External Resources in place of PMO's

I like Navi Radjou's blog on using internal and external IT solutions.
http://discussionleader.hbsp.com/radjou/2008/10/5-reasons-indias-largest-bank-is-thriving.html

He points out the value of the P&G program that builds innovative communities. The communities are leveraged to put products together. The benefit is not having to support a large R&D group that may or may not produce. As well, it can replace the PMO, whose job it is to dole out resources to internal projects. Key to success, as Navi points out, is not protecting the ideas, but rather is fast implementation. It is the producing the solution that has value to the company and customer versus protecting the solution through internal knowledge and patents.

PMO's Incentive

Susan Cramm on her blog wrote the ways to reduce IT costs. Her points revolve around better control of internal developers.
IT Blog Entry on Reducing IT Costs

Her entry's solutions do not hit the core problem that an internal developer's incentives are not in line with the requestor's goal. The goal of the developer is to hit the deadline 100% of the time without doing overtime. There is no upside for him/her to work extra hard. Another way to look at it, the developers only hear from the reqeustor when the application is broken or off schedule. This leaves the developer in the position of fudging on the plans, i.e. stating the work at 800 hours rather than 400.

A better solution is to remove the internal developers and have the requestor employ an outsource service. The requestor knows the value of the project in terms of either costs saved or increased revenue. Based on this value, he/she can negotiate in a competitive market of outsourced IT services for a price that gives a desired return. In this way, both parties have an upside and a downside. As well, their incentives are more closely aligned.