Previously, we’ve written about how money flows across your business ultimately determines your operating culture, with posts on how transforming IT starts with finance, and how agility is related to commitment.
Recently, I watched a talk by Joe Justice from 2022 about Product Ownership at SpaceX, and was struck by how many of the themes of those posts were reflected in his experiences at those organisations. In this post, I’m going to draw out and reflect on the relevant points he makes.
Joe was speaking at the Product Owner Festival, and focussed in his keynote about how SpaceX’s product management works. Like us, he starts by talking about budgeting, but the reasoning behind what he says is instructive for many different kinds of projects.
What Does SpaceX Do, In A Single KPI?
If you were asked to summarise what SpaceX does in a single metric to drive towards, what would you come up with? Some plausible-sounding ones might be:
- Number of rockets sold
- How close SpaceX is to sending a mission to Mars
- Average number of times a rocket has been reused
- Profit
There are problems with all these metrics, however:
- ‘Number of rockets sold’ doesn’t necessarily mean the company is making a profit.
- ‘How close SpaceX is to sending a mission to Mars’ is hard to measure and the outcome is binary (ie ‘there’, or ‘not there yet’).
- ‘Average number of times a rocket has been reused’ is a little too specific, and again doesn’t mean the company is making a profit.
- ‘Profit’ is a relatively clear and relevant metric, but applies to every business, not just SpaceX, and, critically, does not emphasise how SpaceX delivers value over its competitors
The principal KPI SpaceX went with strikes a balance between a metric it is easy to rally around while having a direct effect on the profitability of the business:
The cost per kilogram to send matter to space.
If an initiative reduces that cost, it should be pursued, and if activity increases that cost, it should be discouraged.
This concise but rich KPI touches all the other concerns SpaceX might have. For example, if risking safety is tempting to maximise profit in the short term, then the potential of safety failures to drive up the cost per kilogram is enough to make the business case to not jeopardise the safety of a flight.
Turning Traditional Project Management On Its Head
What follows from the above metric is that to drive down the cost of sending matter to space, SpaceX must be able to innovate as quickly and cheaply as possible. In Justice’s words: ‘the pace of innovation is the only thing that matters [to SpaceX]’. This makes it a perfect fit for Agile ways of working. SpaceX distinguishes itself from its competitors not only by the low cost of sending matter to space, but also by its agility and speed, which leads to lower lead times and higher launch bandwidth, both of which which further reduce prices in a virtuous circle.
To manage projects at SpaceX, three metrics are critical:
- the cost per kilogram KPI discussed above, and
- the money SpaceX has in the bank
- the rate at which money is being spent
In contrast to traditional project management practice, SpaceX aims to keep spending money as fast as possible. This is quite a shocking statement, as it goes against every cost control instinct of traditional project management.
By making this statement, Justice is emphasising that in order to reduce the cost per kilogram KPI as fast as possible, innovation needs to be prioritised. Therefore, if money is available, it should be spent innovating with as low a friction as possible against that KPI. Money sitting idle in a bank account not helping to maximise profit in a business ripe for innovation is actually money lost. This is also known as ‘real-time funding’, or ‘venture accounting’, and is not new to Silicon Valley, but is new to the fields Musk’s companies work in.
Obviously SpaceX is not a ‘Brewsters Millions’ project, so the goal is not to waste money. The point is to empower as many people in the business to innovate as quickly as possible. The choices they make to serve innovation is also revolutionary and instructive.
No Budget Plan
There are no budget plans for projects. If you have an idea that will improve the KPI, then you are encouraged to ‘do it immediately’. The talk is low on details on how this works in practice, but it is hard to imagine there are no checks on employees who consistently spend lavishly on quixotic projects!
However, it’s clear whatever controls are in place that the bias at SpaceX is firmly towards action. Justice even mentions the forgiving culture there, encouraging experimentation where possible.
It’s important to remember that failures also add value to the business, particularly if the learnings are solidified into institutional knowledge. Or, more plainly, you can learn from your mistakes and save money in the future by not repeating them. Container Solutions wrote about this approach to innovation in a previous post on the value of running failed experiments.
No Deadlines
Another challenge to traditional project management techniques is the lack of deadlines. Rather than having a culture where project managers push people based on deadlines, the mission of the organisation is the driver for activity. In this context, SpaceX talks about having ‘1000-year goals’ which describe the broader vision which current activities are ultimately working towards. Their lofty goal is ‘expanding the light of consciousness to the stars’, and ‘cost per kilo’ KPI is the first step to that goal.
Since getting to these short and long-term goals requires innovation, creativity, and novel thinking, deadlines are seen as stultifying, and ultimately pointless: you can only easily estimate something that’s been done many times before, so setting deadlines for previously unknown problems is arbitrary at best, and counter-productive at worst. SpaceX relies instead on missions to drive project urgency rather than
This chimes with previous experiences we at Container Solutions have had when working with businesses to make significant business changes. When a project is seen as existential in importance, then measurement against estimated deadlines is secondary to simply ensuring the project can move as fast as possible. In one example, a switchover of a back-end system for a major online business took place within a few months simply because the business needed it to happen to survive.
A good analogy here might be with F1 racing teams, where every aspect of the team’s practices are subordinated to building and maintaining a faster car. In this context, the mission is the key driver, and working to arbitrary deadlines makes little sense.
Highly Distributed and Enabled Teams
For a team to innovate fast they need to have as few blockers as possible to any activities that might support innovation, and decision-making about how to achieve the goal must be devolved to the smallest possible organisational unit. Consequently, teams can choose whichever methodology they like to get the job done. This kind of distributed power and responsibility motivates people to work more efficiently towards the company’s goal, since they feel empowered to make decisions for which they are responsible.
Not only does SpaceX not centralise and mandate product teams’ methodologies, they do not centralise procurement or cost control. There are no ‘Head of Procurement’ or ‘Head of Cost Control’ roles there. These responsibilities lie with the individual teams.
Money Flows and Agility
The central reversal of project management norms that underpins all the others Justice talks about is the speed of the budget cycle.
Justice even goes so far as to argue that if you have a yearly budget cycle, then you by definition cannot be Agile, no matter what you assert about previously undertaken Agile transformations within your business. If your budget is set annually, then you can’t respond to what you learn about your goal as you go.
This fits with our experience, especially working with companies that try to implement methodologies that try to scale Agile across an enterprise such as SAFe: the success or failure of these methodologies’ implementation depends on many things, but a critical aspect is always how well-aligned budgets are with project cadence. The most successful SAFe implementation we have seen had full budgetary reviews matching the SAFe three-month cadence. This meant that projects that were finished faster could be shut down, and new teams spun up to reflect any change to the situation three months on.
SpaceX’s extreme take on this to make the budget cycle daily. Any project can change their spending rate on a daily basis, referencing the money in the bank and the run rate metrics. This maximises the agility of the business and the ability of individual teams to innovate.
Reverse Conway Manoeuvre
The final reversal of typical company project and product management behaviours that SpaceX practices is the alignment of the company structure to the product. This is a well-known pattern also known as a ‘reverse Conway manoeuvre’, after Conway’s Law, which (to paraphrase) states that products tend to reflect the organisational structure that creates them.
Typically, companies structure themselves based on lines of authority that have built up over the years for various historical reasons. These are hard to change, so when a new and potentially disruptive product idea comes along, the path of least resistance is generally to try and fit it into the existing organisational structure. The misalignment of organisational structure to the product delivered results in an inferior product as Conway's Law kicks in, diluting the purity of the product compromises made necessary because of the interdependencies between the different parts of the organisation that creates it.
SpaceX insists that its organisational structure reflects its products, which results in a more seamless and efficient product development process. Since each product organisation is responsible for procurement, budget control, and tools, technologies, and methodologies used, it can structure itself in whatever way it deems necessary to deliver effectively.
Conclusion
At Container Solutions we work with many companies that want to be more innovative and Agile. SpaceX’s extreme focus on budget cycles is another example of the ‘money flows’ aspects we have written about before being an essential prerequisite to change in most situations. To put it in a pithier way: you’re only as Agile as your budget.
In the course of our consulting, we often ask our stakeholders to look squarely at the challenges of organisational realignment towards business goals in order to create the conditions where innovation and agility can thrive. Overcoming these challenges are not for the faint hearted, as they can involve overthrowing many practices and processes that helped the organisation get to where it is. However, as the example of SpaceX shows, embracing these unorthodox techniques and creating a sense of mission can not only drive significant improvements in delivery and quality, but, if it's done well, also upend an entire industry.
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