Optimize the Competitive Advantages of Outsourcing and Offshoring with Project Portfolio Management

As far back as the eighteenth and nineteenth centuries, makers of America’s covered wagons and clipper ships sales outsourced these projects to workers in Scotland, with raw material from India.

Beginning in the 1970s, companies began finding efficiencies in outsourcing certain business processes, typically billing, accounting, and payroll. The advantage was twofold: not only could vendors perform the service more efficiently and economically, but the client company could now put more of its focus on its core business.

In the last few years, three related factors have enhanced the incentives for companies to outsource and offshore:

1. Technology has become a critical piece of nearly every business. Yet, in many cases, it is not a company’s core competency; hence many see an advantage in outsourcing various aspects of their IT operation.
2. Technological advances have drawn the world closer together and created a global service economy. Consequently, it has become much easier to work with outsource vendors or consider captive offshore operations that are many miles away and offer lower labor costs.
3. New software solutions can help companies better manage overseas relationships.

Often the first thing that strikes most executives trying to tame budgets is that, on average, overseas IT workers earn between $19 and $30 per hour. This represents anywhere from 25% to 80% savings over the US labor force.

But increasingly, executives understand there are other powerful attractions in outsourcing and offshoring. Many overseas countries are producing a pool of talented, educated workers that can help companies meet staffing and skill needs that may be in short supply in the corporation’s home country. This is especially critical when companies are in a growth phase and are struggling to meet customer demand without compromising the quality of their products or services.

In addition, in a service-oriented economy, the quality of customer service is often a main differentiator. Done right, outsourcing or offshoring can dramatically improve customer satisfaction, because it creates the ability to meet customer’s needs around the clock and shorten the time to market for exciting new products.

Expected Growth
The powerful business incentives and technological advances have many analysts anticipating that moving IT operations overseas will increase dramatically over the next decade. Gartner recently noted, “Less than 5% of IT jobs in the United States and other developed countries are currently ‘outsourced’. By 2015, however, that number will rise to 30%. …the work will not just go to India, however, but to other countries as well. China, Russia, and Brazil are all poised to become hot spots for IT work.” The research firm also predicts that outsourcing spending on IT services will more than double over the next three years, from about $18 billion in 2004 to as much as $50 billion in 2008.

Despite the promise of taking operations overseas, focusing on short-term cost savings can blind executives to the considerable costs and risks associated with a significant change to how a company operates.

Reasons for Decline of Quality
For one, without proper training and communication - a full immersion in the culture of the host company and ongoing commitment to working with them - an outsourcing partner may fail to deliver what the company wants and needs. Similarly, the host company must prepare internally to communicate and collaborate effectively with its overseas employees or partners. If these two things are left undone - and if the host company cannot gain a clear view of project progress - bringing the finished product back in house can be an overwhelming challenge.

Without adequate preparation, companies often find that the changes wrought by moving business functions overseas ripple throughout their organizations. Risks include:

• Poor quality from overseas vendors or missed deadlines can force companies to redo projects or risk a dissatisfied customer base that will soon look elsewhere.
• Internal layoffs that typically accompany an overseas initiative often create morale issues that can derail the productivity of remaining internal staff.
• Significant gaps in maturity and processes between the company and the outsourced vendor can make it difficult to achieve business goals.
• Time and effort needed to transfer knowledge to overseas staff can cut into hoped-for savings.
• The inability to escalate issues or concerns to the appropriate people can put the overall project in jeopardy.

Without a means to properly manage these risks and costs, companies are likely to find their attempts at outsourcing or offshoring to be bitter disappointments that do more harm than good. Conversely, understanding and properly managing the potential risks can dramatically escalate the chances for a successful program.

Factors in Outsourcing and Offshore Success
Four overarching factors will dictate success in overseas operations:

1. Choose the right projects. Too often, companies fail to do enough to determine which projects should be outsourced or kept in-house.
2. Enforce consistent business processes. Consistent quality and timeliness depends on consistent business processes, particularly around IT projects that must be integrated within a company’s architecture. Using a common vocabulary and following clearly delineated project guidelines for process, costs, and scheduling are essential.
3. Communicate and collaborate. Language differences are only the first potential stumbling block in communicating and collaborating with vendors. Companies must understand cultural differences and find ways to communicate and collaborate effectively and regularly to ensure quality and timeliness.
4. Maintain constant oversight. Having a clear view of how all projects and programs are progressing, in terms of both costs and scheduling, is essential to successfully managing overseas operations.

All factors should become part of the negotiation with vendors or overseas employees, and processes must be established in place to ensure each factor occurs. Project portfolio management (PPM) software has become an essential solution in helping organizations support all four of these success factors.

Choose the Right Projects
PPM solutions support a rigorous decision-making process for evaluating the relative advantages of keeping a project in-house versus moving it overseas. As such, PPM is an ideal tool to help senior management transform short-term thinking rooted in urgent cost-cutting measures into strategic actions linked to clear business goals.

More specifically, companies can define key performance indicators and incorporate them – along with potential risks and costs – into their PPM solution. They can then run alternative scenarios that can help compare an outsourced or offshore operation against the costs of transforming an in-house operation.

PPM solutions also can run various delivery and pricing scenarios, which demonstrate possible in-house, overseas, and in-house/overseas mixes, so companies can uncover options they may not have considered previously.

Enforce Consistent Business Processes
PPM solutions are the hub of enterprise communication for overseas programs and projects. As such they are critical for maintaining or implementing the consistent business processes upon which quality work relies.

Project managers can outline step-by-step procedures, with project and staffing templates that they can tailor to their needs, thus ensuring a proper workflow. They can build in thresholds and variances, and when costs or schedules fall outside the thresholds, the software can generate high-priority messages so all stakeholders understand the issue and can collaborate effectively about how to address it.

As projects progress, project managers can use the project management dashboards to view all data on projects currently in progress. They can then communicate what needs to be done, how it needs to be done, and why.

Success in Outsourcing and Offshoring Starts with Project Portfolio Management
In a global economy, companies have to consider any option that allows them to operate more efficiently. Outsourcing and offshoring offer that potential, but they are not the short-term fix that some still hope they can be. Decisions about moving any operations overseas must be seen in the context of long-term strategic thinking that digs deep to understand all of the potential risks and rewards. Equally important, once companies have made the decision to move an operation overseas, they must be able to effectively manage those programs.

Given the many complexities surrounding the initial decision and in managing the process, companies have found that sophisticated project portfolio management software is the one solution they cannot do without if they are to successfully pursue overseas operations.