What is the cost of poor governance? Is it even easily quantifiable? Turns out in many cases it is difficult at best to discover the financial pain involved with having inadequate control of schedules, cost, requirements, resources and performance on product development programs.
In a June 15, 2010 Bloomberg Businessweek article, on the difficulties faced by Lockheed Martin in not just keeping the JSF program costs in check, but also in tracking schedules, demonstrating performed work and work still remaining, we can begin to get some idea of the effect. In short, their issues lie in not resolving the differences between what has been planned and what has been done.
It has been speculated that this will be quite costly to Lockheed Martin. In a March 3, 2010 article in Bloomberg Businessweek, it has been reported that this inability to demonstrate proper control over the program has already cost Lockheed Martin \\\$20.9 million in lost award fees for the six-month period ending Oct. 31, 2009. This hits directly the bottom line of the corporation’s financial results, as attainment of these award fees is the only way the company directly shows profit from the program. Future impacts could be much higher.
What this incident highlights is the high cost of poor governance. In the case outlined above, since the customer is the government, it allows us some degree of visibility into the magnitude of the cost due to the requirement to be somewhat transparent. I would contend that the cost of poor governance could be much higher in companies that predominantly fund their R&D efforts with company money. For instance, what about the Consumer Packaged Goods (CPG) companies or Life Sciences companies? They are entirely bearing the costs and risks of bringing products to market.
In industries that are governed by Innovation, such as High Tech, Life Sciences, Apparel, Automotive, CPG, and Consumer Goods, there is a huge hit that is taken to the top line revenue by poor governance of the innovation pipeline. Cost overruns, time overruns, tracking to the wrong requirements, reworking, etc are impacts of poor governance.
Certainly, the root cause of this issue is not isolated to one’s choice of software. Just as it would be incorrect to state that using 3D CAD software instantly makes you a better engineer, it would be too simplistic to suggest that all of Lockheed Martin’s problems here are based in their choice of software tools. If a business process was poor before it was automated via software, it most certainly would not improve markedly after the fact.
Enterprise Software is an enabler not a panacea for all that is wrong in the industry. However, a platform that is flexible, and adapts to changing business process easily enables change which as everyone knows is very difficult to achieve. This often times makes the difference between success and failure.
The Dassault Systemes strategy of infusing ENOVIA products with industry best practices baked in can help to alleviate many of these issues. With the ENOVIA Aerospace & Defense Accelerator for Program Management, for instance, there are implementations underway and in production where companies have completely gone to an out-of-the-box approach in order to quicken the deployment and adopt best practices. In spite of the ease of modifying the ENOVIA V6 data model to support one’s process, they are realizing the benefits of altering their processes to align with those that are available to them OOTB.
Governance based on a very innovative, collaborative, flexible, scalable enterprise platform is most certainly the difference between success and failure in today’s environment.
