How To Apply Lean and Agile Methodologies To Professional Services Procurement
By Nicolas Arkells
It is my belief that lean and agile must be combined because neither is a complete methodology by itself, only a framework. Agile is specifically designed to turn everything into short-term projects, as everything must be deliverable in a month or less. Lean complements this with tactics like “kaizen blitzes” designed to deliver considerable improvements within days. Lean, however, focuses only on process improvement, not innovation. To develop new products and processes, the agile framework is needed. It is important to understand that agility is completely incompatible with waterfall or project-management approaches, as it was designed to supersede them.
WHY MAKE THE TRANSFORMATION TO LEAN & AGILE?
Professional fees can be some of the most expensive labor rates on a balance sheet. It is the perfect area to target for a significant reduction in overhead. Quality can be increased while decreasing price, as projects no longer need to be sent to one large firm that may charge a high premium and not have the expertise needed to complete the project in the most efficient manner. Instead, boutique agile firms with specialty areas can be used for each portion of the project. By utilizing these agile firms, prices can be lowered while obtaining quality projects. This is because by using a greater number of vendors, a company can experience greater competition for projects, instead of the high prices when there are only a few “preferred vendors” who will mirror prices. The reality is, when approached with a lean and agile framework, the professional services industry becomes more a commodity market. There’s very little room for substantial differentiation when there are transparent and uniform standards.
As part of an agile framework, projects are separated into smaller deliverable increments, which enhance quality as it aligns with principles of cognitive psychology surrounding task completion. Lean and agile both embrace setting forth requirements and expectations from the beginning of a project, significantly reducing waste as projects will not require numerous revisions, as they are designed to specification from the beginning.
HOW TO IMPLEMENT COMPETITIVE BIDDING WITH LEAN & AGILE
Implementation of a lean and agile system is simple and cost-effective. To verify the identity of a firm bidding on a project, use the existing supplier apparatus system such as gateway or SAM (system for award management). SAM is free for both the company and the vendors. It will require the vendor to go through extensive vetting. Many firms already register with this portal so they can perform work for the U.S. government. SAM facilitates transparency, as the status of a registered entity can be viewed by anyone.
Another process that may need to be implemented to facilitate the shift to competitive bidding is for companies to forecast projects as far out as possible, as this will maximize the length of time a project will be open for bids, which will further reduce costs. For unplanned or very small projects under $100,000, use a preapproved vendor list that stays updated with continuous real-world data based on other projects performed by the vendor. When forecasting large projects, organize them into a backlog rather than a general list. A backlog is an agile technique whereby a firm organizes all the requested projects onto one list, then prioritizes based on their strategic value and available resources. By forming a backlog, the firm will realize opportunities to turn larger projects into smaller ones, helping minimize risk through diversification.
HOW PROJECTS ARE ORGANIZED
As part of the proposal process, require the vendor to break the project into what the agile framework refers to as “increments,” which are small deliverables that can be completed in less than a month. Small teams of consultants will function essentially as agile teams of up to nine members that can be scaled up to eight additional teams while requiring the company to maintain only one point of contact known as the “product owner.” As a condition of closing out a project, require the company’s project supervisor to fill out an evaluation — called an “after-action review” — that includes a synopsis of the project, what happened, and what was supposed to happen. This becomes a critical “artifact” other leaders can access to improve their future decision-making.
WHAT TYPICAL VENDORS LOOK LIKE IN THIS SYSTEM
As this procurement system is implemented, it will likely effect a considerable change on vendor composition. The market will likely shift toward greater numbers of small to midsize agile firms. The vendor composition is not likely to shift toward being composed solely of freelancers. With freelancers, there are far too many issues with coordination and intellectual capital retention; however, vendors will need only enough employees and contractors to compose the minimum four to nine members required for an agile team to successfully complete most projects.
HOW RATING SYSTEMS & PRICING WORK IN THIS SYSTEM
Transparency is a mutual requirement between vendors and clients with lean and agile. Vendors must be evaluated on uniform criteria with enough detail to avoid cognitive biases such as the “halo” effect, where one positive attribute clouds the identification of flaws. This nullifies the ability of consultants to leverage the “smoke and-mirrors” routine, as an evidence-based approach makes sure firms are evaluated on deliverables rather than perception. Companies can again adapt the existing supplier-rating system or use this shift as an opportunity to develop new metrics emphasizing areas such as quality relative to price, deadline management, and budget adherence. The criteria should be publicly available; however, do not disclose the attribute weights, otherwise vendors will be able to manipulate the rating system. Lean is incorporated throughout the process as unnecessary layers of hierarchy are eliminated and projects are standardized. The standardization of projects to flat-hourly or total-cost pricing allows metrics measuring effort, quality, and productivity to be assessed in a way that can be benchmarked.
To facilitate a uniform rating approach, billing should be reduced to either a single per-hour flat rate or have the entire project performed at a single total price. There may be other methods, but ultimately, quality and efficiency must be measurable relative to price in a uniform manner for each project. A basic truth that must be accepted is that efficiency and quality are two diametrically opposed values that must be balanced. This means adopting value-based pricing rather than awarding to the lowest bidder.
The reason to avoid a convoluted system of multiple itemized hourly costs is that it becomes impossible to assess value when rating firms relative to one another. An itemized system also significantly increases administrative costs for the vendor, which are externalized onto the company as additional billable hours. It also causes disharmony in data collection, because though it can be averaged out by total cost relative to hours, this doesn’t detect or accurately assess “lopsided billing.” Lopsided billing is a situation where the vendor can bill more hours for expensive personnel, such as executives, to increase project costs. By requiring a single hourly flat rate or fixed total cost, the vendor is more likely to work on the project collaboratively, as it becomes assigned to a team instead of an individual. This allows greater opportunity for error proofing as agile teams internally perform quality control and divide the project based on who is the most capable in each area. As part of this approach, a company discloses the total award amount at project completion to everyone, in a manner like the federal government’s award system. It should be publicly available in a format that includes project type, scope, and a general summary with the total price. Secrecy surrounding price is simply a tool for consultants to charge higher rates for the same service, as they can avoid the price competition that should be inherent in a free-market economy.
By applying both lean and agile frameworks to various processes, companies will continue to improve existing processes while being able to innovate in a way that outpaces competitors.
NICOLAS ARKELLS, J.D., MBA is the CEO at Manticore Consulting Group. He is certified as: LSSBBHC, PSM, PSPO, ELR, PMEC and RAPS in Pharmaceuticals/Medical Devices.