Innovation and funding in lean times

It’s budgeting time with many organisations putting together their budets for 2009. In the current climate IT is an easy target for cutting costs. Stories such as “no new non-core projects till 2010″ and “no project that can’t demonstrate a postive ROI in 12 months” are abound. There is a risk that only focusing upon projects that keep the lights on will do longer term damage to the company. Seth Godin writes:

Wealth is created by productivity. Productive communities generate more of value.
Productivity comes from innovation.
Innovation comes from investment and change.

Annual budgeting cycles combined with inflexible development approaches preclude real innovation. It is hard to justify any cost, especially untested products that brings a burden of risk to the organisation.

There are two solutions that go hand in hand. Agile software development enables IT to release value from production earlier and more often than waterfall development. Rather than significant sunk cost in risky product innovation, it removes waste from the process and focuses upon delivery of working software that is of value to the business, taking the product to market at the earliest possible time.

This is a challenge to the annual budgeting charade where line item projects compete for guessed amounts in return for notional value. (IT put crude guesses – not even estimates- against even cruder descriptions of required features from the business). A better model would be to take that of the venture capitalist, with different rounds of funding. Rather than allocating specific funds to specific projects, far better to ring fence budget for ‘product innovation’. Within this pool of cash projects compete with each other with a pitch for seed funding. Those that are successful go straight into agile development with sufficient funding for a first release (say three to four months). Getting to production (and to market- internal or external) will validate further funding or equally enable the business to make an informed decision and kill the idea – fail fast, fast cheap.

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