Critique

Harvard Business Review

Article

►Why Bad Projects Are

So Hard to Kill
Author: Isabelle Royer
Originally published 01 February 2003

Teri Abel
2003

Copyright  2003. All rights reserved. No other uses without express author permission.

Neither wreckage from failed
projects nor realized returns from
successful ones at time (t)
constitute forward driving analytics
or predictive power at time (0) for
those projects’ ultimate value.
Some positive NPV projects that
enhance the bottom line can be
deemed “bad” or unsuccessful by
the market and management.
1
According to Written By magazine only when the average slate of American films for a movie production firm was increased to 20
in number was the average slate of films profitable.
In her article, “Why Bad Projects Are So Hard to Kill”, Professor
Isabelle Royer purports to explain why firms fail to readily abandon projects
which she terms are “clearly doomed”. She then offers a prescription for
preventing this alleged firm failure. In her analysis, Royer attributes the
failure to a “fervent and widespread belief among managers in the
inevitability of their projects’ ultimate success”, and to a “desire to believe in
something”, the latter of which she calls “collective belief”. In light of this,
Royer proposes three firm remedies for preventing this failure.
This author regards a critical analysis of Royer’s featured discussion in
the Harvard Business Review to prompt the following observations.
Nowhere in the article does Royer actually define what a “clearly
doomed” project looks like, vs. a viable one, from any perspective other
than hindsight. However descriptive, it is not analytical. Royer touts
“strong evidence” of a project’s eventual success as crucial to warranting
the continued investment in a project, but does not state what constitutes
strong evidence. In effect, Royer mimics the original error of the managers
whose leadership is critiqued by advancing no coherent prescription for
discerning a “clearly doomed” project from a potentially viable project in
advance. Arguably, the reader should expect such a prescription if, as
Royer claims, the inevitable doom of “bad” projects is so fundamentally
“clear”. Problematically, however, Royer’s discussion begins from an
apparent assumption that bad projects are first given.
Royer’s description of bad projects that were eventually abandoned
is thoroughly similar to a description of what research and development
history, for example, tells us have been many successful projects—namely,
projects that enjoyed both support and naysayers throughout the
organization, and projects that involved the investment of significant firm
resources. This can be said, for example, for most MGM film projects—the
1
1 in 20 that are eventually successful, and the 19 in 20 that are not. This
observation does not, however, advance MGM toward discerning in
advance, which is the 1 and which are the 19. Hence, it leaves
unanswered the question of why the 19 were ever funded, which is the
article’s indicated aim.
Alternatively, some completed projects that were clearly profitable
and successful by the project’s standards were still deemed bad. This
suggests a limitation of Royer’s “bad” descriptor, as the projects were not
“doomed”, let alone “clearly doomed”. There is then a category of “bad”
2

Private and public firms with
dissimilar fiduciary responsibilities
should be expected to conduct
project management and, hence,
abandonment, differently.
Different public firms command
different cultures of investors;
management in turn “plays”
differently to different investor
groups, effecting different corporate
wide project management cultures.
2
For example, a scarcity of issued Chinese treasury bonds relative to the U.S. may marginally affect certain Chinese stock investing
as investors seek alternative investment vehicles.
profitable projects worthy of consideration—bad not because of what they
do to the bottom line today, but because of what they have the potential to
do later, for example, to diminish a firm’s focus: In a move that was market
downgrading, the Coca-Cola company diversified its holdings with its 1982
purchase of Columbia Pictures for $690 million. They profitably unloaded
Columbia in 1989 for $1.5 billion. In the short-run, this was, at a return
level, a decidedly successful project by most business standards, and one
that exceeded Coca-Cola’s own estimates. However, it is unclear whether
Royer would, as did the market and eventually Coca-Cola, qualify the
Columbia purchase as a bad project, even in hindsight.
Generic project management for a public firm, and, therefore,
project abandonment inclinations, can be manifestly different from those of
a private firm. Private firms lacking a diversity of shareholders generally
exercise latitudes of general and project management unavailable to public
firms. This puts the turning of a project’s abandonment partly on the firm’s
ownership structure rather than some innate project features.
In the case of public firms, considerations are in order about the
exchanges on which the shares of those firms are traded and about the
applicable universe of real investors in those shares. Differences can exist
in, among other things, the listing regulations and transparencies of the
exchanges; the cultural aspirations the exchanges can channel; the
proportions of institutional and individual investors; and the investing
proclivities of disparate investor populations selecting from different arrays
of investment vehicles which themselves are not evenly available to the
2
broadest universe of investors. However captured by price are these
factors, they are factors which in separate fashion qualitatively influence
leadership and project management culture, and theoretically can compete
with that of any “collective belief” as Royer described.
Being public is not even an equalizer in the qualitative assessment
of shares and influence upon project management. Different public firms
are attached to different histories and agendas and embody different
shareholder expectations. Shareholders may uniquely value, for example,
a firm’s unconventional beginnings with visionary leadership and
unstructured and experimental creative cultures and may expect innovation
and more readily reward change—of which all project abandonment can be
said to be— whereas the same may not be true for firms conservatively
rising from historical journeys through war, for example, that produce
3
 reliable industrial grade products.
Management is strongly cultural. Different management and investing populations bound together by
different national and economic histories, trajectories, and cultural stories,
also bring different risk tolerances and objectives to the management and
investing event. For example, a post communist Russian enterprise in the
newly charted territory of value maximization, may nurture a very different
project management culture from that of any American firm, if it nurtures
any at all. Indeed, for a slate of post communist Russian firms, employee
and managerial ownership in those firms not only failed to ensure
stewardship as generally anticipated under a Western model, but negatively
3
correlated with it. By this example, project management is not even a
competency and project abandonment lacks any conscientious drivers.
The Enron Corporation’s culture facilitated its famous exercising of
certain extremes of project management and abandonment: the culture of
creative risk tolerance on the one hand by its leadership and traders, bold
adoption of mark-to-market accounting rules, and the periodic axing of
some fixed percentage of its talent—a literal project abandonment policy.
However, we are led by Royer to believe in a universality of both
management and investor behavior, for Lafarge and Essilor in particular,
and presumably across publicly traded firms generally, and, hence, in a
singular management approach to the project development underpinning
those firms’ share values. As all governance is ultimately linked to investor
behavior, at least some differences in generic governance ought be
considered as possibly emanating from differences in investor behavior and
vice versa. Investors are not monolithic. Differences should be expected to
affect an individual firm’s project management and hence, its propensity for
and culture around project abandonment.

As management heterogeneity
increases, so too may project
analyses and project abandonment
potential.
Some proof of management and investor differences is clearly in: it
is known, for example, that individual investing behavior in America is
statistically different across gender. Governance differentials have been
evidenced in American firms with increased gender diversity at a board
level and a noteworthy number of high-profile project abandoners and
4
whistleblowers over recent corporate American history were female .
Moreover, a phenomenon of collective belief is hardly peculiar to
the firm; shareholders themselves are not immune to such a propensity.

3
Contrary to Western expectations, the scheme of official rapid mass privatization of Russia’s largest enterprises in absence of a substantial
western-styled regulatory apparatus, led not to stewardship by vested owners and employees but to large scale self dealing.
4
More likely to be "outsiders" to an inner circle of power, the American Bar Association described women as more likely to abide by individual
values and potentially break ranks, and less inclined to support more questionable management moves. Three female whistleblowers who
dissented on costly high-profile bad projects include Cynthia Cooper of WorldCom, Sherron Watkins of Enron, and Coleen Rowley of the FBI.
4

The question is less whether
collective belief exists in some
group and more whose collective
belief is or should be driving in
project development.
The fiduciary relationship between management and shareholders then
produces the question of whose collective belief is more driving for some
5
continued investment in a bad project.
Royer’s methodology utilizing non-contemporary research does not
appear robust. Arguably, it would have been more credible if the research
had proceeded contemporaneously. That is, Royer could have conducted
real-time studies within several firms and have effectively shadowed the
development of different projects—some of which presumably would have
become successful, and others of which would not have. In real time, she
could have chronicled any critical project development features that
supported any project under study. This could have controlled for
differences in perception of project histories due to knowledge of ultimate
project outcomes. In real time Royers could have then tracked any
differences between those processes, and in hindsight could have
examined whether the differences and trends in her study ultimately
correlated with a project’s outcome in a way that was predictive.
Instead, some of Royer’s most critical analysis rests on managerial
memories which should be expected to bear influence from the known
6
outcomes of past projects. Her choice of methodology appears to stem
from her conviction that “researching events long after the fact can provide
perspective that would be absent from contemporary research”. This is an
easy truism, but it does not appear particularly useful for the purpose at
hand. She is declaring that recounting in settled hindsight that failed
projects did indeed fail is either constructive to a contemporary project’s
management or otherwise a useful exercise. Utility notwithstanding, the
undertaking is not a novel one for a modern competitive firm or its
management team and other advisors. The reader is set up to expect
something more, in particular, a revelation for how to see a ‘train-wreck’
coming.

Royer’s analysis lacks ‘control The argument for contemporary research aside, Royer also did not
groups’. investigate any ‘control groups’ project development processes at either
Lafarge or Essilor. Potentially undermining the thrust of her discussion
would have been any discovery of overwhelmingly similar features in the
development processes of not just successful projects, but “clearly viable”
projects, assuming Royer would equally allow for their recognition.

5
Enron stockholders and an array of Wall Street analysts continued to reward Enron management well after management itself had
internally conceded overvaluation of its shares. Theoretically, Enron may have used the “permission” of a greatly devalued stock
much earlier in its history, to more expeditiously declare and abandon bad projects and accounting practices or change leadership.
6
Royer’s described correction for this bias is a cross checking of the interview data with the written record followed by a repetitive interview
process, if needed. Nonetheless, that this “reconciliation” process does not distort a factual record is unclear.
5

Companies may suffer more from
breaching their internal controls
than from lacking them outright.
Despite a core assertion,
companies engage a continual
process of abandonment of
declared bad projects.
7
Big pharmaceutical firms, for example, abandon bad projects in such volume that a significant portion of the small pharmaceutical industry
creates their value from big pharma’s refuse.
8
This author recognizes that objectives and stakeholders for governmental research and development and private industry are different,
making firms of those categories not fully comparable. However, as governmental agencies face resource constraints they are fairly
comparable to private firms as failed governmental projects exact costs to taxpayers as do failed private projects exact to shareholders.
By definition, all failed projects were abandoned, i.e., “killed”, if we
define abandonment as the cessation of additional resource investment,
maintenance, follow up, development and specific seeking of original
project objective. This focuses Royer’s argument as one of degree, or the
failure to abandon a project within a certain time frame or beyond a certain
level of resource expenditure. As critical as this seems to the heart of the
discussion, the reader can fairly wish that Royer had spent more time
addressing how firms arrive or should arrive at their expenditure
constraints---and under what conditions, if any, they should entertain
revisions to those constraints over the course of a project’s life.
Her knowledge clearly to the contrary, Royer’s remedies assume
that firms didn’t already have certain preventative measures in place. Even
if one accepts Royer’s argument for the “distorting effect of collective
belief”, her advice to “establish an early warning system” is by her own
observation, insufficient: neither Essilor nor Lafarge suffered from a lack of
such a system. Royer herself makes the case that they suffered because
they ignored the systems they had. Disappointingly, she does not suggest
how to remedy any tendency on the part of firms to ignore their established
internal controls, and this tendency actually may be more prevalent than the
absence of internal controls.
Companies abandon bad projects all the time—some as nearly
7
conscious core operations ; they spin off businesses, sell stakes to larger
entities, retire product lines, outsource operations, implement promotion
policies, undertake energy conservation initiatives, and fire their CEOs.
This raises the questions of exactly what ilk of bad projects defines Royer’s
focus, and whether the proportion of “clearly doomed” projects among all
bad projects which are not properly abandoned, is particularly significant.
Inherent in the author’s analysis is the assumption that bad projects
have an archetype or look the same across industries and, hence, likely
share a common remedy. This author can argue otherwise. There is likely
a range of profiles of bad projects, and this range likely correlates with a
range of uniquely tailored internal controls and remedial approaches. At
the National Aeronautics and Space Administration (NASA), many core
operational projects have a substantially longer development phase than do
8
their counterparts at Procter & Gamble. The same can be said for Pfizer
6

Royer’s analysis procedes from a
small homogeneous sample.
vs. Universal Pictures. These firms’ projects vary in their consumption of
R&D, their marketing, their required overhead, their stakes in creating
public goodwill, their frequency and their payback periods. If in fact projects
have different archetypes across industries, one can ask not only whether
the standards for their development, funding and management are in fact
singular, but whether indeed they should be.
Royer’s conclusions flow from her analysis of only two public
French firms. No scientific argument is made for why either this sample
size or mix should be statistically significant or otherwise compelling.
Therefore, her extrapolations to and recommendations for firms generally
do not appear supported.
Royer’s description of the phenomenon she calls “collective belief”
seems plausible enough. Confidence in industry can instigate confidence.
Enron, marketing confidence in its business model and its portfolio of
projects, had no problem instigating confidence across the market, enjoying
“buy” and “strong buy” recommendations from major Wall Street analysts
well near its collapse. What Royer does not detail is exactly how the
collective belief surrounding a bad project is inherently different from that
which surrounds an eventually successful project. This comparison is
where the article would have held more utility. If we only consider the
Quaker Oats acquisition of the Snapple brand, we observe that a failed
project can have less to do with any germane feature of a particular product
or project and more with how it is perceived, packaged, distributed or
managed. Under the subsequent management of Triarc which acquired
Snapple from Quaker Oats, the brand represented a positive NPV project
with a competitive shareholder return and payback period. This suggests
that project success or failure can rest on what appear to a firm to be
noncritical details. This should render some bad projects especially difficult
to discern before making a large investment.
Royer’s discussion of group dynamics and the roles of “exit
champions” and “project champions” reduces to an argument for robust
diversity and objectivity on a managerial team. This is a fair and interesting
point of examination, but it is also not a novel consideration for a firm to
make, if not consistently implement, by current standards.
7
Conclusion
This author believes that those bad projects which are hard to kill
are so because the managers who nurture them along with many in
management don’t exactly know what they look like, and often enough fail
to follow internal controls about how to abandon them expeditiously. With
an aim toward utility, an objective to describe why bad projects were
deemed bad of their own design might have better advanced the cause for
acting in accord with the best evidence for a project’s likely outcome, rather
than immediately examining actors in project development.
For example, there are basic considerations like whether some new
product will be regarded as a truly differentiated product in some market;
whether a firm’s research and development supports an incremental
change or some game changing breakthrough change and why such
thresholds are met by the particular research; whether a brand is
strengthened or possibly contradicted by the project even if profitable in the
immediate term; and whether an even profitable project is a strategically
timely utilization of institutional resources—for example if a firm enjoys the
benefit of a longstanding entry barrier for some project, it may rightly
command a lower priority than other more opportunistic aims at market
growth. Any “good” project is not a good one in isolation or even good
indefinitely, but as a function of its temporal place in the scheme of all firm
and broader market variables. This moving target of “goodness” or
“badness” makes any static and monolithic discussion of failed projects as
this author perceives in this article, limited in applicability of the insights the
article’s concern aimed to render.
More instructive inquiry may lie beyond Royer’s propositions in their
entirety and consider the valuation by an organ like the Harvard Business
Review put upon Why Bad Projects Are So Hard to Kill. The publishing
decision generally marks an occasion for readers’ exercise of not just the
benefit of branded identification of the value additive and of new ideas, but
of the readiness to confirm a brand as needed, to ensure its meeting of an
assumed value proposition. █

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 Bibliography

Black, Bernard, Reinier Kraakman, and Anna Tarassova. “Russian Privatization and Corporate Governance: What
Went Wrong?”, Stanford Law Review, Working Paper Number 269a, May 2000: 17-23.

Chiang, Harriet. “Women speak up -- big names go down, Female whistle-blowers play by 'outsider' rules”, San
Francisco Chronicle, June 17, 2002: A - 1.

Written By, the magazine of the Writers Guild of America, West, 2003.