. . . being a good partner has become a key corporate asset.

I call it
a company’s collaborative advantage. In the global economy, a well-developed
ability to create and sustain fruitful collaborations gives
companies
a significant competitive leg up.
—Rosabeth Moss Kanter, Harvard Business School professor
It is rare in today’s flat world to find important projects that are being completed
totally in-house. Outsourcing, or contracting significant segments of project work to
other companies, is commonplace. For example, small high-tech businesses hire marketing
firms to research what features customers value in new products they are creating.
Even industry giants such as Microsoft and Intel commonly hire independent
firms to test new products they are developing.
Contracting project work has long been the norm in the construction industry,
where firms hire general contractors who, in turn, hire and manage cadres of subcontractors
to create new buildings and structures. For example, the Chunnel project,
which created a transportation tunnel between France and England, involved more
than 250 organizations. Contracting is not limited to large projects. For example, an
insurance company worked with an outside contractor to develop an answering service
that directs customers to specific departments and employees. The trend for the future
suggests that more and more projects will involve working with people from different
organizations.
This chapter extends the previous two chapters’ discussion of building and managing
relations by focusing specifically on issues surrounding working on projects
with people from other organizations. First, the advantages and disadvantages of outsourcing
project work are introduced. This is followed by a discussion of Request for
Proposals (RFPs) and the solicitation process. Best practices used by firms to outsource
and collaborate with each other are discussed next. The focus then shifts to the
art of negotiating, which is at the heart of effective collaboration. Negotiating skills
and techniques for resolving disagreements and reaching optimal solutions are then

presented. The chapter closes with a brief, but important, note on managing customer
relations. In addition, an appendix on contract management is included to augment our
discussion of how organizations work together on projects.
12.1 Outsourcing Project Work
The term outsourcing has traditionally been applied to the transferring of business
functions or processes (e.g., customer support, IT, accounting) to other, often foreign
companies. For example, when you call your Internet provider to solve a technical
problem you are likely to talk to a technician in Bangalore, India, or Bucharest, Romania.
Outsourcing is now being applied to contracting significant chunks of project
work. For example, Apple and Motorola work closely with manufacturers in China to
develop next-generation smartphones. Toyota and DaimlerChrysler collaborate with
suppliers to develop new automobile platforms.
The shift toward outsourcing is readily apparent in the film industry. During the
golden era of Hollywood, huge, vertically integrated corporations made movies. Studios
such as MGM, Warner Brothers, and 20th Century Fox owned large movie lots
and employed thousands of full-time specialists—set designers, camera people, film
editors, and directors. Star actors like Humphrey Bogart and Marilyn Monroe were
signed to exclusive studio contracts for a set number of films (e.g., six films over three
years). Today, most movies are made by a collection of individuals and small companies
who come together to make films project by project. This structure allows risks to
be shared and each project to be staffed with the best available talent rather than only
studio employees. This same approach is being applied to the creation of new products
and services. For example, see Figure 12.1.
Figure 12.1 depicts a situation in which a zero-gravity reclining chair is being developed.
The genesis for the chair comes from a mechanical engineer who developed the

and manufacture the chair. The catalog company in turn creates a project team of
manufacturers, suppliers, and marketing firms to create the new chair. Each participant
adds requisite expertise to the project. The catalog firm brings its brand name
and distribution channels to the project. Tool and die firms provide customized parts,
which are delivered to a manufacturing firm that will produce the chair. Marketing
firms refine the design, develop packaging, and test market potential names. A project
manager is assigned by the catalog firm to work with the inventor and the other parties
to complete the project.
Many outsourced projects operate in a virtual environment in which people are
linked by computers, faxes, computer-aided design systems, and video teleconferencing.
They rarely, if ever, see one another face-to-face. On other projects, participants
from different organizations work closely together, for example, at a construction site
or in shared office space. In either case, people come and go as services are needed,
much as in a matrix structure, but they are not formal members of one organization,
just technical experts who form a temporary alliance with an organization, fulfill their
contractual obligations, and then move on to the next project.
The advantages of outsourcing project work are many:
1. Cost reduction. Companies can secure competitive prices for contracted services,
especially if the work can be outsourced offshore. Furthermore, overhead costs are
dramatically cut, since the company no longer has to internally maintain the contracted
services.
2. Faster project completion. Not only can work be done more cheaply, but it can
also be done faster. Competitive pricing means more resources for the dollar. For
example, three Indian software engineers can be hired for the price of one American
software engineer. Furthermore, outsourcing can provide access to equipment
that can accelerate the completion of project tasks. For example, by contracting
a backhoe operator you are able to accomplish in four hours what it would take a
landscaping crew four days to complete.
3. High level of expertise. A company no longer has to keep up with technological
advances. Instead, it can focus on developing its core competencies and hire firms
with the know-how to work on relevant segments of the project. This can lead to
significant improvements in the quality of the work performed.
4. Flexibility. Organizations are no longer constrained by their own resources but can
pursue a wide range of projects by combining their resources with the talents of
other companies. Small companies can instantly go global by working with foreign
partners.
The disadvantages of outsourcing project work are less well documented:
1. Coordination breakdowns. Coordination of professionals from different organizations
can be challenging, especially if the project work requires close collaboration
and mutual adjustment. Breakdowns are exacerbated by physical separation with
people working in different buildings and different cities, if not different countries.
2. Loss of control. There is the potential loss of control over the project. The core
team depends on other organizations that they have no direct authority over. This
was evident during the COVID-19 pandemic when so many projects came to a halt
due to the disruption of semiconductor chip supply chain.

3. Conflict. Projects are more prone to interpersonal conflict, since the different participants
do not share the same values, priorities, and culture. Trust, which is essential
to project success, can be difficult to forge when interactions are limited and
people come from different organizations.
4. Security issues. Depending on the nature of the project, trade and business secrets
may be revealed. This can be problematic if the contractor also works for your
competitor. Confidentiality is another concern and companies have to be very careful
when outsourcing processes like payroll, medical transcriptions, and insurance
information.
5. Political hot potato. Foreign outsourcing of work is perceived as a major cause of
underemployment and U.S. companies are under increased pressure to keep jobs
local. Furthermore, several U.S. firms have been criticized for the oppressive labor
practices of some of their suppliers in China.
Few people disagree that reducing costs is one, if not, the primary motive behind
outsourcing project work. However, there are limits to outsourcing (see Snapshot from
Practice 12.1: The Boeing 787 Dreamliner), and there appears to be a shift away from