Outsourcing Your Business
With 'Outsourcing Blueprint' we'll tell you exactly WHY you should outsource, where to find reliable freelancers, what sort of work is best suited to outsourcing and what you shouldn't go near. In fact we're going to ease you through the whole outsourcing process as painlessly and easily as possible - because it's like doing a parachute jump. Once you've got the first one under your belt, you'll never look back, and your life - at least as a marketer - will never be the same. If you outsource the rights tasks in the right way it can make a huge difference to your income, and your free time. Both of which, I'm sure you'll agree are why most people get into internet marketing in the first place.
If staff augmentation is dating, outsourcing is marriage. It is legally binding, is typically monogamous, has long commitments, and in most cases divorce clauses. In contrast to staff augmentation, outsourcing focuses on services rather than individuals, and success is measured at the engagement level. Some IT departments use a manufacturing analogy to describe outsourcing, explaining that they have chosen to buy a service rather than make it in-house. They argue that this is similar to the situation where a plant might choose to buy a standard part rather than make it itself. The analogy is valid the risks and rewards of outsourcing IT services are similar to those of buying parts. Just as a manufacturer may sacrifice the ability to customize a part for its use, but gains speed or cost savings by buying it, IT outsourcing involves similar trade-offs in flexibility against cost and speed. Outsourcing differs from staff augmentation in several fundamental ways. When an IT department...
When an outsourcing initiative is implemented, staff undertaking the activities involved are likely to be redeployed elsewhere within the organization, transferred to the new service inability to reverse the outsourcing decision except by paying a high premium to re-acquire the skills While intellectual property rights may not seem to be an obvious source of risk in relation to outsourcing, the use and development of intellectual property is an inevitable consequence of outsourcing. For example, records created by a contractor in the course of providing services to an organization are subject to copyright, and ownership must be agreed at the outset. An organization entering into outsourcing arrangements may face a broad range of intellectual property risks that may include Inability to use intellectual property developed by the contractor under the outsourcing arrangement without paying a fee, particularly on the completion of the contract. The primary means of managing these risks is...
This case illustrates some of the functions that must be performed in managing a portfolio of geographically dispersed assets for a government agency (Figure 15.3). It was developed as part of an assessment of the skills the agency would need to acquire before it embarked on a market testing or outsourcing exercise. The nature of the specific assets is not really important similar analyses would apply to assets such as schools, hospitals, employment offices or fire stations. The link to central Government is primarily associated with funding matters. As part of the more general planning for market testing, options for outsourcing functions at each of the three levels of asset management were examined. Not all combinations were considered practicable, as Table 15.6 illustrates - specifically, it was not thought feasible for the agency to attempt to undertake low-level works if property management were to be outsourced. This reduced the number of feasible pathways from the current...
Among the unspoken factors underlying the rapid growth ( 30 per annum) in outsourcing are the factors covered in this chapter. Despite evidence that outsourcing results in higher costs, many business groups have indicated that they will continue to outsource their IT and other expert effort. The answer lies mainly in the higher degree of professional service and attitude exhibited by better outsourcing groups.
Outsourcing is at the high end of the risk return spectrum. When it works, it can be a miracle of modern business methods when it doesn't, it can result in real catastrophes. The keys to successful outsourcing are finding qualified vendors and coming to clear agreements before the work begins. These agreements must be
When measured on the CMM scale of maturity, the best outsourcers rank quite high. While a consulting company may be successful in an occasional outsourcing engagement through excellent staffing, it cannot provide reliable and predictable levels of service, quality, and profitability across multiple projects without a well-managed set of outsourcing processes documented in a methodology. Highly experienced outsourcers develop a set of world-class processes that they customize and apply to each of their projects. The experience of the outsourcer over many projects allows it to select and combine the best and most effective practices from many organizations. These procedures are documented within the methodology of the outsourcer and are used to train its staff. Since outsourcers tightly manage their projects, process usage is enforced. By using the same processes from project to project, the outsourcer is able to shift its consultants as needed between projects. IS organizations at the...
Even when an outsourcer's staff works on the client company's premises, IT is not vulnerable to claims of co-employment. This is because of the fundamental difference between staff augmentation and outsourcing. In outsourcing, the company contracts for a service, not a person. It is the outsourcer's responsibility to determine how many people will be required to perform the service, and what technical background they must have. The company normally does not interview them, and it does not direct the staff. In short, IT specifies what is to be done, not how to do it. Although some companies believe that the primary benefit of outsourcing is to avoid the co-employment issues associated with lengthy staff augmentation engagements, there are other reasons why an IT department would outsource one or more of its functions, including There are a number of advantages that an IT department may derive by outsourcing one or more functions. The most important among these are An added advantage...
Many firms do not thoroughly analyze the need for IT outsourcing. Instead, they seek outsourcing because it provides immediate gain, only to later realize that it delivered long-term loss. As a result, some firms lock themselves into massive, long-term contracts only to find that such an arrangement is a liability rather than an asset (e.g., delivery of no longer necessary services at above market prices). A good business case, looking at different pricing alternatives (e.g., fixed or cost plus), and varying payback periods (e.g., three, five, or ten years) can help determine whether outsourcing will achieve savings (e.g., five to 20 percent), desirable levels of quality, and other objectives. Outsourcing should not occur, however, if the service is mission critical, can be done more effectively in-house, cannot provide a savings of five percent or more, or fear exists over losing controls (see Exhibit 1). When forming the evaluation team, the organization should be sure to Exhibit 1....
Outsourcing can be thought of in three distinct phases, each of which can be regarded as a project and in each of which risk management can be applied (Figure 15.2, Table 15.1) A thorough risk review of each phase and the establishment of detailed transition and implementation plans should be undertaken prior to the execution of any contractual arrangements. This should ensure the organization will take a more proactive approach to any identified risks encountered in the implementation of an outsourcing initiative. Table 15.2 identifies a number of issues and strategies to be addressed in the process and included in Figure 15-2 The three phases of outsourcing Figure 15-2 The three phases of outsourcing Table 15-1 Risk management at each phase of outsourcing Table 15-1 Risk management at each phase of outsourcing Review of strategic outsourcing plans. The comprehensiveness of these plans should be commensurate with the complexity and magnitude of the outsourcing initiative.
Most experts believe that increased collaborative development, partnering, and outsourcing of selected R&D activities are inevitable. Just like manufacturing in the 1970s, R&D is highly vertically integrated, providing most of the resources needed through internal staffing. As was the case with manufacturing organizations, R&D organizations will discover that there are significant cost-reduction opportunities from reducing dependence on doing everything The productivity benefits from increased partnering and outsourcing will vary widely from company to company. In part, the benefits will depend on the level of efficiency that companies achieve in capacity management, since outsourcing is more cost-justified where R&D functions are less efficient, as was the case in manufacturing. So improvements in utilization may reduce the magnitude of cost-reduction opportunities through outsourcing and partnering. There are three categories of benefits from outsourcing and codevelop- ment. The...
One other trend that continues to haunt the IT project manager is outsourcing. This business trend can result in the IT project manager being the manager of a services contract, with associated service level agreements, where the actual information technology development work is performed by a third-party. This means that an IT project manager needs to be up to speed on reading and interpreting contracts and enforcing their terms, as opposed to managing a project team. Many IT project managers will lack the business law training required to feel totally comfortable in this role. If you are a technology-focused project manager, with a degree in Computer Sciences, enroll in a Contractual Law course to obtain a basic understanding of contract management.
Outsourcing is happening today as the frictions in contacts between organizations decline, global communications become more seamless, and specialization of a particular organization on a specific task increases. Most projects contain team members external to the firm. This happens when team members are suppliers, vendors, or consultants. Of course, every piece of outsourcing is itself a project at least containing a request for proposal (RFP) and probably much more. Therefore, as with anything else, capturing all of this work within the portfolio will be key. Outsourcing also increases the need for virtual teams and collaboration beyond the boundaries of the firm. Efficient monitoring of key performance indicators (KPIs) will be increasingly important as a contractual way to measure the effectiveness of outsourced projects and provide a common and agreed to framework for measuring success. As more outsourcing occurs, it is likely that the different participants on a project will be...
Eastman Kodak was an early pioneer in the outsourcing movement. In 1989, Kodak contracted with Integrated Systems Solutions Corporation (ISSC), IBM's services branch, to do the computer work that Kodak had been performing at four of its facilities. Then in 1994, Xerox signed a 10- year outsourcing contract for 4.1 billion with Electronic Data Systems Corp. (EDS) to do a major portion of its computer work. AMTRAK expects to save 100 million over a 10-year period from its outsourcing arrangement. Those are three examples of the well-publicized movement to outsourcing as a business strategy. It has been estimated that 80 percent of information systems work will be done by contractors by the year 2000.
Collaborative development introduces the touchy subject of outsourcing R&D. Companies have outsourced many functions over the last two decades, including contract manufacturing, information technology, and customer service. Until now, however, R&D has been maintained as an internal activity, primarily performed with internal resources. Each company will need to wrestle with the extent and approach to R&D outsourcing as part of its overall R&D strategy. What is certain, however, is that as outsourcing increases, so will the dependence on collaborative development management.
As capacity management advances, consideration of outsourcing is a natural extension. Some of the reasons justifying highly vertically integrated development using predominantly captive resources go away with the implementation of a development chain management infrastructure. At the same time, an increased emphasis on R&D capacity management will raise the make versus buy question more often, eventually leading to increased outsourcing of some R&D activities. For example, a company that invests 100 million in R&D may find that as much as 50 million of this could be outsourced to reduce costs and increase flexibility. This shift toward R&D outsourcing is analogous to the shift away from high levels of vertical integration in favor of increased outsourcing that occurred in manufacturing over the past 20 years. As was the case with manufacturing, financial analysis will be the catalyst for increased outsourcing of R&D. Manufacturers found that it was cheaper to outsource a function if...
The company wants to retain day-to-day control of all staff. Some corporate cultures are not compatible with the transfer of responsibility and task level accountability that outsourcing demands. For these companies, staff The second concern, which is also related to long-term use of contractors, is co-employment. In several high-profile lawsuits, contractors successfully argued that they were entitled to employee benefits because they functioned essentially as employees. As a result, companies have become wary of what is termed co-employment. To avoid this, some have started to limit the length of time a contractor can work for them, in some cases to terms as short as six months. Although this does not impact limited-length assignments such as the provision of specialized skills at a critical phase of a project, the use of contractors for semipermanent staff augmentation becomes difficult. This is particularly true when the assignments have a steep learning curve, as can be the case...
The business-to-business environment is changing, and those changes are permanent. Organizations are routinely outsourcing processes that are not part of their core business or core expertise. There are two reasons for choosing to use contract team members instead of the company's own employees
The team has decided that it would be a good idea to hire an outsourcing agency to run the operating systems for the new computer systems since the MC company has decided to reduce computer operations personnel. What kind of risk response type is this 4. Since team members have decided that it would be a good idea to hire an outsourcing ac to run the hardware for the new computer systems, they have chosen a risk response typ transference because they will transfer the risk of operating the computers to someone e
Use phases to reduce risk An excellent way to manage the natural risk involved in outsourcing project work is to limit the commitment length by project phases. By limiting the scope of the contract to one or two project phases (specifics will depend on project risk and methodology used), you minimize your dependency on a vendor that may be underperforming, and you force a systematic review of vendor performance before committing to additional work.
Over a period of three to five years, the customer organization progressed from demanding that the IT service provider remain static in delivering services (as had been done successfully prior to the outsourcing), to demanding innovative IT solutions and approaches from the provider. The enterprise was finding that its own customers demanded innovation, speed, and predictability in their products, and this demand had to be met by the IT service provider to enable the business to respond quickly to its own market demands.
The project office tends to be the primary user of the mentoring services provided by a higher-level PMO. In the absence of a higher-level PMO, it may independently acquire the services of a project management mentor, usually on an outsourcing basis. In addition, the head of the project office often a senior project manager may be called upon to serve as a mentor to other project managers.
Solutions might involve hiring more people with a particular skill set or working in a particular geography. It might be to engage in more outsourcing of a particular area. It might mean training existing employees to take on a particular role or function. There are numerous possibilities to solving these sorts of resource allocation issues, but the key to all of them is starting early. Otherwise, the problem becomes much more challenging in the presence of severe time constraints. The other angle to focus on is that not all resources are geographically substitutable.
In the relationships between the companies on the supply chain, the same kind contest change of the business environment as products accelerate modularization on the echelon of those business processes. Outsourcing business processes is one example of how the series of activities of the value chain such as research and development, purchasing, production and distribution in one company dissolves, cooperating with external companies. Then, there can be two types of external companies providing parts of the business process one of which is to provide the standard interfaces, while the other is to provide the customized interfaces for each company. The former case can be called modularization of the business processes on a supply chain (Figure 2).
I think it went well, she said. It was with a local textbook distributor interested in purchasing and implementing a call center software package. There are a number of software packages available from different vendors, but the company is not really sure which one best suits its needs. Its information systems department is stretched pretty thin working on several projects already, so it is considering outsourcing this project. I have another meeting with management later this week, so keep your fingers crossed because we may have another client.
Large-scale project management experience is one of the most important characteristics of a successful outsourcer. If the outsourcer does not have a solid track record of achievement, all of the other components in this list are suspect. For example, the methodology of the outsourcer represents the codification of this knowledge. If the outsourcer has limited experience, how strong can the methodology be While experience in managing ongoing outsourcing projects is crucial, experience in managing the implementation and transition into a new project is especially important when using outsourcing to move up the CMM.
Both formally and informally, companies conduct internal assessments (strengths and weaknesses) and environmental assessments (opportunities and threats) to plan their market positions and strategies. Firms are primarily interested in improving financial returns and shareholder value to avoid situations of competitive convergence or parity (where no one firm has a distinct advantage). Competitive convergence takes place when companies try to do similar activities as their rivals with some variations in practice. Common strategies include operational effectiveness practices, such as quality improvement, empowerment, and outsourcing practices. These practices are a basic requirement of firm survival, but they do not lead to a sustained competitive advantage, though, because after a while, firms look alike and do the same things, and this leads to diminishing returns. In contrast, having a competitive advantage refers to doing different activities from rivals or similar activities...
One example of planning for an e-business online education tool involved upper management approval, buy-in from vendors, outsourcing some work elements, sound organization structure, staff support of business activities, change control process and customer input during the implementation phase of the project.
The other side is the client-facing emphasis that the Liaison Center promotes as a key working principle. If the organization is involved in any way as an outsourcing partner, then it will benefit from the added processes that are in place to ensure effective communication between the project team and the client.
The e revolution has brought significant gains to the world of project management. This is especially noticeable in two industries construction and information systems. In the architect engineer construct (A E C) industry, B2B systems are being utilized to ease and speed communication among owners, prime contractors, subcontractors, and suppliers. In information technology application development (IT AD), B2B capabilities play an important role in workforce management and outsourcing.
For a long-term evaluation, use resource aggregation to observe the potential impact on resources. Generally, a coarse view (weekly for a project over six months) will be sufficient. Identify periods of potential overloads. Identify strategic alternatives (shifting priorities, delaying lower priority projects, outsourcing, extra hires, overtime, reducing scope, reducing quality, panic, burying head in sand).
Another potential hurdle is maintaining an inventory of skills. In the matrix and team modes, there must be a fresh database containing information about the firm's human resources, their skills, their availability, their experience, their location, and so on. This need has been recognized by the increased availability and sophistication of what has come to be called workforce management software. For the firms that have very uneven resource demands, these software systems are being used to hold data about temporary resources (outsourcing) as well as internal resources. Some of these programs are even linked to outsourcing suppliers so that they can respond to demand forecasts and bid on the opportunities.
These circumstances, real or imagined, challenge any team-building effort. But they are not insurmountable, even for Perry. He gives preference to permanent employees regarding task assignments, equipment, and other perks. An exception is made only if the consultant or contractor has unique expertise, and, if so, preference is only for the duration of the task. Perry also gives employees the first opportunity to participate in decision making. (More about contractors and outsourcing in Chapter 9.)
In the category of company readiness, if company general management does not perceive a need to become lean, does not understand the nature and scope of a Lean Performance project, or is expanding major effort on programs that are incompatible with lean thinking (i.e., TQM, ISO 9000, outsourcing, etc.), then a Lean Performance project should not be undertaken at this time. Instead, more education on lean thinking is in order and the major task, say a merger or acquisition or other, should be completed first.
Often, the process toward lean transformation is sabotaged by traditional mass production cultural beliefs that permeate practices in Human Resource processes, especially job displacement, outsourcing, downsizing, and layoff. Unfortunately, many companies aren't ready, willing, or otherwise able to transform into lean culture. They are failing at lean as a result.
The Mass Production Era of the Industrial Age is now ending and the Lean Production Era is emerging to succeed it. The Lean Production Era is exemplified by processes based in systems of cultural cooperation, differing fundamentally from the Western systems of cultural competition. Outsourcing and offshoring are the latest stages of Western cultural competition and are fueling the expanding shift to Lean Production as great volumes of goods and services formerly produced in Western Mass Production facilities are now produced in Eastern Lean Production facilities. American industrialists owned the means of production in the era of mass production. Multinationals own much of the means of production in the global reorganization of production. Lean producers are winning the QCD-driven market share in cars and are building factories in the United States. The new car industry is foreign owned, nonunion, and supplied by lean global supply chains that are often owned offshore. Sustaining...
In the period following the book's publication, and the tremendous lack of adoption of its lean principles in practice, the economy has morphed rapidly into the round earth global picture. In 2002, as the book hit the stands, the advanced economies (Western European) GDP grew at about 1.7 percent, while the Asian economies collectively grew at 5.9 percent. In the second year after its publication, 2003 saw the official end of the Iraq war (May 1), SARS was named, the Blaster worm virus attacked most of our computers, and Forbes magazine declared white collar offshore outsourcing the year's most significant trend. By 2004, three years later, we still hadn't picked up lean we saw that the United States was holding about 20.9 percent of the world GDP so maybe we didn't need to do something as drastic as getting lean. But wait a minute, in 2004, the United States grew GDP by 4.3 percent, but China grew at 9 percent. Wait another minute, where did I put that book on lean
It depends on decisions by enterprises what to incorporate into projects as elements and how to design them. For example, a company may operate a project on its own initiative through a project company, or may supply raw materials, or the project company can receive services or supplies from others through contract-type outsourcing. This will effect decisions such as, whether to internalize or externalize risk, or whether to control and assume risk in the company or consign risk control to a third party on a contractual relationship. This depends on policies on distribution of management resources and the amount of relevant costs. In finance, it is critical whether an entity that assumes risk can reasonably control risk, and that the structure of the overall project supports risk, and how earnings from a project are distributed among stakeholders._
The logic tree (decision tree) depicted in Figure 4-7-9 shows a case where Company A has options for producing a system -- whether to produce the system in the company by purchasing relevant software or outsourcing the production to a contractor. In this case, decision is made by predicting probabilities of favorable and unfavorable future scenarios of the market, amounts of results (profit) for each scenario excluding software purchase and outsourcing costs, and calculating EMV._ 2) Outsourcing cost 7,000 mil. 3) Estimate 20,000 mil. as the difference in cost between outsourcing and software purchase event Outsourcing to a contractor 41,000 m Outsourcing software development to a contractor 2) Outsourcing cost 7,000 mil. 3) Estimate 20,000 mil. as the difference in cost between outsourcing and software purchase event Outsourcing to a contractor 41,000 m Outsourcing software development to a contractor
In light of project management, a procurement function should be provided with a project or an executive organization to clarify responsibility. Efficiency of procurement tasks are in many cases improved through common or integrated management, such as market research continuously conduc ted on a company-wide basis, examination of vendors and outsourcing companies, compilation of cost data, adjustment of delivery periods among projects, and cost reduction through lump sum purchase for multiple projects. For these reasons, many companies have their own in-house procurement function within the organization. Meanwhile, when vendors need to be selected in full consideration of individual project requirements such as demand for special technologies, attention should be paid so that items provided with the necessary functions, performance and quality are procured as planned through close communications between the executive organization and procurement organization of the project....
The accomplishment of the target is visualized numerically to become the object of judgment. For this purpose, fruit (documents) is always required in a phase. In the U.S. DOD (Department of Defense) or NASA (National Aeronautics and Space Administration), be it an internal project or a project composed mainly of outsourcing, fruit for each phase is defined as regular requirements, and it is required to be submitted. It is then determined whether the next phase can be started by evaluating the result. In large corporations such as aircraft manufacturing, oil and chemical majors, etc., regulations of life cycle management are prepared to meet the internal situations, and are used in decision making or putting projects in practice. This is also to carry out at the examination of investment effects and risk management the same time. Also, some businesses make it an obligatory rule to let external experts participate in life cycle management.
Of course, not all portfolios are completely unconstrained to simply align to the goals of the business. Projects may have to be undertaken for legal reasons. There might be contractual commitments or some other factors that are not necessarily strategic but are binding on the organization. Some highly attractive projects may not be possible because of other constraints. Sometimes outsourcing, joint ventures, or partnerships block what would otherwise be desirable projects. Some ideas may be vetoed for internal political reasons. Although these constraints are seldom completely insurmountable, modeling the portfolio in this way can enable you to calculate the effect of either forcing in or forcing out particular projects to and from the portfolio. In this way, it is possible to assess the financial cost and strategic cost of any constraints placed on the organization, and to identify the optimal portfolio to adjust to such constraints. This analysis cannot remove the constraints in...
Without an ability to effectively outsource and the deep financial resources, it may not even be possible, particularly where there is a bottleneck for key internal resources, and outsourcing is not an option for key strategic tasks. A simple commitment to finding the resources is unlikely to succeed. Even if only two projects within the portfolio take this blank-check approach to resource management, what if they both need the same resource at the same time In practice, building out resource plans for all projects within the portfolio is critical to ensuring that they are successful.
Often, the required cultural change is the most difficult obstacle to overcome. The current practices of the IS organization are heavily ingrained in its staff members, and they often strongly resist changes to the status quo. An interesting paradox is that this resistance vanishes if a staff member takes a new job in a new company. The staff member expects to learn and assimilate new procedures as part of the job move. It is far easier to add staff members successfully to an existing process environment than it is to change the process environment of existing staff members. Outsourcers take advantage of this phenomenon when staffing their outsourcing projects. By putting the process environment in place at the start of the outsourcing project and transitioning staff into the environment, the outsourcer avoids the resistance that occurs when IS organizations attempt to change. The same principle can be applied within the IS organization by allowing the outsourcer to set up the project...
A top outsourcer will have a separate team that manages its outsourcing processes. This team is responsible for maintaining and continuously improving the processes of the organization using the experiences from all of its ongoing projects. As a result, the processes of the outsourcer evolve far faster than those of most IS organizations. Since the livelihood of the outsourcer is based on its ability to provide its services at maximum efficiency, the outsourcer has considerable incentive to improve its process effectiveness.
When downsizing is a part of an outsourcing arrangement and some of the client's employees are to be employed by the services vendor, employees who are more loyal to their computer specialty than to their current employer may prefer to join the computer service firm rather than stay in an organization in which computer operations are not the primary function.
The IT organization was mature and centralized, and had been outsourced five years previously to a major IT services firm. A proprietary waterfall methodology developed by the customer was used throughout the 1980s, but the rigor with which it was employed had diminished with enterprise downturns (and related funding lapses) in the late 1980s and early 1990s. A clause in the original outsourcing contract required the IT provider to use the customer proprietary approach unless authorized to do otherwise, because that methodology had been successfully applied in the past.
If asked to define classic IT outsourcing, many managers would respond with data center operations. This has traditionally been the first function that most IT organizations consider outsourcing, and it is in many respects ideally suited to outsourcing, because the work is typically not a core competency and the skill is a commodity. It is also one with documented successes and proven cost savings, both of which encourage other companies to consider it. The reasons why data center outsourcing is often successful at reducing costs include The primary concerns associated with data center outsourcing are While staff augmentation can alleviate temporary shortages of operations staff, it is not used as often as outsourcing because it does not provide the cost savings most IT managers seek from the use of a data center service provider.
All outsourcing contracts should not only define what work will be done by the outsourcing vendor, but what results are expected and how they will be measured. In order processing, for example, the contract might define the turnaround time from input to output, the maximum percent of errors that would be acceptable, and the cost to the client if the vendor has some control of that. For an outsourced help desk function, the standard might specify the maximum response time, the percent that needs referral to a second technician, and feedback from the users as to their satisfaction with the results.
The fairness of the plan structure as explained should include the general terms of a financial package and career assistance for those that will leave, and the benefits of working for a computer service firm for those employees who may be made available for employment with the outsourcing vendor. The plan may give choices to some employees, making it somewhat voluntary, such as having them decide whether to accept a severance package or transfer to some alternative positions.
Anxiety is an inevitable result of uncertainty. When a situation arises that will involve letting employees go, or requested to be considered for employment by an outsourcing services firm, it results in anxiety for those affected. These employees ' source of livelihood is put in limbo until the situation is resolved, even though the sources of their income may be improved under the new arrangement. Unfortunately, the uncertainty and resentment caused by downsizing usually also results in the lowering of morale of the employees who remain.
The provider was winning new work, but suffering along with the rest of the industry in resourcing that new work. Experienced project managers were among the critical resources sought at almost every new outsourcing account. A program to define project management in a step-by-step manner, and to deliver training and tools to enable the successful rollout of the program, was considered a key objective. This program could then complement existing programs to identify and assess project managers for further career development.
Selecting an outsourcer to assist the IS organization in moving up the CMM is different from selecting an outsourcer strictly for assuming responsibility for a given function. The outsourcing project must be performed on site, and it requires an outsourcer with the experience and desire to share its methods. These requirements preclude offshore outsourcing organizations. Some outsourcers will consider their practices proprietary and will be unwilling to transfer knowledge to the IS organization. The IS organization must find an outsourcer that is willing and able to provide its procedures and the required training. Since claiming expertise is easier than providing expertise, the IS organization must evaluate the claims of each outsourcer carefully for accuracy before selecting a vendor.
It wants its internal IT staff to focus on other work, such as the implementation of a new packaged system or the development of Webenabled applications. Most IT managers will attest to the fact that it is difficult for staff to meet project deadlines when they are also responsible for maintaining production systems, because production problems are a higher priority than new work. Although it is possible to minimize permanent staff involvement by using staff augmentation, concerns about co-employment and the desire to eliminate the day-to-day management of these employees makes outsourcing a more appropriate choice. The primary concerns associated with outsourcing of legacy systems are
Installation and support of LANs and PCs is a function where both staff augmentation and outsourcing can be used successfully, depending on a company's maturity level and objectives. If the IT department has little in- house expertise and wants to develop it, staff augmentation is an effective way to bring in experts who will train existing staff. Similarly, if IT has not developed formal procedures or standardized its methods, it may want to hire a contractor with specialized skills to develop those procedures. Even if the long-term plan is to outsource the function, it is desirable to establish procedures prior to outsourcing. In general, a company whose function is not yet mature should consider staff augmentation rather than outsourcing. Similarly, to increase the odds of successful outsourcing, IT should seek to first stabilize and standardize its function, and then outsource. For some companies, outsourcing of LAN and PC support has been a less than successful venture. The...
System development is similar to packaged system implementation in that a company increases its risks by outsourcing the entire project, even if it plans to have the vendor provide ongoing support of the system. To ensure that the company retains internal knowledge of the system, it may want to use a combination of staff augmentation and selective outsourcing as outlined above for packaged system implementation. In this scenario, IT would typically retain responsibility for all strategic decisions. Working with its customers, it would define the requirements of the new system. It might outsource portions of the development, including the writing of detailed specifications, coding, and unit testing, while retaining overall project schedule responsibility.
This method is similar to the outsourcing service described above, except that the application(s) is transitioned back to the IS organization after the new project environment has been put into place. This method is useful for overcoming cultural barriers to change. Keane takes responsibility for the project using its own staff. The project team members implement the Keane process model and operate the project until all processes are fully tuned. At that stage, the IS organization can continue to outsource or it can reassume responsibility for the project. During the transition-out period, project team members fully train the IS staff members in all aspects of the project and the new processes. Cultural resistance is reduced by effectively moving IS staff members into a new assignment rather than attempting to change familiar processes on their current assignment. The IS organization can use its newly trained and experienced staff members to seed other projects in its portfolio.
This phase covers most of the outsourcing engagement. The application management team is totally responsible for the support of all aspects of the outsourced applications following the standards agreed upon in the level of service agreement. In addition to supporting the daily support activities for the application(s), the project team also focuses its attention on increasing its efficiency at supporting the project. The team will implement any necessary procedural and technical improvements in the early stages of this phase to reap the benefits over the life of the project.
The transition to setting up the outsourcing arrangement required listing the myriad of details that had to be taken care of a careful plan listing the equipment, software, and personnel changes to be made and scheduling the events in a logical fashion. The termination process requires a similar listing of the hardware, software, and people changes and a time schedule for the events to take place. The scheduling process may be aided by Gantt or PERT charts, which help to identify the actions needed, their sequence, and the steps to follow up to keep the schedule on track.
There are many reasons for terminating outsourcing contracts. One reason may be that the contract period is finished (though if the arrangement has worked well, a renewal would be the logical outcome). It may be that the client or the vendor has become dissatisfied for one reason or another and wants out. A good reason is that another vendor, possibly with some advanced technology, has offered terms that could save more money and provide specialized benefits. Or possibly, the client's needs have changed in terms of product or territory, or an acquisition or merger was made that has caused the vendor's services to be unsuitable.
The following points are highlights of the actions a computer operations manager should take to oversee and manage the work of outsourcing service vendors Establish a relationship of cooperative partnership with the outsourcing vendor. Make careful and detailed plans for the steps to transfer the work to the outsourcing vendor and, at termination, to transfer the work to another vendor or in-house.
Chapter 24 A Practical Guide to Staff Augmentation and Outsourcing Chapter 25 The Essentials for Successful IT Outsourcing Chapter 27 Managing the Risk of Outsourcing Agreements Chapter 29 How to Manage Outsourcing for Best Results Chapter 30 Outsourcing as a Means of Improving Process Maturity An Approach for More Rapidly Moving Up the Capability Maturity Model
The operation and managing of an outsourcing or other downsizing program are matters in which it is helpful to talk with others who have been or are managing similar plans for their organizations. Informal meetings with peers in other such organizations about common problems can be a source of ideas and a feeling of support. There is considerable literature on these subjects one thorough and pertinent source is Winning the Outsourcing Game Making the Best Deals and Making Them Work by Janet Butler (Auerbach Publications, 2000). Many organizations do buy, for a fee, the advice of experts who have experience in managing outsourcing and downsizing programs. These sources include the Outsourcing Institute and a variety of consulting firms.
The contract is signed when the negotiation is concluded. There should be support by the entire team and senior management before it is signed. This commitment is important to ensure subsequent compliance with the contract, and to communicate to internal staff the willpower to make the outsourcing relationship work.
Once the IT outsourcing agreement is up for reconsideration, there are three options renew, renegotiate, or terminate. Renewal accepts the terms of the existing contract. It often occurs if the customer feels the delivery of services is satisfactory or better. Whether renewing, renegotiating, or terminating, it is important for the organization to conduct as comprehensive a study as when making the initial business case for or against outsourcing. It should use objective criteria, and make evaluations using data collected during the course of the initial contract. The data may come from metrics and documentation of past service delivery. If renegotiating or terminating, the organization should make sure the team and senior management support the decision, and understand the rights described in the contract to take such action. Determine the desired type of outsourcing agreement (e.g., co-sourcing or outtasking)
The variety of specific solutions is not surprising, because the industry is still struggling to figure out this problem. Like the software business in general, each company seems intent on inventing its own model for software quality management. Because all the models are based on a do-it-yourself approach, they are subject to the problems identified earlier. Outsourcing software QA activities is an emerging model that offers the business manager a viable option to solving product quality and quality ma nagement problems. Historically, QA outsourcing consisted of low-cost, fast-turnaround supplements to internal testing efforts. Several outsourcing companies thrived by providing compatibility testing of software against various hardware platforms and components. Typically, client software companies would be running late on development and lack the in-house resources or equipment for fast-turnaround compatibility testing. So they turned to software QA outsourcing, contracting with...
In determining the future management of the software quality function, early successes indicate that the next logical development is outsourcing the entire QA function, or some appropriate portion thereof. This outsourcing model can directly address the critical cultural and management problems identified in this article. It can also provide improved quality and cost savings for the software company served. Finally, outsourcing software QA can result in lowered overall costs for the client company. These take the form of improved quality and lower costs for customer support, of interim fixes and releases, and of better customer retention. In addition, because a profit-oriented QA team is more cost conscious than an internal team, the software QA organization's cost savings can be passed along to the client. Finally, in the new model of full QA function outsourcing, costs can be lowered even more, as there is more emphasis on process improvement for the entire development cycle.
This is obvious at a glance when one compares the situation of Japanese and Western plants specialized engineering firms. There were 67 major Western plant engineering firms in 1985, but the number has sharply declined to 49 in 1990, and then to 17 famous firms in 2001 including Bechtel, Fluor, Foster, Feeler, GE, Siemens, ALSTOM and ABB. In the meantime, MW Kellog, a typical process engineering firm, was taken over by Dresser, while Lummus Crest, a dominant engineering firm for ethylene process, became a subsidiary of ABB. And yet in Japan, although major plant engineering firms suffered a Winter era for the plant in the late 1980s, they recovered their wind due to the demand boom for plants in Asia in the 1990s during the bubble economy age that followed. Once again today, they are increasing their order intakes due to a global shipbuilding boom and making of the LNG base. Major players have not changed very much. However, financially speaking, their market value has been declining...
(a) Rationalization of labor cost or from fixed wage salary formula to elastic wage salary formula, and outsourcing of human resources. Due to the continued deflation, increased risk and uncertainty, the high growth of the sales amount was not easily expected. But for the need to keep an incentive for high employee morale for profit-making, labor contracts for most firms were amended from the conventional type of (wage salary base + seniority factor + annual inflation adjustment + bonus reflecting company's profit but relatively fixed ) to the new one (wage salary base + bonus reflecting employee's contribution to the company's profit + other adjustment), apart from fringe benefits. Reward calculation scheme for executives also changed in most of the firms, with the bonus portion which reflects corporate profits being increased. Now, yearly inflation adjustment in most companies is virtually abolished and the seniority factor reduced, even to zero in some extreme cases, though the...
Many service contracts involve outsourcing, as in the IT example above. Outsourcing is discussed in detail in Chapter 15. Another particular form arises where the purchasing organization requires a specified capability and the provider must source the necessary assets, equipment and people for its delivery. Where government is the purchaser, public-private partnerships or private financing arrangements may be appropriate. These forms of arrangement are discussed in detail in Chapter 16.
Size and complexity often go hand in hand, and there are often more than just scale effects. Particular care is needed in tender evaluation, contract negotiation and risk allocation, topics discussed in Chapters 13 and 14. Large outsourcing and PPP arrangements introduce additional risks, as discussed in Chapters 15 and 16. The mine waste management case discussed in Chapter 18 involved many technical, environmental and social risks with complex interrelationships and feedback links.
Part II, Chapters 13 to 18, extends the risk management process into some specialized areas of projects and procurement, including tender evaluation, outsourcing and public-private partnerships, again with case material to illustrate the applications. Technical risk assessment tools are introduced, and environmental risk management processes are outlined.
The project risk management process described in earlier chapters does not change in significant ways when it is applied to market testing and outsourcing activities. As always, establishing the context provides the basis and structure for a sound risk management process that is focused on achieving the desired objectives. The key elements depend on the phase of the outsourcing activity as well as its characteristics. The left-hand columns in Table 15.3 and Table 15.4 show examples of key elements from market tests of technical capabilities and facilities services. The tables also show a selection of the risks that were identified. Further risks that are more specific to outsourcing are discussed in the next section. Monitoring and review take particular importance in an outsourcing environment, both for risk management and for contractual purposes. Once the decision has been taken to outsource an activity, monitoring the quality of the services provided and the costs and risks...
Integration is addressed in a wide variety of quality standards for corporate management, and for program and project management, including the Project Management Institute PMBOK, the National Baldrige Quality Award, the PMI OPM 3 maturity model, balanced scorecard, and critical chain concepts. Along with increasing complexity in systems and projects, and the challenge of putting together the efforts of global outsourcing teams, the concept of integration becomes more and more important to achieve cheaper, better, faster project cycles.
In addition, we will focus on arrangements that involve the outsourcing of entire projects, project phases, or specific project deliverables to external entities. Thus, this would exclude staff augmentation arrangements where a vendor is contracted to provide a resource to fill a role on your project team.
With the continued advances in communications and information technology, and the common everyday use now of mobile phones, remote network access, email, web mail, pagers, and instant messaging, the ability of people to productively collaborate on common work is increased dramatically. And, of course, the reduced office costs and the increased ability to leverage outsourcing options are very attractive to most organizations.
Outsourcing has become a major trend because it allows companies to bring their products to market faster and at a competitive price, and because it provides benefits to both the customer and the supplier. The relationship between the customer and the supplier is referred to as partnering. Joki and Russett identify three categories of partnering3 The benefits of proper outsourcing can be significant. Joki and Russett provide a list of potential benefits of outsourcing and partnering4 Added expertise Outsourcing or partnering should provide the company with partners who have proven records of performance. The company can readily tap into additional resources in the form of technical expertise. Sharpened company strategic focus Outsourcing improves strategic business planning and accelerates the benefits of reengineering. Minimization of company risks By sharing risks with vendors, outsourcing not only reduces operating costs for an organization but provides money for capital...
In considering and implementing any offshore development project, companies are frequently looking at outsourcing those functions of their business that do not make economical sense to develop or maintain locally. This could typically be the development of products internationally such as building an airport in Hong Kong or developing software in China for a U.S. company. It might even include upgrading a legacy mainframe system into a new Web-based system. Outsourcing must consider the potential vendor capabilities in the possible areas of (1) engineering, (2) manufacturing, (3) information technology, (4) competencies, and (5) support. Projects benefit from the choice of an offshore partner who is able to provide services on a global basis. Companies outsource offshore principally to Through outsourcing, clients have the flexibility to use (1) people, (2) processes, and (3) technology to enhance, manage, and maintain systems and operations. This can be done remotely from any...
In the future, the most exciting aspect of resource management integration may well be the integration of external resources. When a company leverages codevelopment and does more outsourcing, it may want to directly integrate the resources of outside resource groups into its resource management systems and process. A company can identify resources available from outside groups when it does assignments and even when doing resource requirements planning. For example, if a specific skill is required that is not available within the company, the project manager could tap into an external resource group to find a consultant or contractor who would be available to do the work.
Impact on risk Outsourcing is at the high end of the risk return spectrum. When it works, it can be a miracle of modern business methods when it doesn't, it can result in real catastrophes. The keys to successful outsourcing are finding qualified vendors and coming to clear agreements before the work begins.
That's right you will encounter changes during your * software project, so accept these facts, and just plan for them. Maybe a key team member will be removed from the project at a critical time or your stakeholders will determine that some of the functionality that they didn't want at the beginning of the project is now critical. Or perhaps an outsourcing portion of your project that you planned to have completed in six weeks will now be extended for three more weeks. Don't blow a gasket.
Product architecture may seem like an odd practice to put into a project management toolbox, but a product's technical architecture, together with the overall size of the project, has significant implications for project and product success. For example, the organization of components and modules may impact decisions about outsourcing or about distributed development and how to manage distributed groups. Similarly, if a team is building a complex product with both hardware and software components, thn interface s ecifi ca ocss may ha ve a caafor impact on rhe change mEnagement process. Ia Egile dev lopmeng, arch tectcre is a guide, not a straightjacket. It is intended to communicate the larger context to tf-e development team, not lack in a design.
Faulkner Technical Reports, March 1992 (100.0000404). --. Outsourcing Piecemeal Ticket. Information Week, July 14, 1997. Scheier, Robert L. Businesses Outsourcing More, But Less Thrilled With Results. Computerworld, July 21, 1997. Smith, Max B. Project Management of Outsourcing and Other Service Projects. PM Network, October
I am convinced that we would have failed without the support from Bukom. But how to get it The prevailing attitude was this is a chemical project that has nothing to do with refinery. To overcome this prejudice, I used the financial argument by pointing out that the project had been financed by cash flow from Bukom. Without Bukom there would not have been a project at all. On this argument the involvement of Bukom was accepted. Bukom had too many people - since staff reductions were ongoing because of efficiency improvements and outsourcing - so a number of them were transferred to our project. In the realm of our mutual aid agreement with Bukom, we could require that these people were the best and not the people they wanted to get rid of anyway. This is exceptional. Why did they comply with our request It was seen as a Singapore project, - in which the EDB participated - not as a separate chemical project. Here you see the link with the shareholders....
The near exclusion of time and cost considerations. The legacy of such practice was user complaints that work products were off target, late, and over budget. The specter of outsourcing that haunts IT managers today is, in part, due to the unfortunate legacy of these complaints.
As noted earlier, the universe of people who care about or impact projects is quite large. This extends well beyond the involved management groups and the directly involved participants. More important, these other stakeholders can be as important to success as the management and participant groups. One such group is the Owner of the project. This might be an external client, or an internal sponsor. It is the person who represents the organization that is directly or indirectly paying for the work and has (most likely) the greatest stake in its successful completion. Other internal operations that might have more than a passing interest in the ongoing projects would include the Human Resources function, Accounting, and Information Systems. And many organizations depend on external functions as well, such as Professional Services Organizations, Outsourcing groups, and Business-to-Business alliances.
Outsourcing has had a severe impact on America's workforce. Jobs, at all levels, are being sent overseas. Manufacturing jobs, software coding jobs, analyst jobs, white-collar jobs of all types. White-collar jobs, EXCEPT project management jobs. Why is that Because the project management process provides leverage in getting the job done, and that's what's needed here.
Project environments today do not necessarily require long-term, fixed transactions or alliance. Instead, attention has to be paid to efficient procurement and utilization of resources for achievement of project objectives. The reason for this is that the speed of technical innovation is so fast that it is quite difficult to foresee what innovative product will appear next and how to catch customer needs. In this respect, R&D type venture businesses in the United States, in some cases, are engaged in creation of an idea of a product, development and acquisition of the patent, and then outsourcing of every phase of application design, trial production, manufacturing, and sales to several to scores of companies.
Maintain a long-term guarantee for providing spare parts of a single product, the guarantee may be possible if all similar products of the company are integrated. Also, outsourcing of all or part of guarantee service itself is possible, which even enables the company to propose the guarantee that cannot be provided within its own business scope.
There is an operation outsourcing contract called partnering, which is more advanced than outsourcing. This is seen in the oil industry and petrochemical industry in the United States and Europe. For instance, a plant owner company and a contractor sign a comprehensive outsourcing contract on a specific operation with a term of 3 to 5 years. The owner guarantees workload, and the contractor sets up a specific department for the client and allocates fixed members there to perform work. This is an alliance with the aim to improve the quality of work performance based on the relationship of trus t between the owner and contractor.
Downsizing is a major part of, indeed one purpose of, nearly all outsourcing programs. Cost reduction is an objective of most outsourcing, and that reduction is primarily in terms of fewer employees. But there are a variety of ways that downsizing can be accomplished without outsourcing. One currently popular approach is reengineering, which consists of methodically examining the operating processes of an organization by analyzing the types and numbers of employees needed for each function as well as developing better approaches for performing these processes. Another downsizing method is to make across the board cuts, say 10 percent of each department this approach, which is used to hastily meet a budget crisis, is generally not recommended as it usually makes cuts in the wrong places.
One person should be appointed as chief liaison representative for the client in dealing with the outsourcing vendor on a continuous basis. Liaison individuals should have the authority to act for their employers and should be the normal route of communications between client and vendor, particularly for complaints. Therefore, the liaison person must be knowledgeable about the technology involved, be a diplomat, yet be able to be firm in monitoring and demanding proper performance from the vendor. The liaison officer must also be of unquestioned loyalty to the clients' interests (many systems technicians may see their best future career opportunities with an outsourcing services firm), yet see that the vendor's legitimate interests are respected. The outsourcing contractor should be asked to set up a liaison counterpart, and both client and vendor should clearly define their liaison representatives' responsibilities and modi operandi. The liaison function may vary in size and scope...
There are many potential risks confronting outsourcing agreements. These risks can fall into one of three categories legal, operational, and financial. The risks also vary, depending on the phase in the life cycle of an outsourcing agreement. There are essentially seven phases to an outsourcing agreement (1) determine the business case for or against outsourcing (2) search for vendors (3) select a vendor (4) conduct negotiations (5) consummate an agreement (6) manage the agreement and (7) determine the business case to decide whether to renew, renegotiate, or terminate a contract. Exhibit 1 lists some of the risks that could exist for each phase. Determine the business case for or against outsourcing
The basic idea is to have controls in place that minimize the negative consequences of a bad outsourcing agreement, known as risk management. Risk management for outsourcing agreements offers several advantages. It enables identifying potential problems with agreements. It enables developing appropriate responses to those problems. Finally, it helps to better identify mission-critical functions to retain and others to outsource. There are several keys to effective risk management. Risk management is best performed as early as possible, preferably before signing an agreement. It requires identifying and clarifying assumptions and addressing key issues early. It requires having the right people involved with the outsourcing agreement, such as subject matter experts knowledgeable about key issues. One final caveat. Risk management is not a one-time occurrence. It must be done continuously. The reason is that risk management involves taking a snapshot in time and using it to anticipate...
With analysis complete, the next action is to identify controls that should exist to prevent, detect, or correct the impact of risks. This step requires looking at a number of factors in the business environment that an outsourcing agreement will be applied to, factors like agreement options (e.g., co-sourcing, outtasking), core competencies, and information technology assets, market conditions, and mission-critical systems. There are many preventive, detective, and corrective controls to apply during all phases of outsourcing agreements (see Exhibit 3). Having a good idea of the type and nature of the risks confronting an outsourcing agreement, the next step is to strengthen or add controls. That means deciding whether to accept, avoid, adopt, or transfer risk. To accept a risk means letting it occur and taking no action. An example is to lock into a long-term agreement regardless of conditions. To avoid a risk is taking action in order to not confront a risk. An example is to...
The data in the hands of an outsourcing service may be the lifeblood of the client organization. It is, therefore, essential for the client's management to make sure that there are adequate backup copies of the operating data that the vendor possesses. This can often be accomplished by securing from the vendor current copies of the data so that operations could be continued should a disaster like a flood, earthquake, or fire destroy the client's data at the location of the outsourcing service. If the client relies on backup data that the vendor has arranged, such as with a firm like the Iron Mountain Depository or Comdisco, then the client must periodically audit those extra copies to verify that they are current, complete, and properly secured. However, even if the vendor does maintain an extra data The other major security concern is the exposure of proprietary information through the outsourcing vendor. Of course, the restrictions on the use of key business and technical data...
While IT outsourcing can be beneficial, it can also devastate a company. For that reason alone, management must see to it that all the necessary actions have been taken to ensure that the former occurs. In too many cases, firms are realizing that the outsourcing of their IT services could have been done better, or never should have occurred in the first place. As a result, everyone is frustrated and angry, and there are costs that no one ever thought would accrue. Fortunately, if the above actions are executed, such results need not happen.
Changes of any kind to the finances of the project need to be noted. A part you need comes in more expensive than you d anticipated, contractors take longer than expected, a service you' re outsourcing has to be repeated in another task anything like this that you hadn t counted on, you should track in this category.
Following on the advancement in downsizing or networking of information technology with an increasing number of end-users, not only the operations and maintenance costs of computers but also further costs concerned with outsourcing some services, the education and supporting for general users have became accruing in business. Management could not have measured or controlled such operation costs of IT because invisible costs are increased in addition to visible costs of information hardware and software. Under such reasons, TCO is produced to put hidden costs into visible ones.
This provides a visual representation of the steps in the project and the decisions taken in respect of the approach. Along with the decisions about the approach, the road not chosen is also described. With the development of an information system, you have for example the choice of in-house development or outsourcing. The description of the approach is useful to determine whether you can meet the expectations of the executive and other stakeholders. Suppose the executive had special requirements and the project proposed to select a standard off-the-shelf package, then it would be advisable to have a discussion about the project approach.
This foundation also enables more effective management of collaborative development. We'll look at how collaborative development can be managed across a range of collaboration categories, and we'll also look at the collaboration system services required. Collaboration will eventually extend to the outsourcing of some R&D functions, so we'll look at managing this as well.