Agile Contract Management in a Not-So-Agile Aerospace & High-Tech Industry?

Is it possible to apply ‘agile’ contract management in industries like aerospace, aviation, defense, and other high technology equipment and systems suppliers?

Aerospace and high-tech companies work with advanced technologies in expanded supply chains producing complex products and services.

Programs are long-term, and so is the design and production of such products.

In all high-tech industries, including aerospace – think of ‘unmanned aerial vehicles (UAV)’ or ‘drones’ – the environment is continuously changing.

And companies need to react quickly (read: agile) to new developments in, for instance, cybersecurity, artificial intelligence, and automation.

In parallel, you then need to also set up and manage contracts that allow such ways of working: agile contracting and contract management.

Can you use methodologies applied in agile software development also in aerospace, aviation, and high technology manufacturing environments?

So, not only for software but also product development, agile contracting, and agile contract management?

In this article, I will explore first whether agile management, in general, is possible in aerospace and high-tech environments.

If the answer is yes, I will then describe how working agile in project and contract management can benefit your company and increase contract and business value.

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In Which Areas Can the Agile Approach Benefit Aerospace and High-Tech Suppliers?

Agile contract management cannot stand on its own. You can only apply it when your company’s projects and processes also use agile methodologies.

Do aircraft and spacecraft manufacturers and high-tech equipment suppliers provide the right conditions for agile ways of working? Can they transform themselves into an agile business?

Agile originally started as a methodology for software development in gaming and application development for consumer goods.

Software development is and has been for many years an integral part of high technology and aircraft manufacturing. There is no aircraft or high-tech product or services out there that don’t have complex software components.

The mission systems in military helicopters, the software in test equipment, robots on production lines, and much more all contain software developed by the original equipment manufacturers themselves or specialized suppliers.

The agile approach was developed for precisely that purpose: software development.

So you would expect that high technology equipment and system and aerospace engineering departments will quickly adopt agile ways of working.

Not only for software development but more in general also for product development.

And in parallel, you then need to also set up contracts that allow such ways of agile working.

Six Reasons Why Agile is Challenging for the Aerospace and High Tech Industry

Some other factors and characteristics are particular to aerospace and high-tech and system suppliers – and similar industries like defense.

1. Programs are extensive and consist of many related projects.

Aerospace and high-tech industries organize themselves in ‘programs’ and “focus on the coordination of many related projects and other activities, over time to the benefit of the organization” (PMI). Such programs are often much larger than projects in other industries.

“Programs are about delivering benefits to the organization within defined constraints and in alignment with its strategic objectives. Changing the elements within a program to maximize benefits actually realized and maintaining alignment with changing strategic objectives are essential. The key focus of program management is in delivering value, working in concert with the operational and strategic elements of the organization.” Source: PMI

The programs consist of interdependent supplier networks with many teams, people from multiple disciplines outside the company. Other companies, partners, and ‘tier 1, 2, and 3‘ suppliers are involved and often part of the teams.

2. Aerospace and high-tech programs are complex.

Several aspects contribute to the complexity of projects in aerospace and high-tech programs:

  • Design, development, production, and product life cycles can sometimes extend over 50 years.
  • After that, in the design and development phases, for modifications of the aircraft or equipment and systems, qualification and certification requirements continuously influence the design, development, production, and other processes.
  • The projects in aerospace or high-tech programs are complex from a technological and engineering point of view. Increasingly, software plays a vital role in aircraft and defense technology.
  • You cannot see software system development as separate from the hardware. An aircraft or helicopter, or high-tech system requires a ‘product-service system’ approach.
  • The integration of software and hardware at the system level determines the value and performance very much. You also cannot separate software development from product development.

3. Programs are multinational.

The partners and suppliers often come from different countries. There is no aerospace or high-tech company able to source all people and materials from the same country. They are global industries.

Often the goods and services come from the company’s sites and plants in other countries. This fact makes supply chain management one of the most critical challenges.

New development of products involves the collaboration of companies from different countries and cultures.

All companies have challenges related to competitiveness, product development, global supply chains, resources, processes, and team coordination.

4. The same company can have different processes and cultures.

In addition, often aerospace and high-tech companies are large conglomerations of companies that over time have more than once merged, taken over other companies, or outsourced divisions to other aerospace and high-tech companies. Examples are the Airbus and GKN Aerospace groups, and there are much more aerospace, aviation, and defense conglomerates like this.

The result is that the processes and corporate cultures between divisions within the group and external partners and suppliers are not aligned and are very different.

5. The customers show the same level of complexity.

The customers of aerospace and high-tech companies are not very much different. For example, airlines, governments buying defense technology, and other high-tech customers show the same characteristics.

They also have large teams when procuring high-tech products and services, located in different countries, using different processes and cultural reasons, working in other ways than their peers in the same organization.

6. Political and economic factors play an essential role.

Aerospace and related high-technology equipment and system industries are highly regulated, especially in the aerospace and defense industries and their high-tech equipment and system suppliers.

Since the costs of design, development, and production costs of aerospace programs run into very high numbers, in addition to “launching customers” needed to kick off the program, more than one government plays a vital role in funding such programs.

As a requirement for funding, they often require that a share of the activities in the program will be performed by ‘national industries’ in their own country.

And therefore, political and economic factors play an important role in governments that all have their own and often different requirements related to their funding programs.

Strong international competition, wars, economic crises, events like the COVID pandemic in 2020 and 2021, and governments now and then reducing budgets for aerospace in general or defense projects particularly challenge the aerospace, aviation, defense technology, and high-tech equipment and system industry.

Agile Management In Complex Aerospace Aerospace & High-Tech Programs

There is a trend to apply agile methodologies to product development and project management, especially for more complex projects and services that are the standard in aerospace and similar industries.

Can our industry use the agile development methodology – including its ways of organizing and managing – to meet these challenges?

The answer is yes, but it requires the will to change. Since agile is a mindset, it would mean transforming your organization, people, and processes.

Whereas agile can deal with complexity, it cannot reduce it.

Up to writing this article, I haven’t found any examples of successful implementations using the agile approach in large, complex programs like those in aerospace or other industries. If you have, please leave a comment at the bottom of this page in the comment box!

1. Introducing agile management at the project level

So the best approach is to start small by applying the agile methodology only to specific elements of a product, systems, and projects in certain phases in the program.

For example, you can use the agile approach very well in the design concept or product definition phases of a program. The product could be software or any other system requiring advanced technology.

You would first have to agree with all the crucial stakeholders in the program, including suppliers and customers, to work in close collaboration on a specific product specification. When all agree, you can apply the agile development methodology to arrive at the specification.

To determine which projects, products, or systems are suitable for the agile approach, you can use the “Stacey matrix,” developed by Ralph Douglas Stacey.

Stacey matrix and agile management
Source: Praxis

You can use it to understand better the factors that contribute to the complexity of your project and choose the best management tools to address this.

The matrix is based on two dimensions: agreement and certainty to determine whether project management should be carried out using traditional or agile methodologies.

The grey area in the middle then represents the area where working agile works best.

2. Rethinking traditional ways of working

Industries like aerospace need to rethink the traditional ways they work and have been working for decades to accommodate changes.

But this doesn’t mean all processes and models used until now are wrong. Especially the formal procedures and models with strict (contractual) requirements related to qualification, certification, and security related to aircraft and other equipment will not disappear and still work to the stakeholders’ satisfaction.

More importantly, such procedures don’t prohibit more agile methodologies. They can live happily next to each other.

A more significant issue is the mindset of management and important players like the legal or contract department. This is where much resistance to agile can pop up.

Agile contracting is a significant step for people who have worked in the same way for thousands of years.

For many, it is pretty challenging when it comes to contracts to accept that at the signing of the agreement or the start of the project launch:

  • there will be no agreed schedule;
  • the budgetary planning will be decided along the road and may change over time;
  • it is also unclear when or which solutions and intermediate products the parties will deliver.

3. Transforming into an agile company

As discussed above, many more processes than software development in a company or program can be made agile. Areas to start with are project management, production, and engineering.

But you can also find areas in support processes that may benefit from agile ways of working.

I started applying agile contracting to a vast software retrofit project to retrofit hundreds of aircraft with new software over the next five years.

Fixed schedules cannot be agreed upon beforehand. Therefore budgetary planning is also not possible. Nobody knows what will pop up during retrofits, so you should build flexibility to do additional work or change software at the very last minute into the project.

A program like this requires an entirely different way of ‘agile contracting’ and agile contract management. I will further extend on this subject in one of my next posts.

Agile Contract Management

If you decide to ‘go agile’, you need to examine your contract management closely.

Since agile project management differs from traditional project management, contracting for agile projects is fundamentally different from conventional contracting.

Even so, using traditional contracts for an agile project can lead to loss of contract value during the project execution and your company to fail to get the potential benefits of agile ways of working.

So agile contract management should have the same approach as the agile methodology uses.

Flexible, collaborative, and splitting up projects into smaller and more manageable tasks.

Contract management depends on the commercial, contractual, and often personal relationship you have with the customer.

Finding ways with contracting partners to collaborate and work in harmony is critical to long-term success.

Agile contract management is the way to do this. 

In my next post, I will be writing about which types of contracts are suitable for agile contracting and agile contract management. Subscribe to the newsletter if you want to be sure to capture this post.

ContractExec can support you with a free first consultation and the definition of goals for setting up agile contract management for one of your projects.

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