Page 283 - Global Project Management Handbook

14-8 MANAGEMENT OF GLOBAL PROGRAMS AND PROJECTS

captivating in terms of cost savings, it may not always be feasible. Management needs to
determine which way to go depending on the objective and limitations. Once a final deci-
sion is reached, the time and place are identified based on the economic, sociologic, and
political environment, as well as on the related business structure and availability of
resources.
Short-term Conceptualization. In this stage, the outsourcing idea has already been
conceived of by management, which, in turn, assigns a project team and project
manager(s) to bring the idea to paper. The project team can apply the following measures
to reduce the uncertainty the organization faces during the initial phases:
● Detailed market analysis and an investigation of the company’s status in terms of the
external environment
● A business survey to determine the standards of the market
● Benchmarking to provide a general view
● Proposals from vendors located in different regions of the world
Planning. The final work in the conceptual phase is determination of the timeline and
budget constraints. The project team reports a preliminary schedule to senior management
for approval before proceeding to the next stage. Given their strategic importance, the
outsourcing decisions are structured on senior-management approval. Even though the
essential part of success comes from the highest levels of the organization, effective com-
munication through the organization is also crucial. If direct and unambiguous information
is not provided, a chaotic environment may be slowly formed by employees who perceive
the outsourcing motion from very different points of views, where some see it as a career
opportunity and others fear it from the point of view of job insecurity. To mitigate the
adverse effects, management should initiate face-to-face communication to create
interteam cooperation and trust. The frequency and quality of communication are major
factors that facilitate the development of mutual understanding of goals. 7

Design Phase
The conceptual phase is the initiation point where the outsourcing decision is evaluat-
ed in terms of its strategic fit, whereas the design phase is a long and challenging

stage where the decision is structured into operational boundaries. In the medium-
range conceptualization, senior management reviews the location and contract/invest
options and reaches a decision on whether or not to invest depending on the market
transaction costs. There are various situations where a company may prefer direct
investment:
● For some operations and industries, the transaction costs such as negotiation,
contract, and monitoring costs are higher than the administrative costs. If the
transaction costs associated with organizing across markets are greater than the
administrative costs of organizing within firms, we can expect the coordination of
productive activity to be internalized within firms. 8
● Investment may be the only alternative because of extreme intellectual property security
concerns.
● If the company wants to outsource some of its key functionalities, management will
require long-term commitments.
The business conditions and company objectives determine the scope of outsourcing.
Linder divides outsourcing into two categories, conventional and transformational. 9