How CTOs Can Get ROI from Modernization Projects
90% of Modernization Projects Have No ROI, Here’s How to Flip the Script
Welcome Leaders!
For CTOs, having to modernize is a universal constant like the speed of light.⚡
The challenge is knowing how to get real business ROI out of it.
Because getting real & lasting ROI is much harder than it looks (almost 90% of companies fail).
Today we try and help you avoid being part of that statistic.
Cheers,
Almost every CTO I know has been asked to modernize their product or technology stack at some point in their career.
Sometimes CTO’s even come up with the idea themselves 🤯
But no matter which stakeholder conceived of the idea they definitely have big expectations of the ROI they’re going to get out of it.
Unfortunately, about 90% of the time these stakeholders don’t get anything NEAR what they were thinking from modernization.
Why is this and what can we do about it as leaders?
That’s what we’ll explore today.
Their Reaction Says it All
Let’s start with the typical reaction of executives & leaders once a modernization project gets fully under way & inevitably starts to hit common hurdles & challenges.
CEO: “Why did we try to modernize again?”
CFO: “All this money spent already and nothing to show for it.”
CTO: “We’ve had some good moments, but wow this isn’t panning out like I thought.”
CRO: “Well this doesn’t really help the sales team.”
CSO: “Customer complaints are UP not down!”
CHRO: “I hired all these people but did it really help the company?”
Not good right?
And it all started with so much hope:
PowerPoints were created showing how much the modernization would benefit the company. Dozens if not hundreds of meetings took place to get everyone on the same page. Technical plans and architectures were developed. Roadmaps were created. And Board presentations were made.
And yet there hasn’t been much to show for it.
Unfortunately, very few companies escape this fate. Most companies end up exactly in the “no ROI” predicament.
So, if this has happened to you before don’t feel too bad.
Instead, let’s learn how to avoid it.
The Problem Starts at Home
The single most common reason that modernizations fail is because stakeholders expect too much ROI from the project, which in turn results in the tech team signing up for too much scope in too little time.
Modernization projects are notorious for having huge ROI expectations.
Here are typical examples:
Customers are going to LOVE the modernized products
Sales are going to go through the ROOF
Support problems are going to DROP LIKE A ROCK
Engineering will get SUPER FAST
All of our security, data, scalability and integration problems are going to GO AWAY
Every executive & their uncle throws in an ROI expectation when modernization projects start.
And maybe we can forgive this because of all the excitement around this kind of effort.
But what’s really strange is that this “overloading” on ROI usually does NOT make the product or engineering leaders nervous & cautious about taking on too much.
Instead, they very often EMBRACE the gargantuan task of delivering on all these ROI expectations 🤡
And even if they don’t exactly agree with all these big ROI expectations product & engineering will often go along with it anyway, and thus sign up for large amounts of scope in very tight timelines that just aren’t realistic.
Some of this is due to pressure from the business. Some of this is due to wanting to be hero’s. In fact, there is probably a lot of additional psychology going on here that could be unpacked.
But the key takeaways is that right from the start many modernization projects are doomed to failure.
Everyone is either so excited or so desperate for modernization to work that most stakeholders don’t really question all the unrealistic assumptions.
Listening to the Naysayers
So the first piece of advice I have before starting a big modernization is to listen to the naysayers.
I know it sounds unusual but the people telling you not to do the modernization project are usually right.
It’s just basic math: most modernizations fail and therefore most of the time the people cautioning you not to undergo this journey are probably going to be right.
But their reasons are all going to vary, of course:
It’s too expensive 💰
You don’t have the team to pull this off
The project will get canceled in the middle anyway
There are other important priorities
You’re not cut out for this
The list of why NOT to modernize is very, very long. And for good reason.
All the risks the naysayers point out have a way of cropping up in these projects.
So if you’re deciding on whether to do a big modernization my advice (almost by default) is to not undertake it.
It is so rare that all the stars align in your favor that I wouldn’t even attempt it - it would be like throwing money into a black hole. ⚫
However, that doesn’t mean you can’t get the amazing ROI that everyone wants so badly.
You can actually totally get it! ❤️
But not in the way most companies go about modernizing.
ROI, Know Thyself
Sadly, it’s an open secret that a lot of leaders (not just in technology and product) cannot describe what ROI actually means.
Don’t be one of these leaders!
To succeed in modernization you need to articulate precisely what ROI means for your business.
Here’s an obvious ROI example: increased revenue.
Now let’s assume there are 15 to 20 possible types of ROI — do you know them all?
Having knowledge about a comprehensive set of ROI types (like revenue growth) is obviously vital to extracting ROI out of modernization projects.
Here are some tips to improving your understanding of ROI:
First, go look at other projects in the company and how stakeholders measured success on them; all businesses think of ROI slightly differently
Make a list of all the potential types of ROI that are generally possible in the world from product & engineering initiatives, here are some examples:
Increased revenue
Increased gross-margin
Lower customer churn
Increased customer stickiness
New market penetration
Group the types of ROI into 3 buckets: business, product and purely technical; this will help you differentiate and speak well to all 3
Share the ROI list with your CEO and other stakeholders and see what resonates with them and what doesn’t
Filter down the types of ROI to just the ones that your projects will drive and your company resonates with; don’t waste time on the others
When you go into an effort like defining ROI types it’s important not to discount any kind of potential ROI regardless of how they sound.
For example, if one of the ROIs of modernization is “improve the optics with customer ABC” then don’t ignore it since ALL types of ROI will be necessary for you to promote as part of your teams modernization success strategy.
And you will find that once you dig into things, all sorts of ROI metrics will bubble up. Your job is to keep them organized and socialize them with stakeholders appropriately.
Btw, this process can sometimes take weeks depending on your level of knowledge and the level of knowledge of your organization around ROI types.
Lastly, remember that tracking ROI on an ongoing basis will be vital to the success of modernization since ROI can change so easily over the lifecycle of these projects.
Let me give you an example: you start modernization of Product A while Sales Team A has been selling it for a while. But midway through some competitor steals Sales Team A, so now the company hires Sales Team B.
This creates a new ROI calculus for you.
If you modernize Product A, but Sales Team B is brand new and doesn’t know how to sell Product A, then the projected revenue increase you were hoping for might not materialize.
Ultimately, there are many of these kinds of dynamics that occur and fluctuating ROI scenarios that you’ll have to track.
Focus on Tiny, Realistic Goals
At this point we’ve all seen the Steve Jobs video where he talks about how focus means saying no to a lot of things.
(If you haven’t then check it out here.)
So in order to focus get ready to say no to a LOT of stakeholder goals.
Here are some common goals stakeholders come up with when they’re considering modernizing:
Drive massive sales growth with great new features
Improve retention of customers with beautiful looking new UI/UX
Stop all the security problems
Make the customer support teams life 10X easier
Crush the competition once and for all!
Enable the product team to innovate much faster
Make the company more “agile”
Unfortunately, none of these are very focused or realistic for most companies.
These big goals naturally involve big modernization efforts and like I said, those projects almost always fail.
The trick of modernizing successfully is saying no to a lot of the initial goals and instead turning big modernization objectives into a series of tiny, realistic goals.
But even this approach is difficult for most leadership teams because of the following reasons:
They don’t think small enough and instead keep thinking too big about the goals
They don’t think properly about the sequence of projects that will deliver value (i.e. roadmap)
They have a hard time tying each project to a business impact
If you can overcome these obstacles and think of a set of very tiny projects that will deliver solid incremental value to the company then you can probably undertake modernization.
But remember, tiny means MUCH smaller projects than you think, and you have to sequence them properly, AND they have to move the needle on the key business objectives.
The Case for Business Cases
Every time someone mentions business cases to an audience of CTOs you can almost hear the groans.
But business cases can be very useful tools for ROI if leveraged in the right way.
Let’s assume you’ve avoided the “mega” modernization approach, clarified what ROI means to your company, defined smaller and more realistic goals, and mapped out a series of tiny projects that will move the needle on certain key business objectives.
Next, I would strongly encourage structuring all this thinking into a series of 1-page business cases.
This is essentially “doing the math” on the ROI for modernization project.
Here are some of the benefits:
By limiting yourself to 1 page you only write down what’s essential & don’t waste a lot of time on superfluous work
The action of building a business case will force you to “do the math” on modernization and not simply HOPE you’ll get the ROI
You’ll be able to shop around the business case to appropriate stakeholders for alignment & better understanding of what ROI you’re trying to drive & how you’ll get it
CFOs & other stakeholders will be able to make better data-based investment decisions
You’ll be able to look back and say “we all agreed to this” or “we all decided not to do this and for these reasons”
Business cases can bail you out of a lot of key challenges around ROI & it’s wise to invest time in them at the outset of a modernization effort.
Also, one of my favorite uses of business cases is as a means to control scope on modernization: whenever scope-creep starts to happen I break out the business case and remind everyone the very focused and clear goals we’re trying to achieve.
Business cases are also simply a great “language” to use with Board types and higher level executives.
I think overall business cases are an underrated part of a product or technology leaders arsenal and truthfully they have to be used extensively to get a modernization project going in the right way.
New Operating Models
You will not get ROI on modernization if the project(s) are killed halfway through.
This happens VERY frequently.
Here are some common reasons why modernizations are stopped mid-way through:
You took too long to deliver value
There was a major change in the market
The company decided other priorities were more important
There was a change of company ownership
Customers got upset because you were busy modernizing and not fixing their problems
A new CTO or leader took over who realized the modernization wasn’t going to work
The money dried up
You were doing great but didn’t showcase the results or generally communicate well
To avoid these, you need to do all the things we already discussed, PLUS you have to set up a new way of operating yourself and your team:
You have to communicate more frequently and with a great emphasis on the business impact (not tech) of the modernization work.
You have to set up a culture where adjusting and pivoting come second nature to the team because this will happen A LOT in modernization projects.
You have to spend a lot of time continually keeping stakeholders focused on the realistic goals of modernization because everyone will forget and expect the world 🌍.
You must create good relationships with the CFO and other financial partners (e.g. PE ownership) so you can work closely to manage the finances & budget
You have to set up the right stage-gates to allow yourself to go from one project to another.
There’s more to setting up the right operating model for modernization but hopefully this gives you a good idea of the key changes to make in how you run yourself and your teams.
If you set things up well & are consistent the chances of modernization being cancelled reduces a great deal.
However, there are outside forces that you can’t control like the companies priorities changing.
If modernization does get cancelled for reasons beyond product & engineering simply cheerfully accept the fact and move on.
Remember, most companies can continue to succeed WITHOUT taking on big modernization projects.
Success & Failure Indicators
There’s a neat little trick that helps with getting ROI in modernization efforts.
It involves mapping out 10 success & failure indicators.
In this exercise you’re figuring out the 10 indicators that you’re on the path to success and 10 indicators that you’re on the path to failure.
You should do this exercise in the early days of starting the project.
Think of these as guardrails that allow you to strategically pivot.
If you’re hitting a lot of your success indicators then maybe you take on more scope, or bring in the timeline for your projects, or sign up for more ROI.
If you’re seeing red or yellow flags then you know the project might be headed to failure and you can either correct the issue or pull the plug or change direction much earlier.
A lot of leaders go into modernization having no sense if they are succeeding or failing in the process - they just try to execute the initiative like any other typical project and often fail because they can’t detect modernization-specific problems before they happen.
Here’s an example of a failure indicator: “The budget for modernization is under question next quarter.”
Sounds simple, but a lot of leaders just assume they have the budget perpetually once modernization is funded which often isn’t actually true.
Negotiation is an Art Form
You don’t have to be an FBI-level negotiator to make modernization work but you’ve got to be much better at it than the typical CTO or CPO.
Most CTOs have their heads buried in the technical weeds. Most CPOs are desperate to make a big splash with some new idea.
Neither of those two things (tech weeds or splashy) matters when it comes to designing a modernization program that delivers ROI.
What does matter is being able to negotiate ROI with stakeholders.
And this is more art that science because every stakeholder thinks of ROI from modernization differently, so you’ll have to communicate with each of them uniquely.
Lets think of all the stakeholders you have to “sell” modernization to on a continuous basis (even if THEY thought of the idea):
Your CEO
Your ELT
The Board
Your Team
Customers
That is certainly a complex set of groups that you’re going to have to go back-and-forth with in great detail at times regarding your modernization plans & ROI.
The goals you’re trying to achieve with these stakeholders is both buy-in and alignment on at least the following:
Expected ROI
Scope & Timelines
Operating Model (How You’ll Run Everything)
Success & Failure Indicators
For ROI you’re trying to keep it as realistic as possible,
For scope & timelines same thing: realistic.
For operating model you’re asking them to fit into the new way you’ll run things.
For success & failure indicators you want them to be aligned on what success means throughout the project and what failure means (perhaps leading to pulling the plug).
As a strong negotiator you’ll have to establish tradeoffs with each stakeholder and factor those into your overall modernization approach and plan for ROI.
Study & More Study
Studying modernization projects is perhaps the most underrated activity for CTOs and other leaders when it comes to successfully achieving ROI. 🧑🎓
I’m always surprised by how few leaders (including CEOs and CFOs) actually study other companies’ modernization efforts.
It’s really quite easy but very few take the time to do it.
A bit of simple networking will get you in touch with plenty of leaders in your space who’ve tried modernizing in the past. And in my experience most of them are very willing to share their experiences with ROI freely.
There are also plenty of case-studies online to look at & learn from.
Definitely don’t go into modernization without studying. And then once you get going on the project KEEP studying.
You’ll learn so much from other people blunders it’s amazing.
Patience of a Saint
To achieve any ROI for modernization as a CTO you must have a great deal of patience.
But most tough and aggressive executors are NOT known for their patience!
I will simply counsel that you have to cultivate and increase your patience significantly when it comes to modernization projects.
Here’s why:
You’ll have lots of stakeholders to talk to and manage
You’ll run into lots of big and small execution challenges
You’re doing something different the company is probably not used to
You’re always going to be selling the project
People will try to ruin the project
You’ll be dealing with lots of busy people who’s help you’ll need
You’ll often need to do the work others should be doing
Patience in modernization is challenging for most hard-charging executives but it can be done.
The key to cultivating patience varies from person to person, but what has helped me in the past is continually creating clarity for myself, my teams and others.
When things are clear but people aren’t necessarily cooperating I’m much more patient than when the entire project is in a confusing state AND people aren’t cooperating.
But you’re probably built differently so figure out how you can cultivate the skill of patience as you jump into modernization.
Conclusion
Let’s recap what we’ve covered today about getting ROI from modernization projects:
The best way to get ROI is not to do a big modernization project in the first place, and instead spend the money on other things that will probably be better for the business
If you decide to modernize then before beginning on the journey get a clear sense of what ROI even means for your company
Once you know your ROI turn the big modernization project into tiny, realistic initiatives that drive the needle on the important business metrics
Create 1-page “flash” business cases around the smaller projects which will help you and other stakeholders to achieve focus & clarity around expectations
Develop a new operating model (way of running things) that ensures the modernization effort will be smooth and continue to completion
Nail down success & failure indicators that will give you guard-rails throughout the project so you can more easily pivot, pull the plug, or take some other action
Learn to negotiate so you can create a very focused modernization program
Study other modernization initiatives from your industry and learn what works and what doesn’t; this is easier than it looks
Finally, have the patience of a saint ⛪ because you’ll need it to get through everything; if you don’t have it now then develop it as you start the journey
A few other tips:
Remember that modernization almost never means anything technical to CEOs, Sales or Customers. They only care about their business outcomes so don’t get stuck in the technical weeds.
The prep work before starting modernization efforts can take a while. In fact, it may take weeks to figure out the expected ROI or develop your execution plans. So give yourself time to work through these.
People in your organization are going to have a lot of strongly held beliefs about the modernization effort and in some cases you’ll need to be an educator to help them align to your core vision.
Leading a modernization effort is not for the faint of heart. So make sure your life, stress levels, personal dynamics, health and so forth are in a good place before taking something like this on. You’ll be doing a lot of other peoples work for them & that gets tiring.
Lastly, because modernization can be defined as almost anything a business wants it to be, it truly becomes a moving target. So it’s vitally important for you as the leader to create clarity at all times about modernization.
Even with all the challenges modernization can be great fun and a lot of execs have built their careers on being able to do it well. It can certainly change the fortunes of a company for the better if it’s done right.
You just have to make sure you’re that person!
✉️ Email me if you need to talk through this.