By instituting a relationship of domination in the customer-supplier relationship, the fixed-price contract pushes operational staff to the opposite extreme of the agile mindset, which is all about listening attentively and collaborating transparently. Companies need to experiment with new types of contract and acculturate their purchasing departments to agility. Can we reconcile agility and outsourcing? Update with Alain Sacquet, DevOps practice manager and trainer at ORSYS.
Agile methods are a form of project management that encourages dialogue between the various stakeholders. The business and IT teams work together on an ongoing basis, giving each other the option (if necessary) to modify the content of the project as long as the delivery deadline remains unchanged.
By giving priority to exchange and dialogue, agility breaks with traditional practices. These are rigid and demanding in terms of contractual specifications. One of the main aims of agility is to combat the notorious "tunnel effect" introduced by V-cycle project management, also known as "cascade" project management or waterfall. Indeed, a project lasts months, even years... Also, between the time of developing the initial specifications and the final result, the business need and/or the economic and regulatory context may have evolved.
However, the values of agility, such as adapting to change or the spirit of collaboration (brought together in the agile manifesto), are confronted with the rigidity of the dominant service outsourcing contract, the fixed-price commitment. In this type of contract, the service provider makes a commitment to results based on an overall cost and a delivery date.
Exceeding WaterScrumFall
This relationship of domination in the customer-supplier relationship contradicts the very principles of agility. It requires a completely different mindset. In an agile project, customer and supplier will inevitably encounter difficulties and periods of uncertainty. This means working in a collaborative way, as part of a long-term partnership.
Instead, the fixed-price commitment leads to a series of mini-fixes. These are known as V-shaped microcycles, applied to the various iterations of the project. In this scheme, known as "WaterScrumFall", the service provider commits to the result of the next iteration. This is based on the additional requirements communicated at the start of the sprint. In a way, the customer commits to the "input" and the supplier to the "output".
Except that between these two contractual milestones, the customer and supplier do not work together. To ensure that the supplier's responsibility is fully engaged and that the supplier does not hide behind a possible inaccuracy in the initial request, the customer will not interact with the supplier.
Projects within the project
The sprint deliverables (which can be understood as a sequence or mini-project over a short period at the heart of the overall project) then become a contractual element that seals the supplier's commitment. The onus is on the supplier to deliver the expected end result at the end of the two or three weeks of the sprint.
With this diagram, we reinstall a work organization of the type waterfall. An organisation in successive phases, with different teams taking exclusive responsibility. One is responsible for design, the other for acceptance, while coding is outsourced in between.
This organisation in no way reflects the philosophy of agility. Agility is all about getting people to work together simultaneously business lines and IT specialists. Here, the teams of IT specialists don't even work together because some are employed by the customer, others by the supplier.
Faced with this situation, we need to review the spirit of the contracts so that agility can develop., establish new governance and acculturate the purchasing department to agility. The client must trust its IT teams to appreciate the quality of the work carried out by the supplier and not just the resulting result.
Le new ORSYS seminar (Editor’s note: led by our expert trainer Alain Sacquet) presents the conditions for agile, collaborative and partnership contracting as well as the details of the three types of indicators at the heart of the new generation of agile contracts at scale. These new, engaging contracts allow customers and suppliers to collaborate simultaneously on a longer sequence of activities, from design to production, as agility at scale now requires. The evolution of the spirit of contracts is then gradually accompanied by more complete indicators. These indicators serve business satisfaction and IT operational performance.
The Year 2000 bugs and the euro
The original sin that explains the rise of the commitment package dates back to the turn of the millennium. With the notorious Y2K bugs and the euro, IT services companies began paying themselves handsomely. As a result, business leaders began to distrust both service providers and in-house IT staff. They wanted to get their IT out of the business by outsourcing on a massive scale. At the very time when agile methods were emerging.
Outsourcing on the rise
With this growth in outsourcing, IT project managers have been replaced by young people from business schools to manage contracts. This purely contractual approach meant that companies no longer needed IT skills. Or so they thought. In order to secure their purchases of services, they opted en masse for fixed-price contracts.
This contractual logic also created pressure on prices. In response, in order to maintain their margins, service providers recruited junior profiles and turned to offshore outsourcing. As a result of this price war, skills have been pushed down, on both the customer and supplier sides.
Conclusion
That era, with little regard for user experience, was also the era of software packages and IT services companies converted to integrators. Today, rebranded as ESNs, service companies are tasked with supporting their corporate customers on the path to digital transformation.
This requires business and IT to work together, in small increments, to produce high-performance solutions. Only innovative contracts driven by a new contractual mindset will deliver on this promise of value creation.
Also read, from the same author: agile outsourcing gone wrong
