"Yours, Mine, or Ours": Is Outsourcing the Answer?

By: Susan Peterson, M.B.A., PMP
Copyright 2008, Susan Peterson, All Rights Reserved

Both private and public service sector organizations face an ongoing challenge to determine whether functions should be performed internally or externally. While much is written about how to make this decision from an organizational strategic perspective, there are few guidelines for the project manager to use during the initiation and planning phases. Too often outsourcing decisions are made on the basis of past practices rather than assessing the current project situation. This month’s column is the first in a multi-part series that addresses project-related considerations regarding whether to outsource, insource, or employ a hybrid approach. The first area of focus covers some considerations of the initial decision.

“How could the core competencies have changed?”
It might appear that an organization’s core competencies are “cast in concrete”. However, in this environment of continual mergers/acquisitions, spinoffs, virtual entities, and other structural impacts, project managers often find that the composition of their teams changes frequently. What an organization once considered a strength, such as specialty engineering design or innovative research capabilities, may drop in priority and thus no longer be supported through effective hiring practices or major budget funding. In determining if appropriate in-house personnel will be available, a project manager needs to perform a scan of other current and proposed projects. What activities are being outsourced for other projects? Does the outsourcing appear to be the result of personnel shortages due to short-term allocation issues or to an overall lack of skilled personnel? If the constraints are short-term, then outsourcing may be a viable alternative. However, if the constraints are long-standing, a decision needs to be made by the organization to address long-range outsourcing/insourcing strategies.

“Who can keep a secret?”
Access to proprietary, competitive, and/or classified information may be an essential part of conducting a project’s activities. There are a number of legal agreements that are signed by employees and outsourcer organizations alike that stipulate restrictions on the use of knowledge obtained in the course of performing work. Typically, severe penalties are also documented in these agreements. In reality, violation of confidentiality may be difficult and/or costly to prove. Once proprietary information is “on the streets”, punishing the guilty does not mitigate the damage. Therefore, the primary consideration in assessing the risk of divulging company secrets to an outsourcer organization is to research its actual ethical conduct (not website statements) and its personnel practices.

“All of the problems will vanish.”
In so many cases problems do not disappear just because an outsourcer organization is contracted. The root causes of problems need to be analyzed to determine if the issues are internally based. For example, an organization may be experiencing project management problems due to its lack of understanding of effective project practices. In this type of situation an “outside” project manager may be a strong asset not only in leading a specific project but also in providing a positive example of good project management that the organization can emulate in the future. However, if the project management problems arise from constantly shifting priorities among multiple projects that cascade to under funding and inadequate resource allocation, then an “outsider” will also get pulled into the whirlpool of project dysfunction.

“Ours” blends diverse strengths and needs.
Outsourcing is not necessarily an “either or” decision. In some situations a “hybrid” approach may be effective both in the short term and in the long term. This approach involves outsourcing specific team responsibilities that will not be needed after the project is implemented. Internal employees are then assigned to roles on the team that will either continue after implementation or that will transition to other projects. Additional contract workers may be used to augment certain project tasks that need extra people only for the duration of the project. This approach provides the long-term benefit that knowledge learned during the project remains within the organization while addressing the short-term need for specific expertise and additional labor.

By this point in reading this column, readers may note that nothing has been mentioned about costs. Too often illusions about costs drive the outsourcing decision without regard for project needs. Next month’s column will include cost considerations that should be addressed only after the true project needs have been identified.

Susan Peterson, M.B.A., PMP, is a consultant who manages diverse programs and projects in both the private and public sectors for individual organizations and consortia. She also conducts enterprise assessments of project portfolio management practices. An overview of her program and project specialties is available at http://www.pmi-sd.org/Consultants. She teaches the Project Management Simulation capstone course in the University of California, San Diego, Project Management certificate program and is a member of the curriculum committee. She can be contacted at susanada@aol.com.