Employees key to outsourcing deals

In industries like automobile manufacturing, a company’s decision to outsource sectors of its business is often met with derision and anger. Jobs are lost, and employees become victims of terms like “redundancy” and “efficiency.”

But in the high-tech world, where enterprises outsource at reportedly twice the rate of less volatile business areas, a unique solution is being found to stave off job elimination. In many cases, incoming service providers are offering to hire the same staff they are replacing.

“Typically, we do like to take on their personnel, because our interest is to create a stable transition for our customers,” explained Paul Flynn, a management consultant and global engagement leader for Nortel Networks at PricewaterhouseCoopers (PWC) in Canada.

PWC recently signed the largest business process outsourcing contract in Canadian history: a five-year, US$625 million deal to take over all of Nortel Networks’ business processes, including its human resources and payroll departments. The contract will affect approximately 1,000 Nortel employees in ten cities across the United States and Canada, all of whom have been offered jobs at PWC. Flynn said there are no immediate plans to move the workers from their current Nortel locations.

“The best way to have a stable transition is to keep those people on with us,” he said. “What we add to that is our expertise in process improvement, our expertise in technological advancement, to improve the quality of service that’s provided to the customer.”

To people familiar with the idea of outsourcing through third-party manufacturing contracts, it may seem odd that outsourced companies are not hiring their own smaller-sized and cheaper staff. But Michael Corbett, the president of Corbett and Associates, which has been educating executives on the power of outsourcing as a management tool for a decade, said a company’s decision to outsource no longer comes down merely to the bottom line.

“The pace of change demands that to be successful companies become more focused, they become faster in terms of their ability to respond to the marketplace, they have to create much more effective and scalable solutions,” he said. “And what executives are finding is it’s almost impossible to do that on your own if you try to build and manage and control every facet of the operation.”

Unlike previous decades, investors and shareholders want focus from companies they hold a stake in, not large inventories or a huge number of personnel, added Lars Garansson, the director of research, professional services and outsourcing, for IDC Canada Ltd. in Toronto. He cited Nortel as just one example of an enterprise committed to becoming a “virtual corporation.”

Garansson said the Brampton-based company has outsourced its manufacturing and employee training in the past, and is looking to sign away its IT department within the next year, a business division that has been outsourced by other companies on a regular basis for the past few years. More often than not, third party companies are eager to hire the customers’ IT staff, he added.

“They know the applications that they’re already running so you don’t have to retrain them,” Garansson said, noting the dearth of available and qualified IT workers makes retaining ones with inside knowledge a priority.

“If you’re talking about manufacturing screws or chairs for an automobile, it’s relatively easy to replace the labour component because the skill level is comparatively low to the IT department,” he said.

Rick Andrews agreed. The general manager for IBM Canada’s Atlantic Region recently offered a job to all 25 IT employees of New Brunswick-based Irving Oil’s marketing department, after their company inked an 11-year, $200 million deal giving the work to IBM.

“They come from a technology background,” Andrews said in an interview from his office in Halifax, NS. “And we know the market is pretty hot right now for a skilled resource. And to the degree that these people are capable of picking up the processes and skill techniques of IBM, then it made some sense.”

Andrews said the move to IBM is also appealing to the IT employees, many of whom find more opportunities and training available working in an environment where their skills are integral, rather than just a support, to the company’s success. More than 95 per cent of the employees offered jobs by IBM in outsourcing situations accept, Andrews pointed out, a number Corbett said is standard.

“Ninety per cent retention is not at all uncommon a year later,” he added. “The career opportunities, the opportunities to work with colleagues on the cutting edge of their field, the opportunity for advancement within their chosen profession is in fact greater with outsourcing companies than the companies they’re leaving.”

However, Garansson offered one caveat emptor to employees considering offers from third-party companies, especially those promising to keep workers on their former-employer, soon-to-be-customer’s site.

“Ultimately, it comes down to cost. [The incoming service provider] can run the shop at a lower cost, with greater economies of scale, and they probably need fewer people to do it,” he said. “So over time, they’ll keep consolidating – not necessarily laying off – but you might get transferred to other jobs.”