We want our knowledge back: Insourcing PMO and demand services
Maria Cristina Barbero, MBA, PMI-ACP, PMP
After years characterized by an apparently irreversible trend to outsourcing several and mostly all types of both business and IT services, we are now observing a process of insourcing them. Insourcing is the cessation by a company of contracting a business function and the commencement of performing it internally: it is a business decision that is often made to maintain control of critical production or competencies.
This paper intends to consider the implications that insourcing decisions have for the organization and the challenges that employees must face to be able to take back roles and responsibilities they before abandoned, as well as transfer the knowledge they passed to the outsourcer, which most of the time got lost. In particular, the paper intends to analyze a real situation of the IT Directorate of an Italian player in the TELCO industry that decided last year to reduce the scope of IT PMO and Demand Services they used to buy from consulting companies and replace these external professionals with internal employees gathered from other units of the IT organization.
When some parts of either the production or the governance processes are assigned to an external supplier or partner, internal employees inevitably lose knowledge that is transferred outside the organization becoming a valuable asset for the external player or vendor. Going in depth into our real case, the author wishes to share the experience she had on how the organization — supported by the right consultants — could implement a transfer of knowledge that took back to internal employees the ability to run PMO activities and serve IT Directorate with Demand services: 75 external consultants left and were replaced by 75 internal employees over a population of 300 people in the unit
The paper presents (1) an introduction to the general concepts of outsourcing and the actual trend to insourcing with a special focus on project management and demand services; (2) the life cycle of knowledge management that inspired the stages of the operation; (3) the technique of building blocks of knowledge and their associated levels and mapping on this system the target knowledge to transfer (4) the system of metrics we built and how we decided to measure the success of the whole endeavor.
Company and Author Presentation
Nexen Business Consultants has been listed in Project Management Institute’s Consultant Registry since 2011.
Nexen Business Consultants is the consulting company of Engineering (www.eng.it). Engineering owns 100% of Nexen.
Engineering is a 7,500-employee Italian company with €800 million in revenue. It is organized into directorates that serve different industries. Within Engineering, the competences Nexen grows and takes care of include: (a) strategy and financial advisory; (b) enterprise governance and risk management frameworks and accounting systems; (c) business process management and reengineering; (d) project management and change management; and (e) IT governance and strategy. Nexen is internally organized by competence, and each competence business unit is led by a director who coordinates his or her team’s efforts with other business units to best serve customers. Over the last seven years, focusing on change and project management competences, Nexen has built a 25-person team specializing in the project management discipline that offers its customers different kinds of services: (a) project management office (PMO) teams supporting projects—traditional and agile; (b) PMO teams supporting divisions or directorates—traditional; (c) virtual PMO and project manager communities; (d) enterprise project portfolios initialization and management; (e) certified project managers; (f) consulting services in project and program management and in organizational project management; (g) training services and preparation for the Project Management Professional (PMP)® credential and the PMI Agile Certified Practitioner (PMI-ACP)® certification.
Part I: Outsourcing/Insourcing and the Problem of Knowledge
This first section is dedicated to research done on outsourcing management and its trends. This part is initially intentionally generic on any kind of outsourcing — outsourcing, insourcing, resourcing, offshoring, nearshoring — and becomes more specific at the end where outsourcing of project management and demand services is introduced together with some theoretical considerations on knowledge transfer and management in connection with different kinds of sourcing.
I1: Origins of outsourcing
“It is maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy...What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry employed in a way in which we have some advantage.” — Adam Smith, The Wealth of Nations, 1776
The work of the future will be atomized, with many workers doing pieces of what is today a single job. The Big Idea — The Age of Hyperspecialization, HBR July–August 2011- Thomas W. Malone, Robert J. Laubacher, and Tammy Johns
Adam Smith’s Wealth of Nations, published in 1776, famously described what would be one of the central drivers of economic progress for centuries to come: the division of labor. Much of the prosperity our world now enjoys comes from the productivity gains of dividing work into ever smaller tasks performed by ever more specialized workers. Today, thanks to the rise of knowledge work and communications technology, this subdivision of labor has advanced to a point where the next difference in degree will constitute a difference in kind. We are entering an era of hyperspecialization — a very different, and not yet widely understood, world of work.
The term “hyperspecialization” is not synonymous with outsourcing work to other companies or distributing it to other places (as in offshoring), although it is facilitated by the same technologies. Rather, it means breaking work previously done by one person into more-specialized pieces done by several people. Whether or not those pieces are outsourced or distributed, their separation often leads to improvements in quality, speed, and cost.
Outsourcing, good or bad, is one of the effects of Smith’s theories.
I2: Outsourcing Management
Outsourcing Professional Body of Knowledge (OPBOK®) – Second Edition, compiled by IAOP - International Association of OutsourcingProfessionals® (www.iaop.org) represents a cohesive and comprehensive outline of the generally recognized good practices and skills required to ensure sourcing success and reflect continually evolving knowledge. The OPBOK provides full guidance on the critical ‘make or break’ factors in any outsourcing program, including governance and defining a strategic approach to outsourcing; identifying and communicating business requirements; selecting and qualifying providers; gaining internal buy-in, creating project teams; and value assessment (value for money and return on investment). It is the foundation for IAOP’s professional certification programs, the Certified Outsourcing Professional® (COP®) and the Associate Certified Outsourcing Professional (aCOP).
The OPBOK® provides the definition of outsourcing as follows:
Outsourcing is a long-term, results-oriented business relationship with a specialized services provider. The services contracted for (including manufacturing services) may encompass a single activity, a set of activities, or an entire end-to-end business process. In most cases, and especially for larger organizations, what’s being outsourced was previously performed by the customer organization for itself and is being transferred to the provider. In other cases, however, these may be activities the customer organization never performed for itself.
The use of the term, ‘long-term’ does not necessarily imply a contract of a fixed length. Although many outsourcing contracts are 5, 10, or even 15 years in duration, others can be cancelled on 30-day notice. What long-term means is that it is the customer’s intention to essentially ‘divest’ itself of the capacity to perform the work itself, choosing instead (some might say choosing strategically) to acquire the services in the future from the marketplace of available providers. The term ‘results-oriented’ carries specific meaning, as well. It suggests that the service provider is assuming responsibility for the people, processes, and technologies employed along with responsibility for ensuring that those resources deliver the results for which the customer has contracted. Responsibility for the results, not just for the resources, is what differentiates outsourcing from more narrow and more traditional supplier, supplemental staffing, and task level contracting. (OPBOK, 2014, p. 10)
There is a continuum of outside relationships common to the operations of most businesses, ranging from the traditional procurement of specific resources to highly collaborative relationships, such as strategic alliances and joint ventures.
Exhibit 1 – Continuum of business relationships.
Most outsourcing relationships sit in the middle of this continuum. The provider owns most of the people, processes, and technologies needed to do the work and takes on many of the risks associated with achieving the customer’s operational outcomes. In other cases, however, the business relationship may, at its core, be an outsourcing relationship — that is a long-term contract for services — but have elements that reflect aspects of relationships on either side of the continuum. Where a particular relationship should exist on this continuum depends on various factors, including long-term and short-term expected benefits. For certain offshore related outsourcing activities there may be additional factors such as product and brand positioning in the marketplace and economic and political advantages/disadvantages from the relationship.
I3: Outsourcing Trends
The following are some specific trends for processes and activities outsourcing.
With cost advantages from manufacturing in Asia and Mexico steadily deteriorating, U.S. firms are reassessing the option of domestic outsourcing to remain globally competitive. Domestic outsourcing is a fast-emerging strategy among U.S. firms. It involves a company relocating primary and support activities to America that were previously performed outside the country in pursuit of competitive advantage. Alternatively called ‘insourcing’ or ‘reshoring,’ domestic outsourcing occurs when an activity is returned to the United States and is performed by the company internally, when it is shifted to a domestic partner through a strategic alliance, or when it is contracted out to a domestic supplier. However, the firm’s intention is always the same: to establish a long-term basis for improving company operation by performing a key business activity in the U.S. (John A. Pearce II)
The challenge in evaluating international versus domestic outsourcing strategic options lies in that first-movers are extremely and intentionally vague about how they reach their decisions. John A. Pearce II reveals these reasons by providing statistical and firm-based evidence on five major factors that are influencing the decision regarding where U.S. companies should manufacture to optimize their gross profits. The factors include (1) increasingly competitive U.S. labor costs; (2) increasing productivity of the U.S. workforce; (3) increasingly competitive domestic production costs; (4) incentives from federal, state, and local governments; and (5) improved synchronization of production with other business functions.
Insourcing is the cessation by a company of contracting a business function and the commencement of performing it internally. Insourcing is the opposite of outsourcing. Insourcing is a business decision that is often made to maintain control of critical production or competencies.
Insourcing is also defined as bringing a third party outsourcer to work inside a company’s facility. For example, an IT outsourcing provider may be hired to service a company’s IT department while working inside the company’s facilities. In addition to contracting an entire team of workers from an outsourcing provider, outside experts are sometimes hired as consultants (to improve certain processes, etc.) and the internal staff thereafter implements their recommendations.
Reshored IT services are on the rise, but your company might be best served by “rightsourcing” — using a combination of insourcing and outsourcing based on your needs.
Sometimes companies seem to prefer outsourcing versus insourcing and vice versa. That should not be the way, because most companies need to get both the right combination of the best talent and most-cost-effective IT and business services. The best sourcing strategies treat outsourcing and insourcing as complementary, not competitive, and leverage onsite, onshore, offshore, and nearshore options all in the same model. This is called a global services model, and reshoring is an inevitable outcome of a global services strategy.
I4: Project Management Services Outsourcing
With many layoffs looming on the horizon, even the larger corporations cannot always afford to maintain full project management staffs. Outsourcing is often the solution for companies when it comes to various management needs.
“When the move is made to outsource project management, Mr. Bovet cautions in-house project managers to ensure that the appropriate internal links are established early with the external consultant leading the effort. “There’s huge leveraging that’s possible,” he says. “The consultant can put in 10 times the man hours more than the company, but the client has to put in the commensurate time to really get results.” A bridge or link between the outside provider and enterprise guides the company in its own project management competency and enhances other competencies.” (Jedd)
Positive facts that can drive companies to outsource project management services are:
- Outsourced project managers look at planning, controlling, scheduling, and tracking with fresh eyes
- Consultants help ensure best practices are followed. If you work closely with the provider, the overall outcome and ROI often is better than if the project was kept in-house.
- Companies can hit the ground running with productivity gains: Project management practitioners will do sector-specific research and will be conversant in the latest thinking.
- Clients can focus on core competencies
- You can become better prepared for dealing with similar projects in the future.
Facts and thoughts that can drive to keep in-house project management services are:
- Senior management must have buy-in
- If you don’t work the relationship properly, you may never develop the project management skills you need in-house
- You don’t own the resources. For instance, without an investment in resources from the human resource perspective, people can walk away
- Money is burned quickly when there are misunderstandings or poor management at the start of the project
- The risk of compromising sensitive company information can be high, depending on the nature of project
I5: Forms of Outsourcing
Businesses outsource for different business reasons. The following terms are applied in short to explain the principal reason behind outsourcing:
- Tactical outsourcing is when a business outsources to achieve a single objective (generally cost savings) and the transaction stands on its own merit.
- Transitional outsourcing is when a business outsources in order to migrate from the current business process environment to a new one and expects the outsourcer to support the existing business process until it is no longer required. This is often used in the information technology area when replacing an existing application environment with a new one.
- Transformational outsourcing is to take advantage of innovation and new business models. Transformational outsourcing is approached as a way to fundamentally reposition the organization in its markets. The term Business Transformational Outsourcing is also used to combine this idea with that of Business Process Outsourcing.
I6: The Problem of Knowledge with Outsourcing and Insourcing
A key success factor for outsourcing is the provider’s ability to manage knowledge — acquire what is necessary from the customer, augment with experience and expertise, and eventually share it with the customer. Experience has shown that a disciplined knowledge management process in place makes the relationship successful in the short and long term.
When we talk about insourcing, the original problem of managing knowledge and transferring it from the company that outsources to the provider assumes a different perspective. It becomes the problem of taking back the knowledge from the provider to the company that intends to host and manage in-house and again independently its processes.
The International Association of Outsourcing Professionals® defines knowledge management as follows:
Knowledge management is the explicit and systematic management of vital knowledge – and its associated processes of creation, organization, diffusion, use and exploitation. Thus, knowledge management (KM) comprises a range of strategies and practices used in an organization to identify, create, represent, distribute, and enable adoption of insights and experiences. Such insights and experiences comprise knowledge, either (a) embodied in individuals or (b) embedded in organizational processes or practice. (OPBOK)
A typical life cycle of knowledge management is shown in Exhibit 2 and it also shows the phases of the outsourcing life cycle where it is invoked and used. In order to establish an effective knowledge management process, the current state must be assessed and an action plan developed to reach the state where knowledge management can be effectively implemented.
The assessment elements are organizational, process, and technology.
- Champion for knowledge management
- Detailed and effective communication throughout
- Subject matter expert appointments and ownership of responsibility
- Definition of knowledge elements
- Identification and documentation of collaborative process for identifying, capturing, and maintaining knowledge
- Established measurements for knowledge elements – may be more than SLAs
- Repository for information
- Knowledge capture tools
- Knowledge utilization tools
Exhibit 2 – Typical life cycle of knowledge management.
When we consider insourcing we can consider the same assessment elements and inflect them for the process of taking back the knowledge to the outsourcing company.
Part II: Lessons Learned from a Real Case
This second part is dedicated to a real case and to what we experienced and are experiencing about a phenomenon of insourcing of some project management and demand services for a large IT services company in the telecommunications industry.
II1: The Case
The situation is described throughout the following points.
Background – The case is located in an IT services 4,000-employee Italian company. This company serves a large telecommunications operator and offers this operator traditional Operations Management and Application Management services. A contract regulates business operations between the operator and the IT company; in the IT company, there is a so called Demand Directorate where 300 people are engaged. Of them, 200 are internal employees and 100 are external consultants. The Demand Directorate is in charge of both Demand Management activities and project management services.
Organization – As shown in Exhibit 3, the mission of the Demand Directorate is to act interfacing on one side the operator Business Units where requirements are elicited and collected and on the other the typical IT Directorate where applications are managed and developed.
Mission of the Demand Directorate – Inside the Demand Directorate, Demand Managers are in charge for supporting Business Units in eliciting and collecting business needs and applications new requirements, developing Business Cases, and evaluating realization costs for both system enhancements and new applications. They involve the Application Management Directorate to evaluate scope time and cost of these interventions, prioritize them, analyze internal capacity, and communicate realization plans to Business Units. During the execution phase of projects Demand Managers offers PMO services to the Application Management Directorate and report to the operator Business Units status of projects and activities.
Exhibit 3 – Organization and mission.
Insourcing – Due to a general trend of European companies to avoid use of external continuous consulting services and trying to exploit internal competences and abilities, the operator gave direction to the IT Company to internalize demand and project management services. The most relevant benefit of this decision is expected to be the preservation of the internal workforce in accordance with the attempt of avoiding any kind of layoff. Insourcing concerned the 100 external consultants and their activities. The goal was to replace 75 of the 100 external consultants with 75 internal employees converting their role from technical traditional role in the IT sector to a demand manager and PMO role. Time available for the operation was a 6-month timeframe.
Our role as consultants – We were hired to lead the insourcing operation and to consolidate the change after the cut-off date. We:
- conceived the operation;
- analyzed the process steps involved by the decision;
- analyzed the knowledge to transfer;
- planned the actions needed to transfer the knowledge;
- planned stakeholder management activities;
- planned communications management activities; and
- defined metrics to measure success
In the following section we focus on the most challenging step of this work, which was transferring the knowledge the 75 external consultants accumulated along the last ten years of presence at the IT Company premises to the 75 internal employees moved from different operational areas of the IT Company; neither was used to that kind of job or familiar with Demand Directorate culture and habits.
II2: Breaking Down the Knowledge and Transferring It
In accordance with what we stated in Exhibit 2, we shaped the life cycle of knowledge management and transfer into three stages.
Exhibit 4 – Macro plan.
- Stage 1 - Identification and creation of knowledge blocks — operation stage before transferring
- Stage 2 - Collection, classification, organization of knowledge — operation stage before transferring
- Stage 3 - Share, dissemination, use, exploit — operation stage after transferring
In Stage 1 we analyzed two main roles covered by external consultants:
- Demand Manager
For both the Demand Manager and PMO we defined six blocks of knowledge and three levels of performance for each block. The following is the list of the six blocks of knowledge for Demand Managers
A. Management of the relationships with Business Units (the operator side)
B. Management of the relationship with Application Management Directorate (the internal side)
C. Business Analysis: tools and techniques for requirement management (theory, culture and terminology, internal processes, internal tools, habits)
D. Contract Management: KPI/KPO definition
E. Project Management: tools and techniques on scope-time-cost-risk (theory, culture, and terminology, internal processes, internal tools, habits)
F. Application Areas knowledge
Following is the list of the six blocks of knowledge for the PMO:
A. Management of the relationships with IT suppliers (the external side of their relationships)
B. Management of the relationship with Demand Managers and Application Management Directorate (the internal side of their relationships)
C. Contract and Procurement Management + KPI/KPO as management tools (theory, culture and terminology, internal processes, internal tools, habits)
D. Project Management: scope-time-cost-quality (theory, culture and terminology, internal processes, internal tools, habits)
E. Project Management: risk management + agile project management (theory, culture and terminology, internal processes, internal tools, habits)
F. Project Management tools: MS Project and Artemis
In Stage 2 we conducted interviews with the Demand Directorate Managers to discover the required level of performance for each block for people we called champions (red line in Exhibit 5 where we present the spider for Demand Managers), and we defined two target configurations of block levels we called senior demand manager and demand manager (we did the same with the PMO role with the support of a parallel spider)
Exhibit 5 – Configuration of blocks and levels for Demand Manager.
In addition, always at Stage 2, we defined:
- tools and training actions to move from one level of a block to the next level of the same block
- metrics to check when a person reaches a specific level of every specific block
- evaluations for managers, to advise them whether the next level could still been reached or not
About tools and training actions the following is a list from OPBOK®, which supported our decision (the ones we worked on are in bold in the list):
- Rewards (as a means of motivating for knowledge sharing)
- Storytelling (as a means of transferring tacit knowledge)
- Cross-project learning
- After action reviews (lessons learned)
- Knowledge mapping (a map of knowledge repositories within a company accessible by all)
- Communities of practice (“birds of a feather” environment)
- Expert directories (subject matter experts)
- Best practice transfer
- Competence management (systematic evaluation and planning of competences of individual organization members)
- Proximity and architecture (the physical situation of employees can be either conducive or obstructive to knowledge sharing)
- Master-apprentice relationship
- Collaborative technologies (groupware, etc.)
- Knowledge repositories (databases, bookmarking engines, etc.)
- Measuring and reporting intellectual capital (a way of making explicit knowledge for companies)
- Knowledge brokers (some organizational members take on responsibility for a specific “field” and act as first reference on whom to talk about a specific subject)
- Social software (wikis, social bookmarking, blogs, etc.)
Stage 3 is dedicated to the execution of tasks and use of tools we planned to execute and use as well as to the continuous measurement of competence (competence management) until all people reach the planned level for each block.
II3: The Assessment of Knowledge
When dealing with “knowledge workers” (that was our case), the tools to adopt to assess the achievement of specific levels of knowledge must be thought and designed accordingly. In our case we needed a way to:
- verify the initial level of knowledge of each employee relative to every block of knowledge listed in the two spiders
- verify intermediate levels reached after specific actions during stage 3
- re-verify when needed
We opted for what we called an instructor-led-and-champions-aided self-assessment where consultants prepared some questions – both open and close ones – which were “covering the knowledge” to be measured. These questions – not exactly questions only, but also themes to judge and to take position on – were proposed to groups of employees in three-hour sessions and each of them had to assess himself or herself against every question after an effort of champions to explain “what’s” and instructors to explain “how’s.”
This empirical method thought to “measure” the reached levels of knowledge brought back to the project team a couple of great benefits: first it allowed getting new ideas and suggestions by simply observing these groups of employees and listening to their comments on questions and themes, and second, it pushed the consultants to build and leave in the hands of the customer a “map” — or better yet, a “list of contents” — of the knowledge at a deeper level of detail.
Extraordinarily useful was the participation of champions: they relieved participants from any barrier the instructor could have caused.
II4: Overall Benefits
For the IT Company and the Demand Directorate
The main benefit for the IT Company was the achievement of the goal of freeing 75 external consultants and engaging 75 internal employees. This goal could have been achieved simply by substituting “one external consultant” with “one internal employee,” which was the initial idea, but this way they would have been out of control: in fact, external consultants are led at least by a contract; internal employees would have been all without a guide to follow.
Deciding to plan, execute, and coordinate the transfer of knowledge as they did, the IT Company could measure the intellectual capital it is managing every day and level the knowledge among the whole 300 people (at least the part of them that is dedicated to demand services and the PMO). Besides, it built a team more than a “group of employees” and could push collaboration, spontaneous knowledge sharing, attention to global improvement of the whole Directorate, and a general sense of responsibility.
For the 75 Employees
They could enter the new organization unit knowing what the company was expected from them, with a career path in mind, and the right tools and skills they needed.
The paper states the possibility of transferring among high profile knowledge workers the knowledge required for Demand Managers and PMO services in a relatively short time for a significant number of people. It demonstrates that taking back the knowledge previously left to external consultants is an effort that, when well led, can produce results.
The paper also states that behind the problem of replacing an important slice of the workforce in the Directorate, the opportunity of measuring and reporting intellectual capital as a way of making explicit knowledge was captured together with another big opportunity for the HR department to obtain clear career paths for the just moved employees.
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© 2014, Maria Cristina Barbero, MBA, PMI-ACP, PMP
Originally published as a part of the 2014 PMI Global Congress Proceedings – Phoenix, Arizona, USA