In the summer of 2002, Lehman Brothers prepared for significant development changes. The Wall Street giant was considering getting some of its brokerage applications developed by overseas software service providers. It was hoping to save 50 cents on the dollar and get to market faster. This would be its first chance at offshoring; the firm had hardly even outsourced locally before.

Lehman approached this quest gingerly, yet scientifically. It set up a Program Management Office (PMO) to evaluate the IT offshoring landscape. The PMO began as a one-man unit with Peter Nag, a VP with domain knowledge in the firm’s key businesses who had worked at the bank for nine years, in the role of Global PMO leader. Nag was asked to conduct an offshore suitability analysis: Size the opportunity, select offshore locations and service providers, do due diligence, initiate pilots, transition work, train offshore teams and oversee day-to-day metrics tracking.

In a sanity-saving move, Nag pulled together a team of about 10 people globally, who constituted members of Lehman’s PMO. These included people at the corporate office in New York, at the regional offices in London, Tokyo, and India, to oversee operations there.

“Global operations are complex. They need one single message,” says Nag. “That is what Lehman did through its PMO.”

Whether it’s in the form of a formal organization or an ad hoc group of experts, a PMO aggregates institutional knowledge and best practices about the sourcing and management of service providers. As global sourcing becomes more established as a business discipline, corporations will begin to recognize the benefit of setting up this shared resource. But in the corporate world — which often doesn’t recognize how to manage the risk or seek the rewards of a global sourcing strategy — a PMO is easily dismissed as a cost center whose time is yet to come. This is fundamentally wrong.

Traditional PMO: Ops Led

Few companies entrust the PMO with sourcing and managing all corporate services engagements. Most are content to let them have the operations role of day-to-day management office tracking and reporting metrics. They see their PMO as a project manager that kicks in once the offshore engagements are underway.

“Strategy is only 10% of the job of the PMO. Getting in and making things work is the other 90% of what they must do,” says Dr. Paul Fielding, who helped set up the PMO for JPMorgan Chase. Dr. Fielding currently consults companies on global and domestic services initiatives.

Companies typically outsource multiple business and technology functions to a range of service providers, some large and diversified, others specialized and small. Traditionally, the businesses have managed the transition and tracking of such outsourced work. This makes sense — who other than the business can understand the domain and processes in depth?

Complexity, however, arises because people in the businesses are not trained as project managers, and hence often find it tedious to spend time on project tracking and reporting. Moreover, assigning project managers for each piece of outsourced work means incurring unnecessary cost. In the case of multisourcing — where related pieces of work are distributed to multiple service providers — the problem and expenses multiply manifold.

Moreover, “management by walking around,” the popular management technique of the ’80s and ’90s, when managers were visible and networked with employees, is no longer possible with distributed operations. Companies need to be run through tight processes.

A central PMO functions as an in-house service provider to manage disparate outsourced projects. It has on its team people who understand the domain, processes, contracts, compliance, finance and relationships. These, save for the head of the PMO, are typically operations people.

“The PMO typically includes operational resources,” says Chiranjeev Bordoloi, Managing Partner, Aeterno Consulting. “They consolidate [engagement] progress reports from various business units and present them to senior executives as a unified program story. Strategy remains within executive suites, but is influenced by PMO input.”

Empowered PMO: Strategy Focused

Though PMOs are often restricted to an operations role, arguably many of the companies may benefit from a more robust PMO. The central role of the PMO puts the companies in a unique position to leverage knowledge across outsourced engagements. It can apply best practices gained on the project management of one engagement to another.

Another role of the PMO that is not being leveraged by most companies is that of an “outsourcing evangelist” or “internal consultant.” The PMO can proactively work with business units to identify outsourcing opportunities — cost savings, improved quality and faster time-to-market.

This role does not make the PMO popular with other business units, as it will require it to examine the books of businesses leading to advice about staffing and the way they do business. Such a model requires high-level management support and an influential and authoritative PMO leader who understands the company’s culture and has access to the higher echelons of management.

Not surprisingly, however, consultancies are brought in to deliver the bad news that a process is “noncore” to the business or is performing below industry par. A PMO would have spared the company the expense of hiring a third party, but then bad news is more palatable coming from a third party.

IndyMac Bank is one company that is treading this difficult path. An important role of its program-management team, which it calls Global Resources, is to identify opportunities for technology and business process outsourcing.

“Our team in Pasadena [California] is charged with business units to identify processes that can be moved overseas. Then they are responsible for helping them migrate and work with the vendors,” explains Ashwin Adarkar, EVP, Global Resources and Consumer Banking, IndyMac Bank. A part of Adarkar’s role is to be responsible for all of the bank’s current and future offshore outsourcing initiatives.

Because its role is as much evaluating outsourcing opportunities and managing day-to-day operations, this team sits close to the business units in the company’s corporate headquarters in Pasadena. Lehman and JPMorgan’s PMO teams, too, are located mostly at their companies’ headquarters.