Outsourcing - Redefining Project Management

More jobs are moving overseas. What is my opinion as an IT project manager and what are the challenges of “outsourcing” post to Project Management?

Let us define what is project management? “The history of project management can be traced from the building of the pyramid 2500 years before the birth of Christ up to the modern day. Project management is the planning, organization monitoring and control of all aspects of a project and the motivation of all involved to achieve the project objectives safely and within agreed time, cost and performance criteria." [1].

Now let us also briefly talk about “outsourcing”. Traditionally companies looked for "operation vendors" whose role was limited to non -core and commodity functions only, but now they are on the look out for strategic partners who can handle strategic applications more cost effectively. Thus evolved the concept of Outsourcing. ”Fundamentally, outsourcing occurs when a business entity takes work traditionally performed internally and shifts it to an external provider." [3] Outsourcing is a strategy by which an organization contracts out major information technology functions to specialized and efficient service providers who become valued business partners. "Outsourcing has become quiet popular in recent years, with a market that is expected to exceed $100 billion by the year 2005" [2].

Here are some of the benefits “outsourcing”:

The company does not need to invest its resources in fixed assets, technology, and business process as the outsourcer firm will take over all the nifty gritty of doing the services;
The company can minimize business risks as its outsourcer firm, which has the expertise, performs the services required to do the services;
The company can prevent inefficiency due to idle capacities or lack of expertise if the services are done in-house;
The company can focus its resources on doing its core competence so that it can maximize its business values.
It helps in Project enhancement, Service improvements. Skills upgrade. Skills retention, Skills access, Technology infusion, Cost accounting and overall visibility of accounting and performance in a business process.

However, the decision to outsource should be weighted based of the following factors:

If the business need is not core to the business
In house functional or technical experience that does not exist
The decision to outsource is a strategic decision
The company has highly skill project manager at the level of the organization that matches the scope of outsourcing deal
Time frame is short or flexible
Cost saving should at least be 40% [10]
Project management challenges should be taken into the consideration [10]

In addition, outsourcing software development decreases the amount of management work involved but increases the degree of management sophistication required to effective keep tabs on the project. This is because of an additional degree of separation between the people who are writing the code and the company’s management.

“Through outsourcing, executives can redefine virtually every aspect of their company's operations - not only how the work gets done, but how much it costs, how capital monies are spent, and how the company relates to its suppliers and customers. The results can often be lower, more flexible costs, an increased focus on those unique activities that produce the greatest value for customers (the so-called core competencies of the business), better quality and faster speed, better use of capital, increased innovation, and even new sources of revenue.” [7]

Furthermore, a company that offshore its critical knowledge to any other country will never be able to reclaim it. Technology is the key to innovation. American developers have a passion for innovation. They are interested in pushing the state of the art in design and functionality. Because these housekeeping activities are less creative and have more-defined processes, they lend themselves better to a standardized development process methodology something that offshore companies have invested in perfecting. "Computer programs would still be designed in the United States, but Indian workers would write the detailed software instructions and do the testing." [4]. Program is the lowest level of innovation can it breed technology?

If you analyze it from a national perspective there is a huge cry against outsourcing, precisely because every job loss is painful for any individual or community. Growing unemployment is not a welcome development anywhere. But the loss of a few hundred thousand jobs per year to off shoring is a small part of the churning that goes on in the US labor market.

“A Nasscom study reveals that US will face a labor shortage of 5.6 million workers by 2010, which if not outsourced will cost the US economy up to $2 trillion” [5]. "US job security is better served by expanding domestic training and education opportunities than by employing protectionist measures to prevent companies from transferring work to lower-wage markets, according to George W. Bush, President of United States."[6]. "Off shoring keeps US businesses competitive, creates new markets for US goods and services, and fills the shortfall in services labor that the US is expected to face in the next seven years,"[5] said Marc Vollenweider, CEO, Evalueserve.

Outsourcing is the harsh reality of globalization and it is there to stay. In the present scenario, project managers have to adopt with the growing trend towards outsourcing and learn the necessary skills of managing projects in a multinational, multicultural environment. Outsourcing offers several benefits in terms of reduced cost, reduced risk; improved service etc but some checks, balances and rules should be in place so as to control that critical IT services.

As an IT project manager, I should do everything I can to protect the jobs of my IT staff. However, my ultimate responsibility is with the company especially when cost cutting is a necessity for the company’s long-term interest. Having said this, I support outsourcing only if it benefits the company’s long-term business strategy. According to Eric Wahlgen “ The future of America is not, “How do we stop people from taking out administrative work away”, “ The future of America is to pushing of work that is not high level so that we can continue to move up the scales in capability”

“He who hesitates from change is not only lost, but miles from the next exit” [9]