AMERICA MUST STOP OUTSOURCING
Overview
In this paper, I shall present what outsourcing is, together with a more specific information about the extent of outsourcing. Likewise, I shall present the benefits and criticisms regarding outsourcing in America. Then, I shall discuss in brief the current situation of outsourcing in America together with a brief case study by (1993). Finally, seeing the use of a “good” contract against the bad outcome of outsourcing. So is it really it? Let’s see.
Introduction
In the past two decades, we have witnessed a transformation not only of the organization of work, but also of the opportunities that we have to work and of the terms under which we work. Downsizing, restructuring, outsourcing, these and other buzzwords are summoned to describe the forces that are altering employment relationships throughout the work force. The expectations and obligations that link people to their jobs are changing. Those who tend to view the future in a positive light portray the evolving compact between employer and employee as empowering for the individual. The goal now is lifetime employability based upon continuous learning and skill acquisition;
it is no longer lifetime employment based upon loyalty and commitment to
the job. Those inclined to a more critical view see a future of growing
uncertainty and markedly unequal opportunity. Most people will work longer and harder while millions of others will remain underemployed. Nearly
everyone will experience greater job insecurity.
The issue of outsourcing, which is one of reasons for the current job insecurity amongst US workers, has recently received attention by the public as well as by policy makers. Both consumers and management as well, according to Wikipedia, focus often on a essential question: is the performance or quality of the outsourced service, or new organization of labor, on par with the expected standards of management and consumers? Also, how does outsourcing a service effect its quality as opposed to “in-house” work? These questions are rather suited to the cultural preference of employees and employers alike. And yet it falls on one thing; outsourcing is turning bad and thus must be stopped.
Before we discuss further, let us define outsourcing first. This one is from the Wikipedia website.
What is Outsourcing? According to the Free Online Encyclopedia – Wikipedia, Outsourcing often refers to the delegation of non-core operations from internal production to an external entity specializing in the management of a certain operation. Usually, companies decide to outsource for the following reasons: lowering firm costs, to efficiently use labor, capital, technology and resources worldwide, or redirecting or conserving energy redirected at the competencies of a particular business. Outsourcing is also usually misunderstood for offshoring. Outsourcing, also from Wikipedia, is relative to the restructing of the firm whist offshoring is relative to the nation. Basically, outsourcing is a term used for labor organization within societies.
Benefits and Criticisms
A 1995 (BCR) survey said that outsourcing isn’t just about saving money any more. According to the survey, which was reported by (1995), some of the outsourced tasks today are: end user voice equipment management; Software/application design/development – for the data center; Data center operations; and, Voice systems equipment management.
Also, the survey said that the top five functions currently under consideration for outsourcing are: End user data equipment management; LAN and LAN internetwork equipment management; Software/application design/development for client/server and the data center; and, Network management for LANs and LAN internetworks.
Majority of the respondents for the survey however said that the best way to combat bad effects of outsourcing is a good contract. Many of them pointed out that an outsourcing contract should be as detailed as possible, with specific performance criteria.
More opinions by the respondents: (1) Respondents are in general more skeptical of outsourcing and less sanguine about their outsourcers’ objectives. 20 percent of respondents strongly disagree with the statement “I am confident we can find an organization to effectively outsource any or all of our communications functions/operations.” (2) The pressure to outsource has increased. 18 percent of respondents strongly agreed with the statement “The pressure from outside our department to consider outsourcing is much stronger now than it was a year ago.” And 11 percent strongly agree that “The pressure from within our department to consider outsourcing is much stronger than it was a year ago.” However, strong disagreement to this statement also increased. (3) Quality of service seems to be somewhat less important. In 1992, the statement “Outsourcing must provide end user service quality that is at least equivalent to what we can provide in house” received the most strong-agreement “votes.” Strong agreement is 43 percent. And, (4) It looks like more people are seeing productivity benefits on other projects as a result of outsourcing. Strong agreement is 12 percent on the statement “Outsourcing enables me to spend more time and effort planning and designing our communications future,” but strong disagreement is 9 percent.
The BCR survey thus conclude that, while price has become somewhat less important, both in vendor selection and as a determinant of outsourcing success, it’s far from irrelevant; 68 percent of all respondents agree with the statement “saving money is the principal factor in deciding whether to outsource a function.”
Elsewhere in the survey, nearly two-thirds (64 percent) said they expect to save money by outsourcing. Over half (55 percent) expect these savings to come from reduced personnel, while 30 percent expect to save on annual operating expenses. Only 7 percent each expect reductions in capital budgets or other budget categories.
These expectations are probably too high, considering the responses of large, experienced outsourcers. Only 55 percent of the respondents who currently outsource at least one function and have communications budgets over million expect to save money by outsourcing, and 46 percent expect to save on personnel. Thirty-one percent expect savings on annual operating expenses, 8 percent on capital budgets and 15 percent on other budget categories.
Many critics () say that it’s that 15 percent that is starting to get more attention. The urge to save money may have started the outsourcing trend, but both analysts agree that the need to stay competitive, tactically and strategically, is the upcoming motivator.
Outsourcing in America
American companies that are outsourcing their noncore operations and relying upon temporary, part-time, and contract employees are increasing more and more. (1996) found that the largest private employer in this country is no longer GM or IBM. It is Manpower, Inc., which with 560,000 workers is the world’s largest temporary employment agency. (1993) also found that each day Manpower, Inc., and its competitors dispatch one and a half million temporary workers– three times the number of just ten years ago–to offices and factories around the country. There they join the millions of other contingent workers, including part-timers, independent contractors, and freelancers, who today make up a quarter of the work force. The advantages to employers of using contingent workers are numerous. Even when these workers are paid at the same wage rates as regular employees, companies reduce their fringe benefit costs and often avoid having to meet equal opportunity and labor standards requirements. There is little reason to fear litigation for unfair labor practices, and little pressure to meet equal opportunity goals, when you never formally hire a large portion of your work force.
The Results
If we are going to look at it, outsourcing thus results in job displacement. According to (1996), outsourcing contributes to the mushrooming growth of both temporary help agencies and the contingent work force. Yes it does raise productivity with some employees, and yet, it undermines the motivation and employment stability of others.
Contract is the Key?
Outsourcing may appear as the right course for companies trying to reduce cost. It actually sounds too good to be true. In fairness, outsourcing can achieve staff reductions, reduced operating costs and improved service and performance. However, this is not always the case. (2005) pointed out that often, the economic savings are less than anticipated. Further, as with other cost-reduction strategies, there are human resource implications such as decreased morale among U.S. employees as well as the loss of control over primary organization assets such as company data and innovative technology and techniques.
But the key, (1998) found, is to have a “good” contract, and to have all the involved parties have a common set of expectations. He further said that it’s not easy to find effective contracts that can serve as models, in part because most outsourcing agreements contain nondisclosure clauses. There are parts of an outsourcing agreement that seem to have something in common with maintenance agreements.
Using Outsourcing to the Best Advantage
Its is true that outsourcing had placed it hands on America. At most it even proved to be very harmful to its workers. But America may still use outsourcing to its best advantage. In turn, we had used the enemy against itself. Let us not perceive outsourcing as an enemy but as an ally perhaps. This is with great caution.
There were recommendations into combating the bad effects of outsourcing. Good contracts and, according to (2005), changing the trade rules, were amongst the highly convincing thoughts to point out.
A Case Study : Continental Bank
Continental Bank: had struggled though the late 1980s in a state of financial turmoil, after a liquidity crisis. By 1990, Continental had turned to outsourcing in an effort to alleviate its fiscal troubles. Its cafeteria, security services, legal department, and property management had all been outsourced, but the unprecedented step of outsourcing almost all IT services was viewed with much skepticism by managers and financial markets. Information, and IT, are commonly regarded by banks and bankers as essential to their business. Surrendering them to an outsider is often perceived as endangering core competency; banks, it was thought, must retain complete and secure internal control over their IT functions.
But no bariles technology has ever led to a truly dominant position, or locked its rivals out of the market. Managers at Continental slowly came to the conclusion that information was a tool used by clever bankers to their customers’ advantage, but managing that information was not a banker’s core competency; access to IT is important, but owning it is not. More important were intimate knowledge of customer desires and requirements, and building solid long-term relationships with clients.
Market analysts expressed doubts about the wisdom of opening up proprietary technology — for example, cash management products, derivative instruments, and accounting systems — to an outsider. These technologies can take years and huge investments to create; wouldn’t outsourcing control over them be handing over the ‘crown jewels,’, endangering the bank’s security? In fact, this fear was exaggerated. Certainly, in the past, proprietary technology could produce large profits, but today it can be cloned in months or even weeks. Competitive advantages no longer naturally accrue to those institutions with the most internal IT ‘resources’, but to those with the flexibility to tap the source of the best available technology at an acceptable price.
Continental’s in-house IT department was unable to respond quickly and flexibly to customer needs, lacked overall strategy, required large investments, and had too many staff members for routine operations. Everything it did cost too much and took too long.
Therefore, in September 1991, Continental Bank chose ISSC (Integrated Systems Solutions Corporation, an IBM subsidiary) to manage its IT functions. Over the following three months, precise contract conditions were negotiated, covering issues such as the need for tight management and monitoring, confidentiality, penalties and pricing. The multi-million-dollar deal, spanning ten years, was signed in December 1991, and the contract commenced in January 1992. Sources: (1993).
Conclusion
Outsourcing became a significant and wide-spread aspect of the American business environment starting in the 1990s. But the fact is, outsourcing has been used since the early part of the century by manufactures seeking to realize cost savings. Before, it was only limited to the production of component parts. But now, outsourcing has expanded into areas that were assumed to be immune from the process.
Outsourcing has been mentioned by some management scholars and practitioners, including and , as the salvation of the manufacturing sector of the American economy. However, an unrestrained advocacy often times does not measure all costs associated with outsourcing. (2001) said that some costs are obvious, whereas other costs are “hidden” — more subtle and not easily observed or quantified. Hourly labor costs, costs per unit, and most other financial costs would fall into the first category but there are also inherent expenses that are not as overt. In addition to economic costs, an organization must be willing to accept the existence of administrative, human, and ethical costs as factors in their decision to outsource. Outsourcing is a complex, multi-faceted process, with implications and consequences that span department, division, and corporate boundaries. Moreover, it is essential that organizations contemplating outsourcing be aware of and include the “hidden costs” in their analysis prior to out sourcing.
Credit:ivythesis.typepad.com
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