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TO FIND OUT WHY, HOW AND WHAT TO EXPECT WHEN HIRING OUTSOURCING SERVICE PROVIDERS, ASK THE CONSULTANTS THEMSELVES.

BY NATALIE BAUER

Companies often set even higher standards for consultants and trainers than they expect from themselves. Speed, efficiency, cost effectiveness, quality control, flexibility and overall outstanding results are expected in today's competitive outsourcing market.

At the front end, companies must recognize their specific needs—or deficiencies—before searching for a service provider to ensure a best-fit match. For example, in early 2000, Rhodia ChiRex, a Boston, Mass., USA-based drug development company, had little internal experience with project management, according to ChiRex Project Manager Carol Sherako. One of the four-year-old company's sites had only one director who oversaw 16 chemists.

That ratio, Sherako says, resulted in poorly defined roles and responsibilities and an ineffective use of employee talents. Chemists found themselves immersed in scientific development with little project management support.

After forming an internal committee to assess its problems, Rhodia ChiRex formalized procedural practices. With no internal resources, this process illuminated the need for a specialized consultant who could provide outsourced project management.

Once a company determines its own internal needs, the next step is finding the right outsourcing solution, and that begins with interviewing.

Screening for Gold

The interviewing process is crucial to finding the right fit for a company's culture. While screening methods vary across industries, most hiring personnel say the process should mirror the environment in which a project will be conducted—as a team.

When Jeanne Dorle, PMP, sought outside help in developing a program support office for West Group, an Eagan, Minn., USA-based publishing firm, she recruited several of her internal team members to sit in on interviews, giving her a healthy supply of feedback. “[When hiring a consultant], you try not to go it alone,” she says. “It would give me a chance to sit back a bit and be a more active listener than actually leading the interview, and I found it a more natural environment to see how people respond.”

Such “real-life” interview sessions require potential consultants to make short presentations showing how they would involve internal team members in the learning process, says Dorle, now an assistant professor at Western Carolina University's project management program. “We certainly saw significant differences,” she says. “We would ask the kinds of questions that we knew our least supportive staff would be asking, and it gave us a chance to see how [potential consultants] would respond. It was just another set of information, but it often made a really big difference and gave us more confidence in the final decision.”

The kinds of questions asked during the initial interview process can be the key to a successful hire, according to Dorle. While it's inevitably important to understand a potential outsourced consultant's previous successes, some say it's even more critical to ask what went wrong in a faltering project.

Companies should be wary of a potential consultant who refuses to take responsibility for a project's collapse, says Frank Winters, an independent outsourced consultant who has worked for BearingPoint (formerly KPMG), Logica, Tanning Technology Corp. and Cap Gemini. “If consultants won't talk at all about any difficulties they've had in the past, I think that's a negative, too,” he says.

Winters warns, however, that front-end interviews might not show companies what they'll actually receive. Service providers sometimes send out one team for the presentation and another for the first day of work, he says. “It's important to know the company you're hiring,” he says. “But it's more important to know the people you're dealing with.”

Inking the Deal

A strong contract detailing all the ifs, ands and buts will ensure that both consultant and client follow the best path at those crucial moments. A detail-oriented scope of service is essential to upfront mutual clarity. “Without agreed metrics, it is difficult to avoid trouble when something is going wrong,” says Ralf Friedrich, chief executive officer of GeProS, Dieburg, Germany. After encountering several successive botched projects due to vaguely defined contracts, Friedrich and his team created a detailed checklist of “contract must-haves” to avoid similar project shutdowns, including a measurement system that assesses a consultant's performance.

Period of service, payment type and schedules also should be nailed down early in the negotiating process. Philip A. Granek, managing director of Project Solutions International (PSI), Bangkok, Thailand, recommends using the scope of work as a basis for final price negotiations. Companies can pay according to a consultant's hourly work, on a monthly flat fee, on a retainer plus an incentive, based on a schedule of deliverables or in one lump sum—all which depend on what is determined in black and white. However, consultants should be wary of payment clauses that depend on third parties, where the client pays the consultant through a mediator, Granek says.

THE SHORT LIST

BY LUANNE SPIROS, PMP

Outsourcing is here to stay: 20 percent of small/midsize businesses’ budgets are spent on IT outsourcing, and $1 out of $7 is spent on outsourcing, according to The Outsourcing Institute, Jericho, N.Y., USA. Following these tips will ensure your money is well-spent:

  • Start small. Initially outsource your bottlenecks and not your mission critical systems. Let your service provider prove itself via short-term, three- to four-year contracts.
  • Optimize your processes internally first. Identify your existing bottlenecks and landmines; optimize the 20 percent that creates 80 percent of unnecessary costs.
  • Know your target. Within your contract, clearly define the objectives, roles and responsibilities, and how vendor performance will be managed. However, don't define all processes the provider should follow.
  • Cap your costs. Clearly defined statements of work and caps will help control the predictability of time and material costs.
  • Expect to manage the relationship. You will spend seven percent of the contract cost on dealing with technical and contractual communication.
  • Remember “mitigating litigating.” When outsourcing, the average company spends the equivalent of 15 percent of its IT budget on litigation, according to Tom DeMarco, fellow with advisory group Cutter Consortium, Arlington, Mass., USA. Calculate risks and have a contingency.
  • Expect life to change, so be ready to account for revisions based on the “new” marketplace or business strategy. The average contract has initial terms of seven years with an average contract life of 14 years.
  • Measure, measure, measure. External providers are bound by contract and, more importantly, have committed to a level of service.
  • Extend your reach. Despite an economic downturn, IT spending still is the single largest capital expenditure in organizations, and a big chunk often comes from networking.
  • Know your vendor. Check references, monitor your service provider's financial stability and benchmark. Keep vendor discussions confidential: Disclosure forfeits leverage.
  • Plan your escape route. Appropriate termination-for-cause and termination-for-convenience clauses may lessen the pain of departure. Complete a business impact analysis before you exit and have a contingency.
  • Treat the provider as part of your company. Demand excellence, arbitrate and mediate regularly (and do so before landmines erupt), plan for contract revisions and involve senior executives from both sides early on.

Luanne Spiros, PMP, has 10 years IT project and vendor management experience. She is the current vice president of certification for the PMI Chicagoland Chapter.

A solid contract also must consider pitfalls in a disputes clause in case the work isn't done appropriately—or at all. Equitable termination and penalties-and-incentives clauses provide consultants and clients “emergency exit” procedures. Beware of inequitable clauses, says Granek. Consultants should look to avoid clauses that allow clients to terminate the contract with little or no notice or compensation.

Contracts also should include termination time frames. Most commonly, solid contracts allow for canceling the service within two weeks of the official agreement. Juergen Flemming, a Frankfurt, Germany-based consultant, expands this clause in most of his contracts to allow for the contract's cancellation within two weeks at any time. “This raises some risk for the consultant, as well as for the company,” he says. “But my experience has been that when we have problems, it is time to get out of business with that (company) anyway.”

Chemistry Counts

After a company selects an outsourcer, the inclination is to sit back and wait for results. However, relationship management is part of any successful partnership. Companies should protect themselves with escape clauses and start a consulting relationship slowly. For example, when The Hartford, a Hartford, Conn., USA-based insurance company, consolidated its operations in 2001, Winters helped the firm's IT department centralize functions. “The fact that our chemistry was good just on a personal basis was a key factor,” he says. “That's probably why I was hired and why I continued with several projects.”

Moving onto a separate consultation with the customer service department yielded drastically different results. After one month of trying to iron out personal differences, Winters and the managers called it quits. “We decided that it just wasn't working,” he says. “We just didn't work at the same levels. If it's not working in the beginning, it's probably not going to work at all.”

Planning's Impact

Companies also should consider a potential service provider's emphasis on the project planning phase. Organizations and consultants alike sometimes complain that projects fail because its participants too frequently get mired in the details, overlooking a project's ultimate objective. “It is important to understand the ‘as is’ environment and the ‘to be’ environment,” says Tonya Bowers, an EDS consultant with the $8.9 billion Navy-Marine Corps Internet program, the largest IT order ever slated by a government agency. “But you also need to know how to get from here to there, making sure you've got all the information you need.”

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Consultants should be wary of payment clauses that depend on third parties, where the client pays the consultant through a mediator.

PHILIP A. GRANEK,
MANAGING DIRECTOR, PROJECT SOLUTIONS INTERNATIONAL,
BANGKOK, THAILA

Independent consultant Michael Cooper saw firsthand how a project's “minor” issues can obstruct its larger objective. Hired by a U.S.-based telecommunications company, Cooper and his 15-member team worked on a $4 million contract to update its servers and databases to build interactive television systems. About halfway into the project, some of Cooper's team members felt the company wasn't willing to fund the project appropriately and began to forecast the project as a failure. “The customer thought we were going to walk away, and we thought they were going to kick us out,” he says.

Cooper asked his staff to list their qualms. After filling a white board full of 29 complaints, Cooper labeled 27 of them as resolvable, including an unclear travel-expense policy and ill-defined tax regulation guidelines that differed from state to state. “The project had gotten slightly off kilter,” he says. “These minor issues were there in the [initial] planning process, but it wasn't clear later on what the real plan was going to be.”

For three days, Cooper's team and the internal staffers sat down and replanned the rest of the project, ironed out their differences, and both accepted liability for some of the problems that arose before this reiteration of the project's ramifications.

Testing the Waters

Pilot outsourced programs, which are important to incorporate early in a project, allow companies to get short-term, first-hand experience that illustrates whether a consultant and client can cooperate for the long haul. Where “soft skills” take precedence, pilot projects allow unsuitably matched clients and consultants to cut their losses early.

Using a three-month drug development assignment as a pilot program, the Rhodia ChiRex team learned important lessons while completing a pilot project's risk assessment. “We found that the proposal was not adequately written to allow for successful completion of our projects,” Sherako says. “We learned a great deal by incorporating a comprehensive standard operating procedure to arrive at a shared understanding of our work scope.”

In three months, the Rhodia ChiRex team effectively had communicated the problem to the customer, redefined the project's goals and met an acceptable timeline—all while coming in under budget. This positive outsourcing experience paved the way for future cooperation. PM

Natalie Bauer is a Chicago, Ill., USA-based writer and assistant editor for PM Network.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI.

PM NETWORK | MARCH 2003 | www.pmi.org

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