Term Paper: Outsourcing Fr: HR Director Re: Potential Problems

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Outsourcing

Fr: HR Director

RE: Potential problems due to outsourcing

Outsourcing has been the designated 'bad word' to industry workers the last several years but continues due to the enormous cost benefits derived by the company doing the outsourcing. Outsourcing, however, has changed the last several years from a scenario based on 'how much money can we save?" To a scenario of 'how do we (as a company) become more proficient and cost effective by outsourcing?"

As an example of the savings due to integrated operations, Businessweek stated in a recent article, "when a manufacturer asks Penske to arrange for a delivery to a buyer, Indian staff helps with the scheduling, billing, and invoices. The $15 million in direct labor-cost savings are small compared with the gains in efficiency and customer service" (Engardio 2005)

Most employees understand the fact that a business conducts its affairs in the most cost effective manner, and that sometimes the most efficient way for a business to continue to grow and prosper is by outsourcing. In our particular case of AccuCare of Bradford we have a number of issues that we should consider before, during, and after the proposed outsourcing is accomplished. First, and most importantly, because the employees of AccuCare are so close knit the effect will be much stronger on all the employees, the ones who are directly affected, as well as the ones that are not.

The employees that remain behind will have to be considered because their first thought is going to be; "if it happened to Joe, it can happen to me." The individuals that are let go, will be devastated as well because due to the lack of good jobs that they can turn to in the business community.

The recommendation therefore would be to take a two-pronged approach to the outsourcing proposal. The first thing to do is convene the employees that will be directly involved. A designated person can talk to these individuals about any special programs or training that can be found in the community, as well as discussing any training AccuCare is prepared to offer. The person in charge of this may wish to call the local colleges, and other educational institutions in the area in order to ascertain those offerings.

One expert said that strategically outsourcing other activities "including many traditionally considered integral to any company - for which the firm has neither a critical strategic need nor special capabilities" (Quinn 1995) was a good idea, and it is for AccuCare, but the employees may think that it is being accomplished at their expense. To change that perception, the company has to be proactive not reactive. That can be accomplished by creating an educational program that will assist the affected employees in finding new employment. This can be seen as a show of good faith by the employees that remain, as well as those that are let go, that everything will be done to assist our employees, even the ones that will no longer be our employees.

Additionally, the company may wish to ascertain if any other jobs available within the organization and offer them to the affected personnel, even if they need to be retrained in order to qualify for such positions.

Having a human resources person speak to the affected employees is a good idea concerning the questions employees will ask regarding their 401K, their insurance and any termination pay they may have coming. Problems can arise due to COBRA insurance especially when the insured has health issues, and the employees will want to know about the vesting of retirement accounts, how to transfer them to other fiduciaries, and any possible tax consequences. A solution to this is to have the HR person bring in an expert from an outside financial firm who will conduct seminar(s) to answer those questions.

Another potential problem is that the employee's union may step in, may threaten legal action, and in a worst case scenario may file suit against the company for breach of contract. It is recommended that the company take preventive measures immediately to forestall any such action. This can be accomplished in a number of ways. The immediate response to such a threat would be to sit down with the union and discuss the objectives and reasoning of the company and how it will affect the employees. The key to success in this particular venture is in getting the union to buy in to the situation. Without the union's support this could be a disaster. As usual, it will be a 'tit for tat' discussion so the company may wish to consider extending a few incentives to the union's leadership in an effort to gain their support.

Incentives that could be offered should be negotiated in good faith, and might include such items as; long-term job security for the remaining employees, better health care, improved benefits, etc.

One key bit of advice in regards to the union, the company does not have to make a lot of concessions for a number of reasons. First, the union is not in a very good position to and would not be doing so from a position of strength. This is particularly true in Bradford, because the jobs are so difficult to come by, that often times the union is more of a hindrance to workers, than it is beneficial. The union will be afraid that these jobs are a harbinger of further 'hi-tech' jobs being outsourced so will eventually cave in to the company after a bit of face-saving negotiating. A recent article portrayed this situation well, stating, "it is apparent the millions of Indian and Chinese engineers, software developers and service providers can do all this 'sophisticated stuff' as well as or better than the Americans at a tenth of the cost" (Prestowicz 2004-page 40). This information has to have a very deleterious affect on the psyche of union leaders. The company would be well advised to keep that in mind as it would most definitely be a constraint on their willingness to play hard ball.

Another idea that would be an interesting one to discuss is approaching the employees concerning their interest in forming an internal 'outsource' company. This would give the employees the opportunity to keep their jobs, have ownership in their own company while still cutting the expenditures made by the company as it currently stands.

To accomplish this goal, a business plan would have to be formulated, and the employees approached as a group rather than as individuals. This approach has been attempted by other firms; some with success, others not as successful. At the very least, the proposition could be offered them. This type of proposal is called the core team concept and companies such as Shell Oil have been pleased with their results when using this concept in lieu of outsourcing.

The core team concept has been shown to provide significant savings, reduced downtime, increased production and improved efficiency while maintaining high quality and safety standards" (Maintenance 2007-page 28).

Implementing a procedure such as the 'core team' would entail a lot of work and organization, but in the long-run could enhance the company's reputation and alleviate any problems with employee morale or union lawsuits.

Overall, the company is faced with a number of decisions on how to approach the employees concerning this move forward. A key reminder would be to always emphasize the positive aspects of this decision, especially regarding the fact that the company is accomplishing the objective of saving money, which will keep the company a much more viable entity for years to come. If the employees understand that some jobs may be lost now, but not at the expense of future employment, they would likely by more amiable to accepting the outsourcing as it happens.

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