Page 282 - Global Project Management Handbook

PROJECT MANAGEMENT FOR OUTSOURCING DECISIONS 14-7

and treasure.” How long would it take? Who would do it? And what would it cost?
Another consideration was Sears’ mission. After all, it was a retail company, and expect-
ing a technological perfection would not be reasonable. Outsourcing IT infrastructure
stood up as a good alternative that would give maximum value in a short period of time
without the need for additional investment. Kelly brought in Transitions Partners, an IT
outsourcing consultancy, to make a more thorough analysis. The consultants helped Sears
to see the major factors in an outsourcing decision and guided the company through all
possible choices. For nine months, they analyzed possibilities for transferring the busi-
ness process. At the same time, they included probable impacts of outsourcing on such
stakeholders as employees, customers, and investors. As a result, Sears decided that out-
sourcing its IT operations would let the company achieve its goal of a stable infrastruc-
ture faster and avoid high expenditures.
Conclusion. Among the plausible operations, determining the right application to
outsource is also essential. The products or functions that have already reached maturity
are less risky choices. These applications do not need big changes and can be managed
without the need for direct control. Complexity is important as well. More effort is needed
to outsource complex functions since the possibility of failure escalates as the complexity
of the job intensifies. Operations will need close monitoring, which, in turn, will add to
the transaction and communication costs. Moreover, most companies do not outsource
their critical and strategically important applications to prevent the risk of losing intellec-
tual property. This is why call centers and mass-production operations are the most popu-
lar processes that U.S. companies outsource.
Long-Range Planning for the Outsourcing Decision. Outsourcing is a long-range
decision. Structured long-range planning mitigates against unnecessary ad hoc deci-
5
sions and gives common objectives to an organization. Steiner divides the conceptual
long-range planning into four stages. Outsourcing decisions also may be conceptual-
ized in the same framework.
Strategic Conceptualization. Management should assess if an outsourcing initiative
will be appropriate for the firm’s future strategies. The market share, cost structure, prod-
uct quality, goodwill, and challenges in the organizational structure must be considered.
Therefore, multidisciplinary teams are needed to identify and analyze the strategic issues
and report their consequences to senior management. To support the managerial make-or-
buy decision on outsourcing, management can apply mathematical methods, such as lin-

ear programming, that will provide preliminary results on the financial consequences. 6
Subsequently, management must assess the outsourcing decision in terms of its strategic
relevance, actionability, criticality, and urgency.
Many organizations have very little experience with outsourcing decisions. Internal
assessment never should be neglected, but if enough expertise is lacking, it is advisable to
assign a consultancy along with the project team. An outsider can see the real costs,
threats, and opportunities more objectively and perform unbiased examination by apply-
ing prior experience. Expert opinion is a wise contribution, especially while deciding
whether or not to outsource.
Medium-Range Conceptualization. Once the strategic fit of the outsourcing deci-
sion is reviewed, a preliminary analysis of the alternatives is necessary. A company can
choose to invest in a low-cost country or continue its processes on a local basis. Some
companies need close correspondence and reliance in operations owing to the nature of
their business. These companies prefer to invest rather than choosing a contract partner.
The investment can be in the form either of acquiring an existing local company or of
establishing a regional branch. On the other hand, if the application does not require long-
term commitment and is not a critical function, a better choice is to have a contractual
agreement with a business partner in a low-cost country. Although the latter is more