Encourage culture of ‘risk taking’, perseverance and sharing openly.

• Main reasons for failures: technological barriers (50 percent), non-acceptance by the user (26 percent) and commercial non-viability (24 percent).

• Initial response lukewarm as people were hesitant to share their failures.. Now.. entries grew from 12 in 2007 to 240 in 2013.

Supported By:

Organised By:


CONCLUDING THOUGHTS

Supported By:

Organised By:


Supported By:

Concluding thoughts

• Difference with a post mortem?• Can it be used in fraud related contexts?• Suggested criteria for undertaking RoF reviews – public and private sector

Organised By:


Suggested criteria on undertaking RoF exercise:

Entity ScopeMinistries, agencies, state owned enterprises.

Projects in the AG’s reports for last 5 years

ditto Procurement above tender threshold with cost overruns and/or quality issues

Public listed companies Procurement above RMXX (threshold depends on industry, e.g. x% of profit, y% of capital expenditure) with cost overruns and/or quality issues

RoF studies reported to the Audit Committee

Organised By:


THANK YOU

Supported By:

Measuring your Return on Failure (RoF) - Vital for Sustainability

Business

Transcript of Measuring your Return on Failure (RoF) - Vital for Sustainability