When Outsourcing, Bite-Size Projects Are Easier to Swallow

Ann All

Nuance often gets lost in short-form journalism like blogs and especially in headlines. It's no secret that online publications like ours try to capture the interest of both readers and search engines by using particular words in headlines. I know it. You know it. And sometimes you let me know you know it.


Several folks blasted me in comments when I wrote that Toyota's use of lean manufacturing techniques, which emphasize reducing waste, may have played a part in its quality issues. Some snippets: "an inaccurate way to describe it," "a ludicrous premise," "... the title is a bit irresponsible," "The primary assertion of this article is that standardization leads to poor quality and recalls. There is no evidence to support this."


The primary premise of the article was actually that Toyota, and other companies that trim costs by consolidating their suppliers and reusing components across multiple product lines, need to step up their risk-management efforts. But as often happens, folks zeroed in on my headline, "Did Lean Manufacturing Contribute to Toyota Recall?"


No one called me on it, but I worried my headline on a post about Virginia's outsourcing travails, "Virginia's Outsourcing Problems: Bigger not Better," would be seen as a wholesale indictment of large outsourcing deals. The sheer scope of the state's contract with Northrop Grumman did exacerbate some management problems, such as a lack of transparency and inadequate communications, but it didn't cause those problems. That'd be like saying a freezer full of Ben & Jerry's causes weight gain.


There are lots of sourcing models. Each model carries different advantages and potential disadvantages. No single model will be right for every organization, every time it outsources services. Organizations should assess not only their specific outsourcing needs, but their own abilities to evaluate, procure and manage outsourced services before they choose a model. In my post, I cited comments from Virginia CIO George Coulter:

Also, [there are challenges in] trying to outsource everything to one contractor, and getting the contract to where it's going to work perfectly. In my whole career, I've never seen one [single-sourcing contract] done well. I haven't seen an IBM or EDS one done where it's 100 percent accurate.

But hey, there are challenges with multisourcing as well. I also cited comments from an interview with EquaTerra Managing Director Charles Collier:

If you have good process maturity, you'll have those handoffs well documented and it will be very clear who should be doing what, and you should be able to write very specific contracts that outline who is responsible for what responsibilities. If you aren't that mature and you add in multiple players, it can become very chaotic.

Danny Jones, a partner at global sourcing advisor TPI, effectively illustrates this point in a silicon.com column. Turns out UK government agencies, like agencies here in the States, have experienced some well-documented problems with big outsourcing deals, leading to at least one suggestion that there should be a financial cap on the size of government outsourcing contracts. But, as Jones points out, this won't make the underlying management problems go away. He writes:

Large programs should be broken down as far as possible and the 100m limit [proposed in the UK] is a useful reminder that big is not always beautiful when it comes to IT projects. However, setting a 100m limit (roughly US$150 million) for service contracts is not necessary. Instead organizations should spend more time and effort setting a sourcing strategy that delivers the right combination of price and service.

He helpfully runs down some common sourcing models, noting the advantages and challenges of each. His biggest takeaway: Big projects should be broken down into smaller components, whether they are complex projects involving business transformation or more basic IT services contracts.


Breaking down transformation projects into stages that can be contracted for as the project progresses "enables estimates to be more accurate and solutions more flexible, allowing for unanticipated changes or complications," writes Jones. (The nature of these kinds of projects almost guarantees there will be unanticipated changes.)


Large contracts for more commoditized services may make the most financial sense for large organizations because the focus is on standardization and economies of scale. But again, don't be afraid to break them down into smaller components. Writes Jones:

IT services can be broken down into a number of component services and it is often beneficial to do so, reducing contract scope and duration, and therefore contract value. The key is to create a sourcing strategy that will ensure the right service, flexibility and long term value for money.

Jones wraps up with three elements that should always be in place, no matter the size of the deal. They are:

  • A solid contract with clearly outlined roles, responsibilities and payment structure.
  • A flexible approach to sourcing that lets organizations choose the best supplier when new projects or services are needed.
  • A strong governance model, to ensuring commitments are met and service providers are managed effectively.

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