Task Report: CMMI for Small Business in the Defense Industry NDIA Systems Engineering Division, CMMI Working Group

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1 Task Report: CMMI for Small Business in the Defense Industry NDIA Systems Engineering Division, CMMI Working Group Task Description The defense industry is critically dependent on small business for the technology and rapid innovation needed for future defense systems. As described in NDIA National Defense magazine (June 2010): In one of the few studies of its kind, the Pentagon s industrial policy office in 2005 identified the critical, innovative technologies which are needed for 21 st century wars and found that 35 to 45 percent of the companies supplying those key technologies had fewer than 100 employees. However, small businesses do have their challenges to compete and thrive in the defense markets. The House Armed Services Committee report on acquisition reform (March 2010) states: Only the largest firms have access to the resources and expertise to bid on the most complex programs, and it is difficult for all but the largest size to survive losing them. As a result, competition is reduced at the front end of programs, and all but eliminated in the sustainment phase. Small businesses are largely locked out of the process or accorded contracts only on the goodwill of one of the larger firms. The end result of this process is the gradual erosion of competition and innovation in the defense industrial base. It is sometimes asserted that the prevalence of CMMI in the defense industry is one of the obstacles faced by small businesses that can impede competition for defense contracts. As industry sponsors of the CMMI Project, the NDIA Systems Engineering Division assigned its CMMI Working Group (CMMI WG) to investigate these claims. Data Collection and Qualitative Analysis This is not the first such study to investigate the applicability of CMMI in small markets, both defense and commercial. The CMMI WG reviewed several prior research and collaboration efforts, many conducted in conjunction with the Software Engineering Institute (SEI), and interviewed several of these subject matter experts. A summary of several of these initiatives, with best practices, resources, and recommendations for the effective use of CMMI in small business, is collected in a briefing conducted by the CMMI WG at the CMMI Technology Conference and User Group in November 2010 and posted on the CMMI WG web page: Also at the CMMI Conference, the CMMI WG conducted a panel discussion to consider some of the benefits and challenges faced by small businesses when adopting CMMI. This panel, with input from several representatives of both large and small businesses, captured several observations on the advantages and obstacles relative to adoption of CMMI by small businesses, summarized in Table I. Capability Maturity Model, CMM, CMMI, and Carnegie Mellon are registered in the U.S. Patent and Trademark Office by Carnegie Mellon University. 1

2 Advantages Table I. Small Business Advantages and Obstacles for CMMI Adoption Innovation, speed, agility Commonality across projects, tailoring Fewer communication paths Easier institutionalization across projects Fewer people filling multiple roles, can make it easier to connect the dots Able to be more nimble, react to changes more quickly Fewer approvals needed, greater organizational coverage Less documentation needed for fewer people 1 page descriptions can suffice. Set thresholds, entry/exit criteria, etc. Alignment and communication of objectives is straightforward. Clear rationale for process changes. Obstacles Issue with CMMI model size is sometimes more perception than reality usually appears in plans Fewer dedicated resources (staff, $). Everybody is a shared resource, sharing time with competing demands Roles, responsibilities staff must wear multiple hats (QA, Test, Process Group, training, ) Run out of people to provide objective input. Must procure external resources to provide feedback. Cultural obstacles; can be difficult to restructure existing working relationships willingness to do things differently. Culture eats process for lunch Though all businesses, large and small, share some of the same concerns for CMMI adoption (e.g., substantial costs of conducting appraisals), the panel concluded (similar to most prior studies) that the advantages of CMMI adoption in small business outweighed the disadvantages. In a teaming environment, prime contactors also often provide support and resources to assist smaller suppliers with their process implementation (e.g., training, mentoring, tools, processes). It was also discussed that other constraints levied upon government contractors, such as financial accounting systems, can often be greater barriers to entry in defense markets. Quantitative Analysis One of the best sources of data to evaluate CMMI adoption is the quantity of appraisals conducted. SEI publishes a semi-annual report, the Process Maturity Profile, that analyzes the appraisal results reported to SEI according to various demographic attributes, such as size of the organizational unit, market segment, maturity level, geographic region, and many other factors. The NDIA Systems Engineering Division also regularly analyzes the appraisal results released publicly by organizations on the SEI Published SCAMPI SM Appraisal Results (PARS) web site ( Several of the key NDIA analyses and findings from this data are summarized here, excerpted from the CMMI WG briefing at the CMMI Technology Conference, November Note that size measures for SCAMPI appraisals are reported on the basis of organizational units, which could be a subset of some larger organization. Size of the overall company is not available from the appraisal data provided to SEI. Where applicable, known large companies (e.g., prime contractors) have been deleted from the data set where indicated in an attempt to isolate truly small companies. Note also that this data includes only those appraisals conducted and reported to SEI; other companies may be using CMMI but not conducting SCAMPI-A appraisals or using alternative methods for improvement. SM SCAMPI is a service mark of Carnegie Mellon University. 2

3 CMMI Adoption CMMI appraisals are conducted worldwide USA Non-USA Qty % Qty % Commercial In-House % % Contractor for Military/Government % % Military/Government Agency % % % % in a wide range of businesses Services (72.1%) Business Services Engineering and Management Services Health Services Other Services Based on primary Standard Industrial Classification (SIC) codes reported in CMMI-based appraisals. 25% 75% Manufacturing (15.7%) Electronic and Electric Equipt Transportation Equipment Instruments & Related Products Industrial Machinery Other Mfg Industries Other (12.2%) Finance, Insurance, Real Estate Public Administration/Defense Transportation, Communication, Utilities in small and large organizations >200, 22.4% , 17.3% and projects <100, 60.2% Organization Size (Employees) , 8.3% 51-75, 12.6% 26-50, 22.0% <25, 17.3% Organization Size (Employees) (4863 organizations reporting) >2000, 1.6% , 3.3% , 5.0% , 6.1% , 7.3% , 17.3% at all levels of process maturity Commercial In-House Contractor for Military/ Government Military/ Government Agency No Rating Given 5.3% 8.0% 22.3% Initial (ML1) 0.6% 1.4% 1.0% Managed (ML2) 25.8% 31.5% 45.6% Defined (ML3) 58.1% 49.3% 26.7% Quantitatively Managed (ML4) 2.9% 1.0% 1.5% Optimizing (ML5) 7.2% 8.9% 2.9% (3779 orgs) (874 orgs) (206 orgs) Source: SEI Process Maturity Profile, Sept CMMI for Executives November 2010 CMMI Executive Briefing Reference: CMMI for Executives, NDIA CMMI Working Group, CMMI Technology Conference July 2009 and User Group, November Carnegie Mellon University 77 Are Small U.S. Businesses Using CMMI? Commercial US Appraisals Distribution by Org. Size Contractor for Mil/Gov Mil/Gov All US Appraisals U.S. organizations of all sizes are conducting SCAMPI-A appraisals, including very small organizations. Large % of U.S. appraisals conducted in all domains are by small organizations (<100 people) : commercial (59.5%), govt. contractors (42.3%), govt (65.6%) CMMI use overseas is overwhelmingly commercial. Within U.S., predominantly govt contractors (60.6%) but with significant usage in commercial industry (30.9%). Based on data from published SCAMPI appraisal results for organizations which could be part of a large company. 2,500-1,500-1,000- US 10,000+ 5,000-9,999 4,999 2,499 1, Commercial 0.3% 0.3% 1.7% 2.0% 1.7% 1.7% 3.1% 8.0% 21.1% 41.0% 18.5% Contractor for Mil/Gov 0.6% 2.5% 3.3% 3.5% 4.6% 2.9% 6.1% 11.0% 22.6% 30.1% 12.2% Mil/Gov 0.0% 0.0% 1.0% 1.0% 0.0% 1.0% 2.1% 11.5% 14.6% 44.8% 20.8% US 10,000+ 5,000-9,999 2,500-4,999 1,500-2,499 1,000-1, No data Total Comme rcia l % Contractor for Mil/Gov % Mil/Gov % All US Appraisals % 0.4% 1.6% 2.6% 2.8% 3.3% 2.4% 4.8% 10.1% 21.4% 34.7% 14.9% 0.9% Non-US U.S. Grand Total Commercial/In-house Contractor for Military/Government Military/Government Agency Grand Total CMMI for Small Business NDIA CMMI Working Group Non-US U.S. Grand Total Commercial/In-house 92.3% 30.9% 77.7% Contractor for Military/Government 5.7% 60.6% 18.8% Military/Government Agency 2.0% 8.4% 3.5% Grand Total 100.0% 100.0% 100.0% 10 3

4 Are small businesses using CMMI in the U.S. defense contracting market? US 10,000+ 5,000-9,999 2,500-4,999 1,500-2,499 Data from SCAMPI appraisal results is for organizational units (OUs) which could be part of a larger company. Overall company size is not available from SCAMPI results filed with SEI. From the data set of 691 appraisals by U.S. government contractors: 428 were by OUs < 200 people Known large companies were removed from this data set *Best judgment is 265 appraisals (62%) were conducted by truly small companies < 200 people This 265 appraisals reflects 38% of the complete data set (all sizes, 691 appraisals) Even though these reflect estimates, they substantiate significant usage of CMMI by small companies in the U.S. defense market. 1,000-1, No data Total Comme rcia l % Contractor for Mil/Gov % Mil/Gov % All US Appraisals % 0.4% 1.6% 2.6% 2.8% 3.3% 2.4% 4.8% 10.1% 21.4% 34.7% 14.9% 0.9% Size (Employees) Total Large Appraisals Companies Truly Small* % Truly Small < % < % < % < % < 200 < 100 < 50 < 25 Truly Small* Large Companies CMMI for Small Business NDIA CMMI Working Group 11 Notable observations and findings from these analyses include: CMMI is adopted in a wide range of domains and organizations, from very small to very large. CMMI is widely used in small organizations worldwide. 60.2% of appraisals conducted are by organizations under 100 people. 17.3% are by organizations less than 25 people. Growth in CMMI adoption is greatest in small, commercial organizations outside the U.S. Within the U.S., CMMI adoption is greatest in the defense contracting market (60.6%, 691 organizations), but with a substantial quantity of appraisals conducted in commercial industry (30.9%, 352 organizations). In the U.S. defense industry (military/government contractors), 292 of the 691 appraisals conducted (42.3%) are by organizations of less than 100 people. In U.S. commercial industry, 209 of the 351 appraisals conducted (62.1%) are by organizations of less than 100 people. As explained previously, this data is for organizational units, which may be part of a larger company. Even small organizations of a large defense contractor, say, may obtain some level of support from their parent corporate entities (e.g., process descriptions, assets, training, resources), which could help ease some of the obstacles for implementing and sustaining CMMI-based process improvement. Of the 691 appraisals conducted by U.S. government/military contractors, 428 were by organizations of less than 200 people. From this data set, 163 appraisals conducted by known large companies overall (e.g., prime contractors) were excluded in a best 4

5 judgment effort to obtain a data set of appraisals conducted by truly small companies of less than 200 people. Analysis of this data set indicates: Conclusions An estimated 265 appraisals of the 428 appraisals conducted by military/defense organizations of less than 200 people (62%) were conducted by truly small businesses. For even smaller organizations (100, 50, and 25 people) the estimated representation of small companies increases even further (73%, 78%, and 83%). Even though these reflect estimates, this data suggests substantial penetration of CMMI in small companies in the defense market. Finding of this study substantiate not only the widespread usage of CMMI in small businesses (defense and commercial), but also flags small businesses as prime targets for future growth in CMMI adoption domestically and abroad. CMMI adoption is booming in international markets, increasingly by small commercial businesses worldwide, and the U.S. is starting to lag behind other countries. Even in the U.S. where CMMI usage is greatest in military/government contracting, adoption by commercial industry still reflects nearly one third of all CMMI adopters. These commercial businesses rarely have externally-driven motivations for marketing CMMI maturity levels. Rather, their business discriminators are typically driven by product, price, and profit (faster, better, cheaper), which is often the primary incentive for such companies to adopt CMMI. The study group could find no evidence to support claims that CMMI is a barrier to competition. Small businesses do face many unique challenges and can find it difficult to break into defense markets dominated by large companies, but there is no indication that CMMI is a source of impeding competition or that it is a considerable factor relative to other potential barriers to entry, such as constraints for financial accounting systems or other contractual issues. NDIA recognizes the crucial role that small businesses fill in supplying the technology and innovation needed for future defense systems, and is committed to supporting and developing the opportunities for small businesses to compete in defense markets. NDIA sponsors a Small Business Division directly targeted at these issues. As industry sponsors of CMMI, NDIA and its Systems Engineering Division serve as advocates for the effective use of CMMI to improve business results and project performance in large and small companies alike. 5

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