Dr. Gad J. Selig, PMP, COP

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1 The Critical Role of the Project Manager in Executing Successful Strategic Sourcing and Outsourcing Initiatives: Major Trends, Critical Success Factors and Lessons Learned Abstract: Dr. Gad J. Selig, PMP, COP Associate Dean, Business Development and Outreach Graduate Studies Division (Schools of Business, Education and Engineering) University of Bridgeport, Bridgeport, CT & Managing Partner, GPS Group, Inc. In recent years, many outsourcing deals have failed because of poor project management skills and competencies on the part of both the customers and the vendors. This paper discusses the growing importance of solid project management skills and competencies throughout all of the life cycle phases of strategic sourcing and outsourcing. Based on extensive primary and secondary research as well as significant consulting experience with both project management and sourcing initiatives across multiple industries, the paper identifies the causes of sourcing project failures. It suggests what can be done to prevent these failures in terms of superior sourcing project management best practice checklists, project and sourcing life cycle phase deliverables, performance management, key metrics and governance. It concludes with a summary of critical success factors and lessons learned. Biography: Dr. Gad J. Selig is the Associate Dean for Business Development and Outreach and was formerly the Director, MS in Technology Management and Dual Graduate Business and Engineering Degree Programs at the University of Bridgeport. He teaches graduate courses in Business Strategy, Marketing (including Internet Marketing), Information Technology, Global Program and Project Management, Entrepreneurship and New Venture Creation, New Product Development and Commercialization, Strategic Sourcing and Outsourcing, Leadership, Managing Change and Innovation. He has authored three books and over 60 articles and conference proceedings. He is currently co-authoring his fourth book on Implementing Strategic Sourcing.. He earned degrees from City, Columbia, and Pace Universities in Economics, Engineering, and Business. He is a dynamic and popular speaker at industry conferences in the U.S. and abroad. Dr. Selig is also the Managing Partner and founder of GPS Group, Inc., a consulting, research and education firm that focuses on strategic marketing and growth, business and technology transformation, new product development/product management, IT strategy and governance, program/project management and strategic sourcing issues and opportunities. 1

2 Introduction With increased globalization and fiercer competition, it is almost impossible for an organization not to outsource. Almost every organization outsources; the only question really is how effectively and efficiently do they outsource? The answer to that question is largely determined by each organization s level of maturity, experience, pain points, executive commitment, dedicated organizational resources, process discipline and excellence (which includes sourcing and project life cycle management, sourcing strategy formulation, business case, vendor selection, project management, governance, transition management, relationship management and other relevant factors. Principles and Practices for Sourcing Excellence from a Customer Perspective Even with the increased sourcing initiatives in customer organizations, it appears that organizations continue to struggle with establishing and enforcing a more formal, consistent and repeatable outsourcing policy, process and methodology. According to the ITsqc at Carnegie Mellon University, Managing and meeting client expectations is a major challenge for service providers in these business relationships, and examples of failures abound. (Hefley and Locsche, 2006). They go on to summarize the key issues faced by customer organizations, which are also re-enforced and supplemented by the IAOP in their outsourcing body of knowledge: (IAOP, 2006). Both include reference to poor or inadequate project management skills and practices. Establishing an appropriate outsourcing strategy, business case and plan Identifying the appropriate outsourcing opportunities Developing appropriate approaches and techniques for outsourcing activities Identifying, selecting and negotiating a win-win deal service providers Managing service provider governance and performance management Managing the transition from the customer to the service provider as a project Managing the on-going relationship Managing the overall sourcing initiatives as a project with flexible discipline Based on an extensive review of the literature and select case studies, there are a number of best practice principles and practices that can represent a checklist for helping companies achieve improvements and higher levels of outsourcing maturity and effectiveness in their environments: Have a clear strategy and plan that supports the business: What are you expecting to achieve and what would success look like? At what cost? The clarity of purpose for both sides with defined roles and responsibilities. Establish key performance measures that are realistic and meaningful. Develop a sourcing initiative project plan with schedule, costs, resource and scope considerations. Empowerment - Let people do what they are suppose to do Hold them accountable, both on the service provider and customer side. Have an escalation policy and process with clear roles and responsibilities. 2

3 Periodic formal progress reviews and reports based on specific metrics and outcomes. For large initiatives, establish a high level outsourcing governance board for joint reviews Assign a service provider account relationship manager as a single point of contact/interface with the customer. Keep closer tabs on the relationship during first 90 days of a contract and make any necessary adjustments fast. Executive alignment and commitment to outsourcing that creates a favorable outsourcing culture within the organization. Create a well defined and realistic business case process. Establish a consistent and formal process for service provider selection, evaluation and contract negotiations. Develop an outsourcing transition plan from pilot to full implementation provision for either re-deployment or termination of displaced resources Build key performance indicators into the contract performance evaluation system with both rewards for extra-ordinary performance and penalties for poor performance. Make KPIs relevant, simple, comparable, easy to report and focused on measurable outcomes. Develop an outsourcing communication plan, risk management and mitigation plan, policy and process. Balance stakeholder needs companies that successfully outsource continuously take the pulse of all stakeholder groups to adjust their needs over time. Pursue stakeholder involvement on major outsourcing deals through governance boards, steering committees and working committees. Manage the expectations of all stakeholders well deliver what you promise; don t overpromise things you or the outsourcing service provider cannot deliver credibility is a fleeting attribute that if lost, is extremely difficult or almost impossible to regain. Experience matters governance groups can rapidly fill their experience deficit through subject matter expert coaching or outside consulting support. SLAs are not enough service-level agreements are extremely important and should be continuously refined and improved over the life of the contract. However, they must be augmented by other methods to ensure customer satisfaction (e.g. formal and/or informal surveys, listening to the Voice of the Customer, etc.). Develop disengagement options and conditions as part of the contract that includes renegotiations options. Make sure that a disaster prevention and recovery plan with contingencies is in place. Major Causes of Program/Project Failures and Challenges There are many reasons for program and project failures and challenges, which applies to sourcing initiatives as well. These include: Lack of or poor business case Lack of executive commitment, visibility and accountability Poorly defined requirements, scope, objectives and deliverables Poor communications Unrealistic expectations Limited constituent involvement and ownership Lack of or insufficient and the right kind of resources Lack of or poor integration within the organization and to other systems 3

4 No plan, no risk assessment and mitigation, no contingency plan alternatives Lack of measurable controls and metrics Ineffective implementation and transition strategy Underestimation of project complexity, costs and time Poor or unreliable vendor deliverables Lack of training for either the project team or those constituents impacted by the project Inflexible, limited or no project management process Poor use or over-reliance on the use of PM tools and software Incompetent project manager How Much Program and Project Management is Required for Sourcing Initiatives? Many organizations have been challenged by the question of, How much program and project management is required for sourcing initiatives? There is no simple answer to this question. The answer depends on many factors relating to the initiative such as: Degree of visibility and strategic value of the initiative Financial value (one time and recurring costs) Strategic (e.g. outsourcing an entire function or department with its assets) versus tactical (e.g. staff augmentation) sourcing Strategic value (e.g. core versus non-core) and visibility (who is executive sponsor) Complexity, scope and size Number of interfaces and integration requirements with other initiatives Degree of risk Speed of required implementation Senior management and PM s management style, philosophy and level of organizational PM maturity Number of organizations, departments, locations and resources involved Executive management and/or customer requirements Number of vendors to be managed Regulatory and compliance requirements Critical Success Factors and Lessons Learned In his book entitled, Implementing IT Governance A practical Guide to Global Best practices in IT Management, Gad Selig summarized the critical success factors and lessons learned for achieving sourcing program and project management excellence: (Selig, 2008) Create the right environment and culture: Obtain executive sponsorship, commitment and multi-level management buy-in. Obtain customer/other stakeholder/project team commitments and ownership. Success depends on creating a sustainable foundation (e.g. policy, process, metrics,) for managing programs and projects and integrating results and methodologies into the business. Define roles and get the right people involved in every program/project phase. Market and re-enforce (e.g. training, rewards, mentors, tools, flexible processes) the value and benefits of good PM practices. 4

5 Adopt a flexible and scalable PM process (phases, templates, repository, tools and tailor when required) to accommodate different program and project types based on current and emerging industry best practices. Develop program/project plans( based on a flexible and scalable process): Define the project s scope, objectives, requirements and deliverables. Establish well-defined phases/tasks, go/no go gates and milestones (break the job down into manageable work packages 80 hour rule) with realistic baselines (costs, time, resources and contingencies) based on short term incremental and visible deliverables. Define a responsibility assignment matrix (RACI). Establish formal change management and risk management processes. Ensure governance and excellent communications: Establish a governance, control, reporting and escalation policy and process. Identify, measure and track mandatory and discretionary vital signs, metrics, key issues and take necessary actions quickly knock obstacles out of the way. Establish frequent and open communications with stakeholders (both formal and informal review meetings) on a daily, weekly, monthly and quarterly basis depending on the project s importance and closeness to being implemented. Ensure accurate, timely and meaningful monitoring and progress reporting. Institutionalize a PM policy with flexible and scalable processes Create a Sourcing PMO and PM Centers of Excellence (e.g. advocacy center, help desk, education, training, subject matter expert help, process development, project tracking, certification requirements, etc.). Create a reward and/or recognition policy to re-enforce and sustain. Conduct formal program/project reviews. Develop and use consistent, but flexible and scalable PM processes and automated web based tools. Capture and apply lessons learned and focus on continuous improvement. Remember, the keys to success are managing the expectations of all constituents, delivering what you promise to maintain credibility, execute as flawlessly as possible and create value for the customer and organization through flexible discipline. References 1. Hefley, William E. and Locsche, Ethel A., The escm-cl v1.1: Model Overview, Part 1, ITSQC, Carnegie Mellon University, Hefley, William E. and Locsche, Ethel A., The escm-cl v1.1: Model Overview, Part 2, ITSQC, Carnegie Mellon University, International Association of Outsourcing Professionals, Outsourcing Professional Body of Knowledge, Version 6, IAOP, SELIG, Gad J., Implementing IT Governance A Practical Guide to Global Best Practices in IT Management, Van Haren Publishing, the Netherlands,

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