The Agile Stage-Gate Model

Revision as of 10:16, 8 May 2023

Abstract

The Agile-Stage-Gate model is a hybrid project management approach for the development of physical products. As the name may suggest, the model aims to merge two different, almost opposite models to create a new flexible but structured solution. Currently, gating systems are considered “too linear, too rigid, and too planned”(3SMes): generally, unable to keep up with the high degree of uncertainty that characterizes modern projects. Agile methodologies (Scrum above all, but also other practices such as Design Thinking and Lean Startup) can be embedded inside stages to deal with the contingencies of the project. In practice, the Stage-Gate® continues to give the project “a comprehensive idea-to-launch system”, while Agile is applied as a tool in daily activities. According to the latest studies, the results from on-the-field experiences state that the Agile-Stage-Gate can improve the product development process in several ways, such as by making the design processes more flexible, achieving higher productivity, supporting better communication and collaboration in teams, and higher team morale. Some studies also highlighted a higher success rate and a faster development process. The model seems to be suitable for both large and small-medium enterprises. However, it poses new challenges to managers in allocating resources, building complete multidisciplinary teams, organizing meetings, and overcoming the skepticism of the management. This article aims to investigate the new hybrid approach's origins, nature, and functioning, starting from its foundations. The application section provides recommendations on when to use a specific hybrid model by using practical tool to engage with the problem. Furthermore, the article will suggest the most suitable metrics to evaluate Agile-Stage-Gate projects from a portfolio perspective. In conclusion, a brief reflection on the status quo of the developmental approaches against what the Agile-Stage Gate proposes, followed by the limitations of the model.

Why the Hybrid Model

Managing Innovation through the Stage-Gate®

Since the 1980s, gating systems for project management have spread all over the world and become a standard in riding the lifecycle of innovation projects, especially in new product development. One of the most famous gating systems is the Stage-Gate®, a strategic management tool that gives a rigid and plan-based structure to the idea-to-launch process, alternating decision-making stations called Gate to operative Stage. A Gate is a set of expected results that must be met by the project leader to access the next Stage. The “exit criteria” vary from one gate to another, or from one project to another, but generally, they should be a set of benchmarks for the project's strategic, marketing, and financial aspects. Initially, these standards are mostly qualitative, while they gradually become more quantitative in the final stages. (Cooper, 1990, pag. 50). The evaluation of the project against gate criteria needs to be assessed by an experienced manager, whose knowledge plays a key role in the decision-making process. Management oversees the greenlighting of the heavy spending decision through the path and helps the team meet the deadlines. Furthermore, management's commitment and support are fundamental in aligning the project's development with the organization's objectives. (J. Edgett, 2015) The output of a Gate results in a Go/Kill/Hold/Recycle. If the deliverables satisfy the exit criteria, the project can move on to the next Stage, “a set of required or recommended best-practice activities needed to progress the project to the next gate or decision point” (Cooper, 2008). In each stage, cross-functional types of analysis are carried out concurrently by multidisciplinary teams of individuals from different areas of the company, using traditional project management tools such as “Gantt chart, milestones, and critical path”(Cooper 2018, ASG for Manufacturers). Since every stage has incremental costs, the knowledge acquired thus mitigates the risk. It offers a broader vision and a more analytical perspective to decision-makers, who can evaluate the project using objective data rather than relying on intuitions (Cooper, 1990). An example of a traditional Stage-Gate® model introduced by Cooper is reported below:(Cooper, 1990)

Example of a Stage-Gate model ( adapted from Cooper, Robert G., and Elko J. Kleinschmidt. "Stage-gate process for new product success." Innovation Management U 3 (2001): 2001. However, the activities and criteria for, respectively, each stage and gate, as well as their number, may vary from one company to another

1. Preliminary assessment: Users’ feedback about the concept is gathered through quick research to evaluate how the product would be perceived by the customers. (Cooper 1990, pag. 52)
2. Definition: Customers’ preferences are deeply analyzed in this stage. Thus, the team can identify the basic principles of the future product and assess the first approximate financial and technical prospects. Here, legal matters are also considered.
3. Development: the design of the product is finally developed, and all operative needs and processes are clearly defined.
4. Validation: once the product is prototyped and ready to be produced, the company must test it to evaluate its quality. The customer plays a crucial role in helping the development team to understand if the usability of the product is by what has been stated in the previous stages. After the first tests, more information is available and can be used to improve the product and the production process. Furthermore, considering the new data, the financial prospect of the entire project can be reassessed. (Cooper 1990)
5. Launch: The product is finally launched on the market, and production can start. (Cooper, 1990)

The Agile-Stage Gate: need for flexibility

Firms, nowadays, are operating in a volatile, uncertain, complex, and ambiguous environment. (https://www.mindtools.com/asnydwg/managing-in-a-vuca-world). At the executive level, the two questions “Are we doing the right things” and “Are we doing things right?” are more and more present and call for the review of existing strategic and operative plans (Cooper 2018, ASG for Manufacturers). In Stage-Gate, a detailed product proposal is well-defined before starting a project, and project-related costs are evaluated and approved upfront. (Cooper 2018, ASG for Manufacturers). Moreover, in the traditional method, the team follows a sequential path based on a predetermined schedule and project blueprint, and the customer is rarely involved in the process (Cooper 2020). This approach clashes with the dynamics of the current environment, which asks companies to be flexible and adapt to the market’s changes. (Cooper 2020).

For this reason, the hybrid Agile-Stage Gate (ASG) approach gained interest among scholars and practitioners as a possible alternative that blends benefits from both models, thus balancing “discipline and agility”. (Brandl et al. 2018) In a nutshell, Agile project management is a project management approach that handles complexity by iterative work on the product, adapting its features to the emergent business needs in the process. (White, 2008). Even if most of the agile frameworks were developed during the second half of the 20th century, the Agile philosophy was officially formulated by a group of developers only in 2001, with the publication of the Agile Manifesto. (Zasa et al.2021). As affirmed by Abbas et al. (2008) a method, to be considered agile, should be “Adaptive”, “Iterative and Incremental”, and “People Oriented”.

• Adaptive: ready to adjust the product, or the “method itself” (Abbas. 2008), to what is needed after each iteration, based on technological advancements and feedback from previous iterations.
• Iterative and Incremental: in a software environment, the features of the product are defined iteratively, and incrementally improved. At the end of each iteration, the customer is involved in the evaluation to gather his opinions and ideas during the process.
• People Oriented: in Agile, “People are more important than any process”. The method applied should be seen as a tool to support the team in delivering the best possible outcome. The role of people, both the team and the customer, is pivotal in agile philosophy. (Abbas et al 2008)

Generally, Agile is an “umbrella” that groups a wide number of frameworks. (Asana). In the context of the Stage-Gate, the Scrum framework seems to be the most apt to be fitted into the stages (Cooper, 2016). In a nutshell, Scrum is an agile project management methodology inspired by rugby that through time-boxed iterations(“Sprint”) aims to deliver a certain improvement, called “Increment”, to the product in the development pipeline. At the end of each sprint, the outcomes are evaluated with relevant stakeholders in a review session (“Sprint review”). Stakeholder feedback helps the team to update the Product Backlog with new functionalities to be added in the next sprints. Then, the whole sprint is reviewed in a retrospective meeting (“Sprint Retrospective”), where the team discusses what worked well and what did not and pinpoint the key area of improvement for future iterations.

Scrum Framework (adapted from Endres et al. 2022, "Sustainability meets agile: Using Scrum to develop frugal innovations", https://doi.org/10.1016/j.jclepro.2022.130871)

The Scrum team consists of three main figures:

• Scrum Master is the team leader who helps members apply Scrum methods and practices in daily activities. The Scrum Master works on the interface between the team and the organization.
• Product Owner, who translates the stakeholder needs into achievable objectives, grouped in the Product Backlog. Moreover, The Product Owner is accountable for listing, prioritizing, and communicating the items in the Product Backlog to the team
• Developers, the professionals who actually “create” the Increment. The Developers plan the Sprint together, and work to meet the quality criteria defined in the Definition of Done, thus realizing an Increment.

However, other Agile methodologies can be used to improve the existing product development roadmap, such as Lean Startup and Design Thinking, as shown by Cocchi et al. (2021). According to the studies by Karlstrom and Runeson reported by Cooper (2016), the idea of merging Agile and Stage-Gate® models was born in the IT sector. Companies in this field often aimed to sell a product that involved both software and hardware. The development of the two components was strongly correlated, and the processes were also linked to several different functions that must be aligned to reach a common goal. These companies already applied their phase-gate structure to the development of new products: they tried to insert agile practices into the stages, thus creating a hybrid model. The mix provided benefits and created new challenges, but generally, it proved that the coexistence between the two approaches is possible. Nowadays, the hybrid model is relevant even for those companies which develop physical products. New technologies on the market allow teams to develop and test new ideas faster, reproducing working rhythms common in software development. In this context, the importance of agile arises even in the manufacturing world, and a new way of exploring new solutions is needed. (Cooper 2016). In practice, the Agile-Stage Gate model revolutionizes traditional project management in New Product Development. Gantt Charts, milestones, and critical path planning are replaced with agile practices. Inside each stage, the development process is divided into sprints, at the end of which the products should have gained incremental improvement. Differently from the traditional Stage-Gate, a short-term planning approach drives the projects. The merge of these two models gives the product development process a structured plan from a strategic side (Stage-Gate) while providing enough degree of freedom to adjust products and action plans along the way at the tactical and operational levels. The product is developed through sequential iterations: at the end of each one, the team should aim to design a prototype ready to be presented to the client to gather useful feedback and plan the goal for the next iterations (Reiff, 2022). There is no common terminology to define the Agile-Stage Gate. Often, the “Agile-Stage Gate” label is used to refer to the Scrum-Stage Gate hybrid.

Agile practices in phases of the Stage-Gate® model (Adapted from Cooper, Sommer "Agile-Stage Gate for Manufacturers", 2018)

Hybrid Models in practice

Traditional or Hybrid Model? The Hybrid Model Matrix

Cooper, in his article “From Experience: The Agile-Stage-Gate Hybrid Model: A Promising New Approach and a New Research Opportunity” (2016), poses the question of “when to use Agile-Stage-Gate”. He suggests that the Agile Stage-Gate could be applied for radical and incremental product development. Generally, the ASG seems to work better in those contexts where there is “high uncertainty and a great need for experimentation and failing fast”(Cooper 2016). However, answering the initial question may still be difficult. A study by Cocchi et al. (2021) introduced a tool for project managers, the Hybrid Model Matrix, that aims to make easier the decision-making process to choose the right model for the right project. The matrix is a result of a case study carried out on a firm in the food industry. This company applied hybrid models combining a five-phase Stage-Gate (Ideation, Concept, Business case, Testing, and Launch) with different Agile methodologies, such as Scrum, Lean Start-up, and Design Thinking practices.

Although the company applied the most recent techniques, it lacked a structured framework that can facilitate the decision on the appropriate methodology to be employed for a particular project. The choice of the model depended on the management’s on-the-field knowledge and their ability to evaluate resources in conjunction with the financial return of the project. (Cocchi et al, 2021). The matrix provides some useful guidelines for the agile methods implementation. The matrix states two important factors to be considered before the start of the process:

• Knowledge about Users (KAU): this could be “wide” or “limited” and it refers to the point of view of the customers. “Wide” means that the company is aware of costumer’s tastes and preferences. The target is clear. On the contrary, when the KAU is “limited” it indicates a knowledge gap in understanding the customer’s need.

• Knowledge about Product Category (KAPG): this indicator includes a broad range of elements that define how is deep the knowledge of a company for a specific product. This involves the strategic relationship with stakeholders and market positioning. A product category can already exist or can be new.

The Hybrid Model Matrix (adapted from Nicolò Cocchi, Clio Dosi & Matteo Vignoli (2021) The Hybrid Model MatrixEnhancing Stage-Gate with Design Thinking, Lean Startup, and Agile, Research-Technology Management, 64:5, 18-30, DOI: 10.1080/08956308.2021.1...)

The Matrix consists of four quadrants, and each one suggests a possible project management model.

• Low Knowledge about Users/ High Category Knowledge
• Low Knowledge about Users/Low Category Knowledge
• High Knowledge about Users and Category
• High Knowledge about users and Low category knowledge

Each hybrid approach proposed is strongly linked to the company analyzed in the case study. However, the matrix proposes a possible approach to the challenges that may arise in each quadrant. The traditional predictive model (the Stage-Gate® only) is the perfect solution when the company has all the needed knowledge before the development process, following what the standard suggests. Generally, hybrid models are applied when some pieces of information are missing, confirming the standard’s guidelines. When the company has limited knowledge of customers’ habits, but the product concept is clear, a possible solution might be using a hybrid model. Design Thinking techniques are implemented in the ideation phase to empathize with the client and learn about his habits deeper than what a simple phase-gate model allows. When the company wants to explore new markets, and a whole new product has to be developed, design thinking is used in the ideation and the concept phase, while lean startup gathers information about the unknown market in the business case. Finally, when the knowledge about the user is high but the company wants to develop a product that couldn’t be associated with existing categories, the Agile-Stage-Gate model is the chosen one, with agile elements in the development and testing. Iterations are useful to try different solutions and their impact on production or sales, like packaging or pricing.

Overall, the Matrix provides some benefits. It is a powerful decision-making tool that fosters an objective evaluation of the developmental approach for a given project. In this way, managers can reach an agreement on the methodology, avoiding plan changes on-the-fly. Moreover, the internal point of view of the matrix protects the company from uncertain financial estimations or inaccurate technological evaluations, supporting managers in the choice of what product to develop, and enhancing the innovation in the portfolio. Finally, the matrix gives HR managers a broad overview of what kind of techniques will be applied to the NPD, thus supporting them in the resource selection process. Those companies that cannot hire specialists in those areas could rely on “ad hoc consultancy”. (Cocchi et al. (2021))

Managing Agile-Stage Gate Projects: a portfolio perspective

The Agile-Stage Gate can be analysed on two different levels: the operational level, in which sprints are performed, and the strategic level, where the traditional stage-gate structure is kept to provide an adequate level of control on the project life-cycle.(Zasa et al. 2021) Nevertheless, the two levels are not disconnected, but the adaptive, iterative approaches on the operational level impact how a project is evaluated at portfolio level. Cooper (2020) affirms that there are two common problems in New-product portfolio management: an overloaded pipeline, due to the incapacity of killing not-so-valuable projects, and the “lack of data integrity”, which may also affect the go/kill decision-making process. Consequently, the lack of reliable data in the “front-end homework” leads to poor evaluations in terms of the market’s needs, pricing, and final customers. From this perspective, the Agile-Stage Gate keeps the existing structure and activities of the Stage. Still, it iteratively performs them, providing more reliable cost and market data and thus fostering a continuous evaluation/validation of the project. Moreover, it encourages management engagement, because customer feedback can be reported to the senior management immediately, who can effectively evaluate the project in time and perform a go/kill decision before the project becomes too big to be stopped. (Cooper) However, integrating agile may bring out new challenges, because traditional project management methods for project prioritization can become meaningless by the evolving nature of an agile project. What the standard says about project prioritization Cooper (2020) suggests a set of metrics suitable to evaluate agile projects from an Agile-Stage Gate portfolio perspective.

The Burndown Chart

The Burndown chart is an agile tool to track team progress. Usually, the chart is applied to a single sprint, but in the ASG it can be used to track the whole stage. At the beginning of each stage, the tasks to be done in the stage are grouped in a project backlog. Moreover, the total number of sprints needed before moving to the next stage is approximated. The final result is a “dynamic”(Cooper, 2020) Burndown chart, where sprints needed and tasks in the backlog change during the process. The team's progress can be evaluated by looking at the number of remaining sprints, or by calculating the Proximity Metric=Sprints Done/(Sprints Done + Estimated Sprints Remaining)

Burndown Chart for Agile project managed in a Stage-Gate® Environment (Inspired by Cooper, Sommmer, 2016, "New-Product Portfolio Management with Agile"

The Productivity index

The Productivity Index (PI) seems to be suitable for agile projects. It highlights how much value is produced by the work done, and it is calculated over time. The PI is calculated as PI = NPV/Money remaining to be spent or Number of work days left to be done An increasing PI Curve is a signal of a successful project. The PI also gives useful insights about overall productivity, thus fostering effective project prioritisation.

Expected Commercial Value (ECV)

Among the existing tools, the ECV seems particularly suitable for agile projects, because it “provides a realistic financial model for handling incremental or stepwise investment in a new-product project, in the form of a decision tree approach that evaluates the investment a step at a time”. In ECV, it is possible to face two alternatives: one sprint and N sprints. In the first case,

,

were

• R = financial outcome expected from the project (usually presented as the current worth of the earnings expected to be received in the future)
• P = probability of success
• C= cost of undertaking the project

Starting from the assumption that each iteration requires the same amount of money to be invested, at N iteration the ECV is

where the RMFactor is

The probability of success can be estimated with the Delphi Method, with the help of some experts in that field. The ECV yields several advantages, such as taking into account the ambiguous nature of agile projects, the “incremental nature of investment decision” (Cooper, 2020), and the dynamic value of success probability. It can also be used in project prioritisation with the PI.

Strategic Buckets: dynamic budgeting for dynamic portfolios

A more frequent evaluation of projects against portfolio requirements increases the number of projects that come in and out of the portfolio during the year. Therefore, budgeting activities should also follow the dynamic nature of agile. In the Strategic Buckets systems there are three key phases:

1. projects are categorized based on certain criteria, decided by senior management.
2. In each bucket, projects are ordered based on their priority, usually defined by using the PI
3. Finally, resources are allocated from the top-priority project.
4. Projects that are at the bottom of the list should be killed or paused, waiting for resources from other projects. Inside a bucket, a portfolio manager can allocate resources from one project to another based on gate decisions, priority lists, and resource constraints.

Critical Reflection on Status Quo and ASG Limitations

The Agile-Stage Gate is a broad concept, that touches various aspects of project management. Firstly, from a project perspective, implementing agile within each stage, or in some of them, modifies the overall developmental approach of the project. The PMBOK® defines a developmental approach as “the means used to create and evolve the product, service, or result during the project life cycle”. The traditional approach to product development is predictive, and plan-driven, aiming to mitigate uncertainty through a deep front-end analysis of the market. This is particularly effective when project requirements are clear at the beginning of the project, so “scope, schedule, cost, resource needs, and risks” (PMBOK®) can be considered non-variable during the project life cycle. This is also confirmed by the study by Cocchi et al.(2021) mentioned above, where the traditional Stage-Gate® was applied in a relatively stable environment. For some projects, this approach might not be optimal, because project features can evolve and even change radically during the project, therefore a rigid upfront evaluation may lead a project to fail. (Cooper, 2018 ASG for manufacturer).In this context, according to the PMBOK®, the most suitable approach for those projects when “requirements are subject to a high level of uncertainty and volatility and are likely to change”, is the adaptive one. This is a common situation in new product development, especially in risky, uncertain projects. Thanks to iterations, the outcome can advance incrementally, driven by evolving requests. The ASG may also utilise a hybrid approach. A hybrid approach is described as a mix of predictive and adaptive approaches. Adopting a hybrid developmental approach is suggested when it is possible to break down the deliverables into different modules when different teams can work on different deliverables, or generally in uncertain situations where “clarifying requirements and investigating various options”(PMBOK®) is necessary. When a product is created with an adaptive approach and implemented with a predictive one, overall it can be considered a hybrid approach(PMBOK®). This specific condition may be associated with those models where Agile is used in only some (and not all) stages (as happens in the study of Cocchi et al.(2021)). However, the Standard affirms that there are several development approaches and no common terminology among practitioners, so further research is needed. Considering all the above, in the field of the developmental approach it is possible to affirm that the Agile-Stage Gate is already covered by the standard’s guidelines.

The model also has some drawbacks too. Research by Salvato et al.(2020) showed that one of the possible limitations of the model is the increased cost of the project, which could be related to three key factors:

• The merge of Agile and Stage-Gate may not be realized completely, resulting in bifacial structures where Stage-Gate and Agile work parallelly without harmony. In practice, the management may continue to use the same old model without understanding the agile practices of the team, thus creating terminology obstacles at gate meetings and not fully understanding the team’s needs.
• Frequent demonstrations with physical prototypes involved resources for weeks, with a negative impact on project costs. Prototyping methods, such as 3-D printing, digital modeling and virtual prototyping, can be used to speed up the prototype definition.
• In the traditional gating models, resources can be shared among different projects. On the contrary, agile projects require a dedicated team, thus keeping the “off-peak time” not optimally used. In some cases, especially in “longer duration physical product activities”(Salvato et al. 2020), continuous sprints may result in a high workload for team members, with detrimental consequences on their well-being.

Annotated Bibliography

References

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