Agile and Collaboration (Part 2)

In the volatile modern world, flexibility is essential to the survival and success of an organisation” – G. Stracusser[1]

Evaluation and Planning. L.Ruigrok (2020)

Introduction

In our previous blog we explored the features and problems associated with agile procurement approaches. The key challenges with agile procurement stem from the fact that flexibility and responsiveness are not compatible with traditional procurement approaches and associated contracts that attempt to clinically allocate risks between the parties. Similarly, agile approaches require a substantial shift away from business as usual approaches and this demands an organisational cultural shift as well as effective leadership to drive the right outcomes.

Suppliers as Custodians

Traditional, arms-length procurement approaches are suitable for low risk, non-critical procurement but where we wish to successfully implement agile procurement then we need to fundamentally reassess out business relationships. Agile demands flexibility to achieve faster time to market, better meet customer requirements, better deal with emergence, and reduce disputes. This cannot be achieved with a traditional vendor relationship. Rather, we need to change the way we look at suppliers and consider them as trusted partners or custodians of our business. No doubt this makes traditional contract managers exceptionally nervous (from both the buy and sell side) but this change in thinking is necessary for the following reasons:

  1. Bringing suppliers ‘inside the tent’ provides them with greater access to customers, rather than dealing with the contract management team as the gatekeepers. This subsequently allows for timely and more effective decisions, and ensures goods and services are fit for purpose;
  2. Integration of suppliers with common information systems, inventory management systems, risk management systems, and decision support systems provides a timely, single source of truth. As a result, decisions can be made faster and more accurately;
  3. Fixed price arrangements are very difficult to implement in agile environments. As a custodian working closely with the buyer, almost real time evaluation of supplier performance and value can be assessed. This provides a more robust remuneration governance framework than a simple cost reimbursement approach where there is no incentive to minimise costs; and
  4. When things inevitably go wrong, parties should be incentivised to ‘fix the problem and not the blame’.  As a custodian or partner, suppliers are more likely to work towards the customer’s enterprise outcomes rather than their own short-term commercial interests.

Though the above benefits are enticing, we need to be alert to the challenges associated with suppliers as custodians with; potential dilution of accountability, the risk of fiduciary duties arising, and the risks of ‘vendor lock in’.  Appropriate governance and performance management frameworks must be in place to deal with these issues.

Organisational Design

Every company that has tried to manage mainstream and disruptive businesses within a single organisation failed.’ – J. Bower and C Layton[2]

Traditional procurement is often underpinned by stovepipe organisations. This is especially so in large organisations where separate departments and business units work separately in the procurement lifecycle with; the marketing department exploring ‘features and benefits’, engineering departments developing and implementing specifications, commercial departments drafting the contracts, and finance teams crunching the numbers. These activities are typically sequential and often lead to delays, confusion, and a general lack of accountability.  For agile procurement, these stove pipe approaches are unsuitable.  As observed by Nicoletti, an ‘agile business model’ is required with agile processes that maximise the opportunities for automation.[3] In practice, this means:

  1. a single, accountable authority who is delegated decision-making for the agile procurement activity;
  2. an integrated team comprising all the necessary skills and disciplines needed for the procurement activity, including the customer;
  3. streamlined processes that are focussed on delivering an outcome rather than delivering a ‘thing’;[4] and
  4. maximising the opportunities for automation (efficiency, economy, and effectiveness).[5]

Implementing a complete agile procurement suite across the whole business would be a herculean task but there is no binary choice here.  Organisations can adopt the full raft of agile procurement approaches for those activities where it is required and roll out partially agile approaches for the remainder of the business.  For example, automation and streamlined processes could successfully be implemented across the whole enterprise but highly skilled, multidisciplinary teams may be reserved for those activities where the greatest need for flexibility is required.  Organisations facing a transition to agile procurement approaches would likely face significant challenges if they adopted a big bang approach to implementation.  The mix and skills of personnel required in a completely agile procurement environment would also introduce challenges.

Cultural Alignment

Moving to an agile procurement environment will undoubtedly require a cultural shift in many parts of the organisation.  It is rare for large organisations to have a single, homogenous culture, rather there are likely to be cultural islands.[6]  A new cultural island may be required for those business units that are required to operate in an agile fashion. Alternately, a more ambitious approach is to shift the whole organisation to an agile culture.  The latter approach is exceptionally risky even though the rewards are likely to be much higher.  What is important when adjusting culture is that expectations are managed, and change is implemented to achieve enterprise outcomes.  Expectation management requires us to recognise that:

  1. Flexibility and agility come at a price. Long term pricing arrangements, bulk purchasing rebates, and efficiencies with boilerplate processes will be eroded. Nonetheless, the loss of these benefits should be eclipsed by the value offered by an agile, customer focussed, responsive organisation;
  2. The organisation must have a greater appetite for sunk costs and rework.  Consistent with the Fast, Inexpensive, Restrained and Elegant, and other innovative procurement methodologies; we should accept failures so long as failures are ‘fast, cheap, often, and smart’;[7]
  3. The full range of benefits will only be realised when buyers and suppliers work together collaboratively
  4. We must accept shorter planning cycles. Strategies are enduring but planning cycles must be shorter to deal with emergence and support agility.  Five-year plans are anathemic to agile procurement approaches. Our business cases must be regularly updated, revised, and even rejected as new information becomes available.  Continuing viability of plans must be undertaken;[8] and
  5. The organisation as a whole must be resilient and adaptable. Emergence means that people and processes must be aligned to allow the organisation to pivot as required. This can introduce challenges with change fatigue.

Conclusions

An agile organisation offers substantial benefits so long as the organisation is effectively designed with the right culture and with expectations managed accordingly.  Agile approaches will be successful if they are underpinned by small, self organising, multi-disciplinary, collaborative, high performing teams.[9] Assigning grandiose titles to these teams such as ‘tiger teams’, ‘black belts’ or ‘scrum masters’ is not important. What is important is to ensure these teams have the right people, with the right skills, and the right delegations to achieve enterprise goals. 


[1] Straçusser, Glenn Agile project management concepts applied to construction and other non-IT fields (2015) https://www.pmi.org/learning/library/agile-software-applied-to-construction-9931

[2] J. Bower and C Layton ‘Disruptive technologies – Catching the Wave’ Harvard Business Review Jan/Feb 1995 Vol 73 Iss 1.

[3] Bernardo Nicoletti  Agile Procurement: Volume I: Adding Value with Lean Processes (2018) p4.

[4] J. Millis & A. Freeman ‘Agile contracting for Australian Government agencies (2018).

[5] Bernardo Nicoletti  Agile Procurement: Volume I: Adding Value with Lean Processes (2018) p4.

[6] E. Schein, Organizational Culture and Leadership 4th Ed (2010), p 271.

[7] US Government ‘Innovative Contract Case Studies’ (2014) pp24-25.

[8] Managing Successful Projects with Prince2 (2017) [6.2].

[9] F. Brooks “Mythical Man Month” (1975)

This entry was posted in How to Collaborate on by .

About John Davies

John is a recognised authority in collaborative contracts, relational contracts, and novel procurement options. John has conducted extensive research into alliance contracts and governance frameworks from both the buy side and sell side. John has authored collaborative contract better practice guides, performance-based contract evaluation guides, and tender evaluation guidelines for major programs. You can find his CV at LinkedIn.