Most successful players go into ventures with a portfolio of products or possible applications for their technology, notes Cameron Smith, managing director, Lauchton Partners. Identifying a range of possible applications for a particular technology early helps the "tech heads" deal with failure in one segment, for instance where the technology remains sound but the organization is yet to find its correct market application.

Successful players also set very clear gates for Go/No-Go before exiting or changing direction. For example they might set themselves a beta product roll-out target market of x units in y months. These plans must spell out the implications of success or failure - as in, "shift to segment x or y or cut and run entirely".

"The biggest problem I've found is nobody in the organization wants to declare everybody's efforts a failure," Smith notes. The challenge then is not to let things slip and to continually measure success against your predetermined milestones. Getting somebody to keep you honest is critical. If the criteria for success is clearly spelled out up front and ruthlessly measured, people then cannot hide from the facts, Smith says.

It is also important to have an outsider nominated to "keep you honest". If the outsider is privy to the milestones and progress against the milestones they will have much less of a personal stake about waving the white flag when or if the time comes. Banks, venture capitalists and independent directors can help here, Smith says.

Transparency Essential

Termination of a project is inevitable, but how it is terminated and when may have a profound and long-lasting impact on the organization and its employees, note the authors of the SAM article.

The article's thesis is that the success of future projects can hang as much on how failed projects are treated by the organization and its stakeholders as on past successes. In particular, it warns companies wishing to embark on high-risk entrepreneurial projects against penalizing members of failed projects. "If team members believe they will be penalized for participating in unsuccessful projects, they will be less willing to terminate failed projects and may become risk adverse," it says.

The article argues organizing a project's termination process is especially important when it has failed, because of the lasting impact on future projects as well as the organization's image. "Including project team members in the termination process will increase their loyalty and commitment, not only to the organization but also to the success of future projects. At the end of a project a post-audit report will be prepared that summarizes the project and provides recommendations for similar projects in the future. Lastly, as a project is closed down or completed it is important that senior management recognize the contributions of the project team."

Some CIOs stress that sensitive handling of the people involved is crucial when pulling the plug. Phil Baddock recently stepped out of the CTO role at Anstat and is now working in a new business development role growing a new division of the company. He has been involved in two high-profile exit activities: a real estate conveyancing business that did not work out because of fundamental problems with the business model, and an accounting systems company that was already in decline. In the latter case Baddock was brought in as a troubleshooter to help manage the exit process over a six-month period.

In both cases, he says, the most difficult issues were undoubtedly the people issues.

"You don't want to be saying to the staff: 'It is all doom and gloom and the business is winding down and we're on a hiding to nothing'. Instead we took the time to explain to the staff that unless we could restore the fundamental profitability of the business, then the business would not offer a future for anyone. Some of them took it well and some of them took it extraordinarily badly. Because they had been with the business for a number of years they had a strong sense of loyalty to the product and to the customer base and really found it quite a difficult experience. I recall two people in particular who made an impassioned plea to their fellow employees in terms of trying to make things better and trying to restore the company to its former glory and a really quite sad parting with some tears and all sorts of things like that, which is really pretty difficult."

Baddock says he learned some valuable lessons from both exercises about the importance of being as transparent as possible without overly alarming staff.