The sellers dilemma in an outsourced environment

Whenever people speak about ”challenges in outsourcing”, they generally look at things from the buyer’s perspective only, ignoring the seller’s perspective completely. Being from India, the outsourcing hub of the world, and after spending almost three decades in I.T industry as a programmer, consultant, manager and business owner, I have been hearing, solving or living with these challenges most of the time. I strongly agree with the statement ”Projects fail at the beginning, not at the end”. By confronting these challenges during the planning stage itself (project manager takes control only at the planning stage), the probability of success of projects can be improved. Here are some of the key challenges one has to address collectively (both the buyer and the seller) especially for outsourced / off-shored projects;

  1. Selection of a wrong contract type – How true PMI is, when they say ”Project’s fail at the beginning, not at the end”. Very often the pre-sales team, without much awareness of the customer’s awareness level of the scope of work, and the kind of technology being used, recommend a fixed price contract along with a waterfall model to a customer who is not very clear about his requirements (high volatility) and the technology is very new to the team and customer. Not much thought is given to the contract type and the development life cycle. Once fallen into this trap, it is very difficult to recover, unless someone shows the grit to admit this problem as early as possible and correct it.
  2. Wrong estimation by the pre-sales team – The project manager comes into the picture after the organization has bagged the order from the client. By that time, the end date of the project, the contract type and the major milestone dates are already finalized by someone, and is imposed to the project manager. Now the project manager is bound to abide by these constraints. If a WBS (work breakdown structure) based estimates are not available during the planning stage, the project manager must initiate a WBS based estimate. At the end of it, one may realize that either the estimates imposed on to the PM by the pre-sales team or the WBS based estimates are correct. If there is a mismatch between these two estimates, it has to be confronted, and the right one must take precedence over the wrong one. No project management methodology will help us to recover from a wrong estimate which is on the lower side :-).
  3. PM being accountable for profitability – Most of the services organizations make the project managers believe that they are accountable for the profitability of the project. This is terribly wrong. For all fixed price contracts, Price = Engineering cost + Margin. As a project manager, ones responsibility ends with engineering cost. If the engineering cost is lower than the quoted price, the project will make a profit, else it will end up in a loss. As a project manager, if one has completed the project within the ”agreed upon cost”, then he is successful.
  4. The project management methodology is also dictated by the client – Very often, the customer chooses the project management methodology as well. If the client is from USA, most probably they will ask for either PMI based or Agile. If the client is from UK, their preference will be either PRINCE2 or Agile. For the rest it could be anything, with a bias towards ad-hoc project management. That means, I want absolute freedom to indiscipline. I will tell you what to do, before I go to bed, and when I wake up, I want to see it.
  5. Tailoring the processes for better control than collaboration.
  6. Forget about co-location, most of the product owners have not even seen all their project team members even once.
  7. Intellectually obedient crowd– Most of the outsourcing destinations are English speaking and the reason for this was colonies. The hangover continues still. The only way out of this is co-location of all the team members including the product owner (customer’s representative) at least during the early stages of the project, and the celebrations of the early milestones.
  8. The blind, leading the blind – Very often we hear things like, we are following SCRUM, but….(scum buts). We are following scrum, but a tailored version of SCRUM, and the tailoring has removed the pillars. This is not uncommon. Both the customer and the supplier do not understand the method completely, and the supplier is willing to listen to the customer in the name of customer satisfaction.
  9. Lack of respect for time – In most of the outsourcing destinations, working overtime without additional pay is the norm. Most of these organizations have time accounting systems which captures the time utilization of the team members on a daily basis. Irrespective of whether one has worked for 6 hours / day or 14 hours/day, what is captured is only 8 hours/day. In the longer run, this affects the physical fitness and the morale of the team.
  10. Everyone talks like a CEO – Every one is wrongly mentored to talk about cost and profitability only. No one is talking about project strategy, execution, engineering cost..May be an offshoot of the fixed price contract type. In the process the focus on scope and time gets a back seat. Encourages the sellers to cut corners to make profit, even if it is to the discomfort of the project manager. Here, a project manager who is ‘flexible’ scores over the project manager, who is ‘right’. This can be avoided by ‘demonstrable product increments’ linked payments based on time and material with a cap. The contract type can be a combination of T&M and fixed price as well. Till one gets a hang of the technology and scope it should be T&M, and the rest could be fixed price.
  11. Lack of understanding of the business case – Very often, the team, including the project manager is not aware of the business case of the project (Why the customer is doing it?, What is the impact of the project on the customer’s business?). This deprives the team of the opportunity to look at the project from the customer’s perspective, and for each and every change/suggestion the contractual terms gets precedence over the value of the change to the customer’s business, leading to frustrations building up at both ends. By understanding the business case and by sharing it with the team, the project manager can change the perspective of the team from ”Carrying stones” to “Building cathedrals”.
  12. Country club manager’s outlook – Very often I have to drive this point hard to the Indian project manager. Professional project management is all about doing the right things for the success of the project, than doing the nice things to please people. Majority of the project manager’s from the outsourcing hubs are inclined to please people than doing the right things for the success of the project. They are unable to say ‘No” ‘to anything. Even when they disagree, they say ”Yes”, and if you mistake it for a real ”Yes”, you are in trouble. The new generation in these countries have changed a lot, and do have own views about things, both engineering and managerial, and about the whole world itself. That is a welcoming change. Unfortunately they are oppressed by the manager’s who belong to the previous generation, who are still aligned to ”pleasing people than doing the right things”.
  13. Cultural differences – In India, the focus is always on protecting the weak, and very often it happens at the cost of the strong. In highly capitalist societies, the trend is towards protecting the strong. For an Indian manager, sacking someone very weak at work is something very painful, where as for a project manager from some other capitalist society, that is very normal. So, even when the head count is high in project team, all need not be productive, and the strong will end up compensating for the weak, leading to the burn out of the strong. The associated risk is the lack of transparency into the real teaming issues. Only those nice to get discussed gets discussed. The chronic problems and the associated corrective actions will not be encouraged. This has more to do with the culture than anything else, and anything linked to the culture takes a lot of effort to get sorted out.

Conclusion

By the time a project manager takes charge, the contract type with the customer is already decided, the effort/cost estimates, milestone dates are already agreed upon. The product owner (customer’s representative) remains as a voice or image. Very often, the customer imposes their way of working to the project teams. Man with money always get an upper hand, when it comes to decision making, ending up with poor project management decisions. The customer even tries to impose their work culture to the team, and the Asian project manager, very often is in the business of pleasing people than doing the right things. Most of these things are detrimental to the project. The only way out is developing mutual respect, and that is possible by;

  • Co location of the product owner
    with the team during the early stages of the project
  • Celebration of successes, even small ones
  • Explaining the place holder of the project to the customer’s business strategy
  • Re-estimating the project efforts, during the planning stage, and confronting the issues upfront
  • Understanding the cultural differences
  • Setting up a stage for fearless communication by promoting ‘we are in the business of doing right things and not the nice things’
  • Applying the collective wisdom to develop the project strategy
  • Aligning the contract types and payment terms to match the project strategy
  • Work planning for only 7 hours / day, excluding holidays and leave
  • Developing (gaining) in-depth understanding of the project management methodology for the project, before implementing
    them
  • Projects do not fail at the end, projects fail in the beginning. By taking care of the above points, we can reduce the probability of failures.
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3 thoughts on “The sellers dilemma in an outsourced environment

  1. Very interesting article!
    From my experience, the conclusion is: fixed price projects are bound to give problems in an offshoring context. The list above here is incredibly long and are indeed all issues we face when we take projects on a fixed price. I believe the solution to succesful offshoring is working on a dedicated mode, because both ‘sides’ are equally dedicated to the success of the teamwork. In a fixed price project the outsourcer usually considers throwing his projects into a black box and the supplier has to solve all the issues as stated in the contract.

    Hugo

  2. Pingback: Nuclear Missile Info - subcontract management, negotiation strategy

  3. Excellent article. I really like the way ad-hoc project management is explained. True, it is the freedom for indiscipline, I have experienced this with a number of customers.

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