CHAPTER TWELVE

Outsourcing:
Managing
Interorganizational
Relations

Copyright © 2014 McGraw-Hill Education.

All Rights Reserved.

PowerPoint Presentation by Charlie Cook

Where
Where We
We Are
Are Now
Now

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 Introduction
Introduction to
to Project
Project Partnering
Partnering
• Partnering
– The process of transforming contractual arrangements
into a cohesive, collaborative team that deals with
issues and problems encountered to meet a customer’s
needs.
• Assumes that the traditional adversarial relationship between
the owner and contractor is ineffective and self-defeating.
• Assumes that both parties share common goals and mutually
benefit from the successful completion of projects.
– Factors favoring partnering:
• Existence of common goals
• High costs of the adversarial approach
• Shared benefits of the collaborative approach

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Reclining
Reclining Chair
Chair Project
Project

FIGURE 12.1

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 Outsourcing
Outsourcing Project
Project Work
Work
• Advantages • Disadvantages
– Cost reduction – Coordination
breakdowns
– Faster project
completion – Loss of control
– High level of expertise – Interpersonal conflict
– Flexibility – Security issues
– Political hot potato

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 Best
Best Practices
Practices in
in Outsourcing
Outsourcing Project
Project Work
Work

• Well-defined requirements and procedures.

• Extensive training and team-building activities.
• Well-established conflict management processes
in place.
• Frequent review and status updates.
• Co-location when needed.
• Fair and incentive-laden contracts.
• Long-term outsourcing relationships.

FIGURE 12.2

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 Key
Key Differences
Differences Between
Between Partnering
Partnering and
and Traditional
Traditional
Approaches
Approaches toto Managing
Managing Contracted
Contracted Relationships
Relationships

Partnering Approach Traditional Approach

Mutual trust forms the basis for Suspicion and distrust; each party is
strong working relationships. wary of the motives of the other.
Shared goals and objectives Each party’s goals and objectives,
ensure common direction. while similar, are geared to what is
best for them.
Joint project team exists with Independent project teams; teams
high level of interaction. are spatially separated with
managed interactions.
Open communications avoid Communications are structured
misdirection and bolster effective and guarded.
working relationships.
Long-term commitment provides Single project contracting is normal.
the opportunity to attain
continuous improvement. TABLE 12.1

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 Key
Key Differences
Differences Between
Between Partnering
Partnering and
and
Traditional
Traditional Approaches
Approaches …(cont’d)
…(cont’d)

Partnering Approach Traditional Approach

Objective critique is geared to Objectivity is limited due to fear of

candid assessment of reprisal and lack of continuous
performance. improvement opportunity.
Access to each other’s Access is limited with structured
organization resources is procedures and self-preservation
available. taking priority over total optimization.
Total company involvement Involvement is normally limited to
requires commitment from CEO project-level personnel.
to team members.
Integration of administrative Duplication and/or translation takes
systems equipment takes place. place with attendant costs and delays.
Risk is shared jointly among the Risk is transferred to the other party.
partners, encouraging innovation
and continuous improvement. TABLE 12.1 (cont’d)

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Strategies
Strategies for
for Communicating
Communicating
with
with Outsourcers
Outsourcers

STRATEGY
STRATEGY1:
1:Recognize
Recognizecultural
culturaldifferences
differences

STRATEGY
STRATEGY2:
2:Choose
Choosethe
theright
rightwords
words

STRATEGY
STRATEGY3:
3:Confirm
Confirmyour
yourrequirements
requirements

STRATEGY
STRATEGY4:
4:Set
Setdeadlines
deadlines

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Project
Project Partnering
Partnering Charter
Charter

FIGURE 12.2

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 Preproject
Preproject Activities
Activities—Setting
—Setting the
the Stage
Stage
for
for Successful
Successful Partnering
Partnering

• Selecting a Partner(s)
– Voluntary, experienced, willing,
with committed top management.
• Team Building: The Project Managers
– Build a collaborative relationship among
the project managers.
• Team Building: The Stakeholders
– Expand the partnership commitment to
include other key managers and specialists.

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 Project
Project Implementation
Implementation—Sustaining
—Sustaining
Collaborative
Collaborative Relationships
Relationships
• Establish a “we” as opposed to “us and them”
attitude toward the project.
– Co-location: employees from different organizations
work together at the same location.
• Establish mechanisms that will ensure the
relationship withstands problems and setbacks.
– Problem resolution
– Continuous improvement
– Joint evaluation
– Persistent leadership

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 Project
Project Completion—Celebrating
Completion—Celebrating Success
Success
• Conduct a joint review of accomplishments
and disappointments.
• Hold a celebration for all project participants.
• Recognize special contributions.

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 Sample
Sample Online
Online
Partnering
Partnering Survey
Survey

FIGURE 12.4

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 Why
Why Project
Project Partnering
Partnering Efforts
Efforts Fail
Fail
• Causes of Partnering Failures
– Senior management fails to address problems or does
not empower team members to solve problems.
– Cultural differences are not adequately dealt with
such that a common team culture develops.
– No formal evaluation process is in place to identify
problems and opportunities at the operating level or to
assess the current state of the partnering relationship.
– A lack of incentive for continuous improvement by
contractors participating in the partnering relationship.

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 Advantages
Advantages of
of Long-term
Long-term Partnerships
Partnerships

• Reduced administrative costs

• More efficient utilization of resources
• Improved communication
• Improved innovation
• Improved performance

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 The
The Art
Art of
of Negotiating
Negotiating
• Project management is NOT a contest.
– Everyone is on the same side—OURS.
– Everyone is bound by the success of the project.
– Everyone has to continue to work together.
• Principled Negotiations
1. Separate the people from the problem
2. Focus on interests, not positions
3. Invent options for mutual gain
4. When possible, use objective criteria

TABLE 12.2

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 The
The Art
Art of
of Negotiating
Negotiating (cont’d)
(cont’d)
• Dealing with Unreasonable People
– If pushed, don’t push back.
– Ask questions instead of making statements.
– Use silence as a response to unreasonable
demands.
– Ask for advice and encourage others to criticize your
ideas and positions.
– Use Fisher and Ury’s best alternative to a negotiated
agreement (BATNA) concept to work toward a
win/win scenario.

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 Managing
Managing Customer
Customer Relations
Relations
• Customer Satisfaction
– The negative effect of dissatisfied customers on a
firm’s reputation is far greater than the positive effect
of satisfied customers.
– Every customer has a unique set of performance
expectations and met-performance perceptions.
– Satisfaction is a perceptual relationship:
Perceived performance
Expected performance
– Project managers must be skilled at managing both
customer expectations and perceptions.

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 The
The Met-Expectations
Met-Expectations Model
Model
of
of Customer
Customer Satisfaction
Satisfaction

0.90 Perceived performance 1.10

= =
Dissatisfied Expected performance Very satisfied

When performance falls short of expectations (ratio < 1), the

customer is dissatisfied. If the performance matches expectations
(ratio = 1), the customer is satisfied. If the performance exceeds
expectations (ratio > 1), the customer is very satisfied or even
delighted.

FIGURE 12.5

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 Managing
Managing Customer
Customer Relations
Relations (cont’d)
(cont’d)
• Managing Customer Expectations
– Don’t oversell the project; better to undersell.
– Develop a well-defined project scope statement.
– Share significant problems and risks.
– Keep everyone informed about the project’s progress.
– Involve customers early in decisions about project
development changes.
– Handle customer relationships and problems in an
expeditious, competent, and professional manner.
– Speak with one voice.
– Speak the language of the customer.
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 Project
Project Roles,
Roles, Challenges,
Challenges, and
and Strategies
Strategies

Project Manager Roles Challenges Strategies

Entrepreneur Navigate unfamiliar Use persuasion to influence

surroundings others
Politician Understand two diverse Align with the powerful
cultures (parent and client individuals
organization)
Friend Determine the important Identify common interests
relationships to build and and experiences to bridge
sustain outside the team a friendship with the client
itself
Marketer Understand the strategic Align new ideas/proposals
objectives of the client with the strategic objectives
organization of the client organization
Coach Motivate client team Provide challenging tasks
members without formal to build the skills of the team
authority members

TABLE 12.3

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 Key
Key Terms
Terms

Best alternative to a negotiated agreement

(BATNA)
Co-location
Escalation
Met-expectations model
Outsourcing
Partnering charter
Principled negotiation

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Contract Management

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 Procurement
Procurement Management
Management Process
Process

1. Planning purchases and acquisitions

2. Planning contracting
3. Requesting seller responses
4. Selecting sellers
5. Administering the contract
6. Closing the contract

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 Contract
Contract
• A formal agreement between two parties
wherein the contractor obligates itself to
perform a service and the client obligates
itself to do something in return.
– Defines the responsibilities of the parties,
spells out the conditions of its operations.
– Defines rights of the parties to each other.
– Grants remedies to a party if the other party
breaches its transactional obligations.

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 Types
Types of
of Contracts
Contracts
• Fixed-Price (FP) Contract
or Lump-sum Agreement
– The contractor with the lowest bid agrees to perform
all work specified in the contract at a fixed price.
– The disadvantage for owners is that it is more difficult
and more costly to prepare.
– The primary disadvantage for contractors is the risk of
underestimating project costs.
– Contract adjustments:
• Redetermination provisions
• Performance incentives

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 Types
Types of
of Contracts
Contracts (cont’d)
(cont’d)
• Cost-Plus Contracts
– The contractor is reimbursed for all direct allowable
costs (materials, labor, travel) plus an additional prior-
negotiated fee (set as a percentage of the total costs)
to cover overhead and profit.
– Risk to client is in relying on the contractor’s best
efforts to contain costs.
– Controls on contractors:
• Performance and schedule incentives

• Costs-sharing clauses

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Contract
Contract Type
Type versus
versus Risk
Risk

FIGURE A12.1

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 Contract
Contract Changes
Changes
• Contract Change Control System
– Defines the process by which a contract’s authorized
scope (costs and activities) may be modified:
• Paperwork

• Tracking systems

• Dispute resolution procedures

• Approval levels necessary for authorizing changes

– Best practice is the inclusion of change control

system provisions in the original contract.

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