Case Studies

Managing outsourcing strategy in a complex project: A case study of a complex of four residential towers project

By Ramaz Issa 

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Executive Summary

Outsourcing became a usual practice for organizations which seek rapid business
transformation, neglecting the consequences in long term duration. The case study of
this paper is a complex project, where decisions to outsource irrationally lead to
increase cost, potential risks and conflicts between outsourcing partners significantly,
which lead to low project performance and coordination difficulties.
The purpose of this study is to explore the key factors to effectively managing the
coordination mechanisms between more than hundred and eighty external service
providers and a main contractor of a complex of four residential towers project
“Complex1”, in addition, to focus on the significance of decision-making process prior to
outsource.
This paper develops an approach built on sharing information, building trust and
commitment, and managing interdependencies, it examines the coordination
mechanisms in “Complex1” and the success or failure of the outsourcing decision via
conducting a questionnaire-based survey among the outsourcing partners.
Moreover, the study argues that based on “Resource Based View Theory”,
organizations may consider implementing a decision-making process to choose
outsourcing as a procurement strategy for their projects, rather than deciding irrationally
based on short-term benefits. Hence, it proposes an approach for the decision-making
process of outsourcing developed from the literature by emphasizing on make-or-buy
analysis.
The framework attempts to guide decision makers to gain the competitive advantage of
outsourcing, moreover, to guide project managers to avoid potential risks and achieve
the required mutual goals in quality, innovation and customer satisfaction.

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Higher business values

Introduction

(Grover et al., 1994) Defined Outsourcing as requesting a service from external service
provider. (Lankford & Parsa, 2006) Also defined Outsourcing as “The procurement of
services from sources that are outside of the organization which generally involves the
relocation of operational control to the external service provider”. In the other hand,
(Weil & Dalton, 1992) defined complex projects as vulnerable to project performance
issues, which projects tend to be “complex” due to multiple changes in design stages,
procurement, testing and construction and other sequence activities involved.
Moreover, it is changing in customer requirements and project performance in terms of
schedule, time and cost, in addition of the delays in discovering rework.
Outsourcing, which is called in the literature “Contracting-Out”, “Strategic Partnering”, or
“External Service Provider”, nowadays became a fashionable strategy for organizations
which seek a rapid business transformation in short-term duration (Linder et al., 2002).
(Embleton & Wright, 1998) Stated that outsourcing market is increasing every year,
showing that in 1992 58 % of the organizations reported outsourcing compared to 86%
in 1995 in USA. (Hui et al., 2008)Agreed, that Outsourcing became a usual
organizational practice with very little research of the impacts of managing this strategy
on outsourcing partners in complex projects.
However, the consequences of choosing outsourcing irrationally as a procurement
strategy can significantly impact the effective coordination management, that is; in
complex projects uncertainty increases and forecasting tend to be not easy due to high
interdependencies between activities as a result coordination and controlling of
suppliers tend to be more complex (Hui et al., 2008).

Increased profits

The case study of this report is a complex of four residential towers project in UAE
which is called “Complex1” worth 400M AED (108.9M US$) , it includes 2000 units,
three basement levels, ground floor and two parking levels, the area of the project is
approximately 180,000 m2.
The contractor is a subsidiary company from a well-known cooperation which has more
than 25,000 employees worldwide with more than 2.353 Billion revenues in the
construction field. According to the main contractor’s project manager, the number of
suppliers contracts exceeded 180 contracts, they chose outsourcing as a procurement
strategy due to the project’s low revenue, which was estimated 3% of the total amount
at the time, hence, the main reason of this strategy of procurement according to the
project manager, was to decrease costs of operations, share risks with suppliers, and
concentrate on the progress.
However, the project manager claimed that due to this large number of suppliers, they
faced a lot of issues and conflicts in sequence of work, quality, payments,
subcontractors slow work and ineffeciency, as a result the project is now 750 days delayed from its original handing over date and loses of the main contractor reached
100M AED (27.23M US$). (The main contractor Project Manager)
This paper is going to propose a model to effectively managing the coordination and
relationships between the suppliers and the contractor. Moreover, it is going to
emphasize on the significance of decision-making process prior to decide outsourcing
as a procurement strategy using an appropriate model built from the literature, then
“Complex1” management capability is going to be examined in terms of coordination
mechanisms, trust and information sharing between suppliers and the contractor.


DirectionVision & Goal Setting

Ramaz Issa

Ramaz Issa is a professional Building Contractor, he has more than 15 years experience in the construction industry including but not limited to; Interior decoration and fit-out for residential buildings, Villas, Mansions and commercial spaces such as offices, clinics, restaurants and warehouses. Ramaz Iss is a Project Management Professional (PMP Certified) and achieved his Bachelors degree in Civil engineering in 2009 and Masters Degree in Project Management in 2017.

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