Outsourcing & Change Management – Understanding & Aligning Governance Models

Over two decades of industry experience demonstrates that a decision to outsource significant corporate real estate (CRE) functions to a service provider yields both significant opportunities and operational risks.  Whether the decision to outsource is driven by a mandate to reduce and control expenses, access expertise not available in-house, leverage provider resources, or any reason, the decision presupposes that both the client organization and its service provider are structured to manage large-scale change and that those structures align. The stakes are high and the challenge extraordinarily complex. This is especially true for large enterprises contracting out responsibility for principal CRE service lines, like real estate brokerage activities, construction and project buildout, facilities management, lease administration, space administration and/or energy management.

Poorly managed change drives skyrocketing costs and potentially crippling business disruption, making it imperative that each party not only understand its approach to change management – it's Project/Program Management Office (PMO) methodology – but its counterpart’s approach as well.  Simply put, if the initial transition from self-performed services to an outsourced model isn’t managed effectively then the success of the outsourcing is at risk.  At its core, CRE outsourcing is about change management as much as about changing janitorial providers or project managers. These changes are both human (business perceptions, aversion to change, etc.) and operational (who is paying what invoices how? which provider does what? etc.) and like all projects involving significant change, both the operational pieces and the human impacts must be considered. 

Most organizations undertake a significant change in their CRE function only once every 3-5 years and maintaining internal, resident expertise is virtually impossible. How can organizations mitigate the risks associated with these changes?

PMO governance models are generally divided into three types:  

1.    Technical PMO (HALO PMO) – This model typically used by smaller organizations that don’t often undertake change management projects and have no project manager on-staff.  They treat it as a special project and tap an individual employee, skilled in a non-relevant area, to manage it. The advantage is no additional overhead cost for specialized staff but the primary disadvantages are that the individual will likely not be adept at harnessing internal resources necessary to get the project done on-time or on-budget or may not properly document processes. In reality, the relatively minimal expense of engaging external expertise will be more than outweighed by the savings resulting, over the contract term, and ensure a smooth and effective transition of services.

2.    Departmental PMO (supportive PMO) – This model may be used by organizations that have a departmental resource, perhaps a person who does facilities projects or operational special initiatives on a regular basis. This person may have some change management processes in place and is comfortable navigating their organization or could tap other internal resources. Often technology departments have change management professionals on staff, for example. Again, the primary advantage is no additional overhead cost. The main disadvantages are that the project responsibilities these individuals assume are in addition to their every-day responsibilities and they may lack the bandwidth to do both jobs adequately. This weakness may slow the change management project. Also, while they usually have some processes in place, they might not have access to enterprise-level tools or to resources outside of their department.

3. Dedicated PMO – This model is typical of large enterprises, with a dedicated team of project managers skilled at driving change within organizations, developing formalized, sustainable processes and documentation while laying a foundation for effective governance over the long-term. The disadvantage, of course, is overhead associated with the team – salaries and technology – for example.

Aligning PMO models
Large enterprises with a Dedicated PMO model are well advised to do their due diligence on any prospective service provider to understand how that company staffs its governance and transition office and what specific PMO capability is in place. These resources are a strong indicator of the degree to which the service provider invests in the process itself and where risk mitigation ranks on their list of priorities. For their part, small and mid-market organizations operating Technical or Departmental PMOs may want to think about resourcing a Dedicated PMO prior to choosing a service provider for a large-scale CRE outsourcing project.

No change management project exists in a vacuum; its impact will be felt throughout the client organization. Its timetable and its ultimate success will depend, in large part, on the ability of those leading the project to navigate all of the departments and functions affected including the human and operational factors as elements of change.  Having a dedicated project/program manager acting as point-person on both the client-side and provider-side, working in lock-step toward the same outcomes, will streamline the onboarding process, facilitate training and ensure adoption of new processes, documentation tools and reporting systems at every level of the client’s business.

Of course, many other factors influence the ultimate success of a change management/outsourcing project; executive-level/stakeholder buy-in on the client-side; adequate pre-planning to define milestones, dates and activities; clear, scope of services, a discovery period to educate the service provider on the client’s operational activities, to name a few. Ultimately, the PMO model you and your service provider employ remains central. It is the infrastructure upon which change is built.

LeighAnn-Lilly.jpgLeighAnn Lilly
Global Head, Account Transition & Governance


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