“It is a bad plan that admits to no modification” – Publilius Syrus (fl. 85–43 BC)
“Becoming agile in procurement allows you to create an adaptive partner ecosystem where you adapt to needs and circumstances in a relationship rather than having contractual handcuffs on.”[1]
Introduction
Agile procurement is a hot topic as organisation’s are seeking agility and responsiveness in an exceptionally volatile environment. Pinning down a definition of ‘agile’ in the procurement space though is illusive. Whilst the term has its origins in the software development arena with the agile manifesto , agile procurement means many different things to many different stakeholders. This blog explores some of the definitions of agile procurement and the common themes or principles that emerge out of the literature. One of these key recurring themes is the need for collaboration at all levels to realise the benefits of agile approaches. Successfully implementing agile approaches through collaboration is the theme of part two of this blog.
Agile in the Software Development Domain
Almost two decades ago the agile manifesto was born with the following values:
- Individuals and interactions over processes and tools
- Working software over comprehensive documentation
- Customer collaboration over contract negotiation
- Responding to change over following a plan[2]
Along with the 12 principles of agile, the aim was to avoid lengthy waterfall development approaches by adopting short development cycles, meeting customer needs, and embracing change. Whilst the agile manifesto offers a neat summary of what is arguably best practice, there is a lot of prior art that captured many of these agile principles many decades earlier. Kelly Johnson (of Lockheed Martin Skunkworks fame) embraced the principle of ‘keep it simple’ and his 14 rules identified the need for buyer and supplier collaboration with ‘very close cooperation and liaison on a day-to-day basis’, and the use of small and skilled teams. Likewise, in Brooks’ Mythical Man Month he emphasised the need for small, agile, high-performing teams developing minimal viable products. Like many initiatives, the agile manifesto captures best practice and builds upon it. In all things, we should treat agile principles as exactly that; principles not rules.
Agile Procurement
The success of agile in the software domain raised questions about whether such approaches could be effectively applied in the procurement space. No doubt, procurement practitioners wanted to reap the claimed benefits of agile approaches including:
- Faster time to market (noting that speed and value are interlinked),
- Enhanced customer satisfaction,
- Dealing with change effectively, and
- Reduced conflict and enhanced collaboration.
Can these benefits be achieved in the procurement function? The answer is ‘of course’ and agile procurement approaches have been implemented in various guises for many years. A cost reimbursement contract with supplier and customer integrated product teams is a clear example of how procurement can be agile. Similarly Cost As an Independent Variable (CAIV) approaches support many agile features such as; a focus on collaboration with early and continuous end user participation, a focus on minimum viable products, ability to trade high level requirements, and the promotion of flexibility. Whilst these approaches have been used effectively at the project and program level, the shift to agile approaches at the enterprise level is a more recent initiative.
When we move to the enterprise level, we need to ensure the whole organisation is aligned to agile principles and not just the procurement function. This means focusing on strategic objectives and adopting a top down approach as observed by NaDaud:
Agile procurement addresses big picture business needs rather than automatically finding solutions comparable to what is in place and re-bidding the demand. This might result in the selection and implementation of a solution that looks completely differently than what has been done in the past but satisfies the same objective.[3]
In essence, agile procurement is nothing remarkable. Agile requires us to focus on enterprise objectives (with a strong customer emphasis), ensure our process do not slow us down, achieve outcomes rather than specify how to do things, and effectively collaborate with all stakeholders. This does not mean we have to abandon traditional sourcing strategies, rather we must be able to select agile methods when they are required. Mitchell makes this clear in the following observation (emphasis added)
Agile procurement is the ability to satisfy all of the objectives of strategic spend management (savings, resource efficiency, risk management, supplier performance/relationship management) without the rigidity of being tied to any of the typical ways we achieve those things. [4]
Agile is not the death knell of the Kraljic Matrix or Category Management approaches. Many organisations will still maintain a section of their portfolios that will require more traditional approaches, but agile demands that deviation from boilerplate templates and traditional processes is permitted. Where we have complex emergent environments, unknown solutions, a demand for innovation, and a need for end-user participation, then the business case for pursuing agile is compelling.[5]
The Problems with Agile
A procurement delivery system that offers all the benefits of agile is enticing but we must be alert to the challenges or risks of going agile. First, we need to recognise that agile is not a free for all with an unstructured, no-liability, cost reimbursement contract where contract managers simply ‘tick and flick’ progress reports independent of any value being delivered. As Rigby, Sutherland and Takehuchi state, ‘agile is not anarchy’.[6] With agile, there must be appropriate governance arrangements in place and a flexible commercial model that incentivises performance. This is not just the remuneration model but also other non-price factors such as the amount of workshare and security of supply with possible guarantees for follow on work. Herein lies a major challenge, how do we legislate for a flexible process with a contract? By design, contracts are tools that allocate risks and liabilities, provide stringent processes for managing change, and clearly articulate the contractual outcomes. Whilst not insurmountable, we can craft contracts and commercial models to deal with agile environments and this will be explored in out next blog. Suffice to say, adopting a commercial framework that is agile friendly, requires a radical departure from traditional contracting approaches and this brings us to the next problem, culture.
For many organisations, operating in an agile environment will require a substantial shift from business as usual approaches. Having the right culture with leadership participation is crucial for successfully implementing agile approaches. The importance of leadership and the right culture is illustrated in the 14th Annual State of Agile Report which states that the top barriers to realise agile outcomes are:
- general organisation resistance to change,
- not enough leadership participation,
- inconsistent processes and practices across teams,
- organisation culture at odds with agile values, and
- inadequate management support and sponsorship.[7]
Rigby et al go further to claim that traditional organisation structures and C- suite activities are unsuited to agile methodologies.[8] To successfully embark upon agile approaches, a cultural transformation with leadership support is needed.
A further challenge with agile approaches is with the skills and capacity of the team members who must make agile methods work. One of the key organisational drivers for adopting category management and segmented purchasing (with tools such as the Kraljic matrix) is to enable procurement professionals to only be given the training and skills they need for their job. For example, the skills needed to manage ‘non-critical items’ are quite modest compared to ‘strategic items’. Where we move to agile procurement, contract managers and procurement professionals require more formidable skills, training, and experience. Even more so, we need people with the ‘mental agility’[9] to drive value.
Conclusions
Agile procurement offers many benefits but there are risks and cost associated with adopting agile in an organisation. None of the challenges with Agile are insurmountable. Our next blog will explore practical aspects of implementing agile approaches through collaboration, cultural alignment, commercial alignment, and effective expectation management.
For those who are interested, Dr Andrew Jacopino and myself are hosting a network session on Agile Contract Models and Performance Based Contracts as the IACCM Vibe Summit on Tuesday September 22nd, 5:40pm – 6:15pm AEST.
[1] D. Craik ‘How to be an Agile Procurement Team’ (2018) https://www.cips.org/supply-management/analysis/2018/october/how-to-be-an-agile-team/
[2] https://agilemanifesto.org/
[3] J. Nadaud ‘Agile procurement defines next wave of success – how well do you walk the talk?’ https://journal.iaccm.com/contracting-excellence-journal/agile-procurement-defines-next-wave-of-success
[4] M. Mitchell ‘What does Agile Mean Anyway?’ (2018) https://www.determine.com/blog/what-is-agile
[5] D. Rigby, J. Sutherland and H. Takeuchi’ Embracing Agile’ Harvard Business Review (May 2016) https://hbr.org/2016/05/embracing-agile
[6] Ibid.
[7] Digital AI “14th Annual State of Agile Report” (2020) https://explore.digital.ai/state-of-agile/14th-annual-state-of-agile-report.
[8] Rigby et al, opcit.
[9] T. Cummins ‘Agility, contracts and value: time for new thinking’ (2019) https://commitmentmatters.com/2019/09/22/agility-contracts-and-value-time-for-new-thinking/
Collaborative Contracting Blog 