Agile Transformation across the Enterprise Value Chain

Several organizations have embarked on their Agile Transformation Journey. Majority of the global organizations have outsourced some parts of their work to one or more vendors and service providers. As organizations  focus on increasing Enterprise Agility and Agile methods becomes mainstream, organizations are struggling with the problem of integrating the vendor teams into their Agile way of working.

We believe that the following are the critical success factors for a successful transformation across the complete network of the organization.

  • Revisiting the end to end process
  • Revisiting the vendor contracts

Revisiting the end-to-end process

Historically, outsourcing of work has been done to reduce cost, and onboard expertise that is missing in the organization. The premise of outsourcing was that there are pieces of work that can be easily shipped out as it is well-defined, independent and process-driven. Also, this work is not the organization’s core competency, IP or differentiator. Some of the outsourcing vendors managed to move up the value chain and increased their scope of work upstream. This was done by perfecting their processes, understanding the customer business and offering talent globally. Since the focus has been on cost, the current maturity and optimization has resulted in efficient operations.

Organizations realize that efficiency is not enough for them to be able to meet the challenges of today - where agility, nimbleness and quick response become the most important characteristic of an organization. Quick value delivery, increased ability to respond and maintaining quality and stability means that the organizations need to understand their end-to-end process of creating and delivering value and look at ways of increasing its effectiveness, instead of making parts of it efficient.

This shift in focus from cost to value delivery makes it important for organizations to re-look at their outsourcing strategy.

One of the major findings at this stage is the realisation that several specialist teams have been created that serve several initiatives. Many a times, these teams belong to different vendors also. So for any value to be delivered, multiple teams across multiple vendors  have to work with several handoffs between them. While all teams are great at their work and cost optimized, the overall process may be plagued with delays (read cost, confusion, strain on management time to resolve cross-team escalations). Any agile transformation will have to address this to move the organization towards enterprise agility.

With outsourcing vendors, organizations are used to offloading work and not worrying about the process used to do it. In other words, the vendor process is a black box and the organizations don’t care about the day to day challenges at the vendors. With agile, this behavior is unacceptable as more collaboration is required throughout the process. Many organizations are not ready to accept this and end up just enforcing the agile way of working without re-organizing around value instead of cost. As a result, the organization is not able to reap the benefits of agile.

Revisiting the Vendor contracts

The critical success factor for successful agile adoption is to create “goal and purpose-aligned” teams. Often, this is at loggerheads with the vendor contracts.

Vendor contract includes various KPIs and penalty clauses based on defined threshold for quality of services. All this is based on a clear understanding of the scope of work. The contractual agreement drives vendor behavior. The very nature of outsourcing contracts would make it very difficult for vendors to be totally transparent and break the vendor-customer barrier to work as an integrated agile team. A vendor team would always be motivated to protect themselves and so be more aligned to the contract. This is also a behavior which has served well in the past - the vendors have honored the contracts, even if they have to stretch to do it, and the customer organizations have looked away as their needs are being met.

This is the reason why we have often heard that a “time & material” (T&M) contract is the only way to make Agile work with distributed, mixed teams. With a T&M contract, there are no project-delivery related penalties and the teams do not have to worry about the cost. You are bypassing the conflict the vendor team members would feel if there were contractual terms that they needed to abide by, along with following Agile values. This is a good way to start agile engagements, and helps develop the right agile behaviors.

However, over a period of time, organizations would want to mature their contracting and pricing method, and also transfer or spread the risks across vendors - just like they have been doing it traditionally through outsourcing.

How to start

Start with a single value stream first! A medium sized, medium risk project in a value stream is an ideal case to pilot how you want to organize teams and deliver value. Ensure the team has representation from all your vendors and the existing contractual terms that can come in the way of the proposed new way of working are relaxed for this team.

The goal of the pilot should be to find out the best ways of working together as a team and delivering value, and how to measure team performance. It will also help in understanding how to create a shared vision and get aligned to it irrespective of the diversity of the teams.


Just like any transformation, an agile transformation also questions the current forms and functions. Without revisiting these, and reviewing why the things are the way they are, which assumptions are not valid any more and what structural changes are necessary, the transformation will not be successful.

A transformation would not be successful if the organization does not own it completely - which includes trusting their virtual teams and including their development and engagement as part of the overall responsibility.

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