Paid Subscribers Only: Value-driven Technology Funding — Aligning Investment Mechanisms with Software Excellence

A misstep for new executives is sticking with the existing funding structure. What is the impact on software development when it's not fit for purpose? Let's examine what happens and alternatives.

Photo by Krystal Ng on Unsplash

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Originally Published by Daniel Walters on the HYPR blog on Jan 02.25

In my earlier post, ‘CEOs, software funding and budget mechanisms could damage your investments’, I detailed how the nature of software development warrants a tailored approach to funding and managing it to enable better performance. Here are the options for doing this...

One of the common missteps I see executives make (including me earlier in my career!), is trying to operate within the funding structure presented to them. What is available regarding funding and accountability mechanisms probably wasn’t selected with software development in mind. Or it may serve the convenience of another group in the organisation, unaware of the potential side effects.

It is easy to assume that funding mechanisms are fixed, leading one to work only within what seems available. Additionally, it can be tempting to believe that the impact will be minimal. The disconnect between decisions regarding the work and the associated budgeting creates friction, which occurs frequently and presents barriers to achieving acceptable software quality.

What if we could achieve the transparency that traditional approaches aim to provide and the flexibility that eliminates wasted time and resources? The good news is that you can.

We will explore both interim measures you can start with and full measures, which may take some time to agree on (in one company where I was CTO, it was at least a year, possibly two, into the role).

The unwanted side effects that come with inappropriate funding approaches

There are many reasons organisations turn to project-based funding for managing funds allocation. The drive for consistent handling can lead to different types of work being funded similarly when a different approach may lead to better results.

For example, a project management office may find it convenient to organise work into programmes and projects, align funds and budgets accordingly, and treat them similarly to all other work within the organisation, and this is matched to funding decisions. Another example is that the finance team or CFO often considers new expenditures as initiatives. They would like to know when new spending will likely begin and when it is expected to conclude so they can understand the effects of these initiatives on the company revenues. Another example is that the Human Resources team may want to provide the CEO with some visibility on workforce allocation.

Whatever the reason, the intent is rarely malicious; it solves the part of the problem they are exposed to, and the other effects occur well outside their visibility. If we understand what the people responsible for the mechanisms are trying to achieve, we can look at alternatives that may serve those and our software development needs.

A classic example is that line items for spending were identified at a time when there was less information, and changing these triggers an approval process elsewhere in the organisation. This may be manageable if it happens a few times a year. But I’ve seen cases where it may occur for each developer multiple times a day, and the approvals may take up to six months or more to resolve.

I won’t claim it is impossible to work within these constraints. It’s not. I’ve done so numerous times, and so have many others. However, the cost of effort and elapsed time to achieve sufficient quality can be multiplied many times until it’s addressed – and I observe many successful CTOs who are effective at influencing change in this area and, in doing so, free up energy for themselves and their teams to redirect in more productive improvement. There are strategies you can apply in the interim to try to minimise the impact. Still, in my experience, it’s worth working towards a more wholesale change, step-by-step – especially when a large software development team is involved – to address the issue entirely.

Practices for Funding Successful Software Development

I cover a variety of strategies and practices in this article that can be used to better align how funding and budgeting support successful software development by aligning friction and support with the value being sought.

Each of these provides practical adjustments you can use to help improve your situation and provides tips on how to apply these leveraging concepts your CFO is already familiar with and capabilities they already have:

1. Fund value, not projects.

2. Funds flow like an undulating stream.

3. Where organisational strategy intersects with funding.

4. Adaptive funding and value streams.

5. Cross-functional collaboration on budgets.

6. Beware of artificial boundaries.

7. Funding envelopes, more frequent budget reviews and partial allocation.

8. Decision-making relating to the use of funds.

9. Consider funding maximisation over cost minimisation.

10. Assessing the alignment of investment mechanisms with value delivery.

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