PracticeConsultingThe human cost of outsourcing

The human cost of outsourcing

Outsourcing is almost always about reducing cost, but while cost represents a key lever in the outsourcing decision it is not the whole story.

Link: Outsourcing still on CFOs’ agenda

Decisions about what to outsource and where to deliver services are critical.

The outsourcing industry is very fast-moving and its scope and network of delivery locations continue to grow. The key to avoiding misconceptions is to keep one eye firmly on the business and the other on the outsourcing industry.

Outsourcing used to be about transferring non-core, repeatable and technology-driven activities to better-equipped specialist service providers but the line between what is and isn?t core has become blurred.

It is natural for concerns to arise about how smoothly the transfer of people, assets, knowledge and processes will go and what the implications will be for the business. Management is key here and any misconceptions need to be corrected before they create obstacles to success.

For example, many people believe that outsourcing results in a harmful outcome for employees. There is no single answer to the issue of human resources, but there are four possible outcomes for employees, and the best solution usually involves a blend of them all.

The choices are between whether employees stay with their current employer or move over to the outsourcer, and whether they continue to use their current skillset or retrain and move into other roles.

The least disruptive situation for employees is to be trained and moved into other roles within their current company. Here they can keep their terms, conditions and culture, and acquire new skills. While this is a feasible option for small numbers, it is impossible for a large workforce.

Alternatively, employees can transfer to other departments within their current company and use their existing skills. This is very unlikely to be a large-scale project as many jobs are specific to a process or function, so there would not be vacant jobs requiring the same skills.

However, employers normally look to keep a proportion of organisational knowledge and skills, so an element of this option is possible with staff experiencing very little disruption.

A third scenario is to transfer employees to the service provider where they continue to perform the same role ð the most typical set-up for outsourcing deals. Employees continue their contracts of employment with the outsourcer from the point of transfer and keep their employment status, terms and conditions. This option depends on location and how the future service will be delivered. Here, outsourcers will try to keep service delivery within a suitable commuting area for current staff.

Because outsourcing companies are never static and deliver services to multiple companies, employees join a more diverse labour pool where their skills and experience can be used in other parts of the business. In many cases this opens up career opportunities that were not previously available. There are many success stories of transferred people reaching senior management levels within the outsourcing provider.

But where services are delivered elsewhere, redundant roles are terminated if service providers have centres that are already staffed, are too far for commuting purposes or culturally too different.

The final alternative is for employees to transfer to the service provider, retrain and disperse to other parts of the supplier?s business. This is only viable if the service provider has a structure where it can reassign the staff to other jobs. If this move can be made, staff can continue their current contracts of employment; depending on location, they may need to commute or relocate.

Redundancy is the least constructive scenario for both employer and employees. Legally, employers and suppliers may only make redundancies as part of the outsource on economic, technical or organisational grounds. And even where permissible, redundancies impose upfront lay-off costs and delay the cost savings from outsourcing.

Mike Dodsworth is senior outsourcing HR manager at Capgemini

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