Wednesday 10 March 2010

In-house or Outsourced Project Management?

If outsourcing’s prime function is to increase efficiency by enabling a business to focus on core competence then it would be clear why a food business may for example outsource the management of constructing their restaurants / stores. By the same token if an oil company is at its core, an organisation that manages and invests in sophisticated physical assets and processes then why would the construction of filling stations be outsourced as it is surely a core competence?

The fact that filling stations are customer facing and refining /extraction are business to business should not make any difference. It may also be said that retail may comprise just a small fraction of an oil companies revenues but surely the managing of an up to $400-700 million per annum budget to build and refurbish sites is a significant investment by anyone’s standards, especially when the retail outlets in question are the most visible manifestation of the brand.

Nevertheless BP who have led the oil retail industry in both architectural standards and business practices since the Horizon reimaging of 1987 are a noteable example of outsourcing the project management of constructing and refurbishing filling stations. The particular outsourcing model chosen by BP is perhaps the key of its success since the ‘Global Alliance’ between itself and Bovis Lendlease is a hybrid where staff are seconded or reassigned to eachother’s organisation to ensure smooth running and knowledge sharing. New build costs reduction by 25% and reduction of time on site are just two examples of the success of the Global Alliance since its inception in 1997 which spans 10,000 sites in 14 countries.

Ironically, businesses one thinks as focused on food such as Tescos opt primarily for in house project management of the construction and refurbishment of outlets. Perhaps, managing costs is Tescos core competence rather than exclusively food.

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