Sunday, May 08, 2005

Outsourcing

From an MIS point of view you only outsource your low-skilled, low-tech jobs. This is done because of the idea that there is someone out there that can do what you are doing in-house a lot cheaper and more efficiently that you can yourself. It is a golden rule never to outsource your company’s core competencies, because in theory that is what makes your company unique and viable as a going concern. It is the area that you are supposed to be an expert in. If you could outsource your core competencies then you obviously aren’t much of a company with much to offer.

I don’t have a problem with outsourcing in general. It isn’t a bad idea as long as you outsource within your borders. Outsourcing overseas to markets like India and China does nothing but discriminate against local workers. I read the other day in the Globe and Mail that Dell just outsourced 2000 jobs to India. Great for Dell, great for the shareholders, greater still for management whose strike price for their options have finally been reached allowing them to cash in on thousands if not millions of dollars. It is, however, a shitty deal for the 2000 low-end, low-tech workers that have just lost their jobs and benefits because some CEO wants a fat Christmas bonus.

I’ve done some research on the positives of outsourcing and most sources cite that because corporations are allowed to “offshore” the low end jobs they can preserve and create more higher skilled higher paying jobs. The statistics seem to support this on its face. However, higher skilled, higher paying jobs means the workforce has to be even more educated to qualify for a position.

You see it more often today that even for a menial skilled job in a corporate office like for example a mailroom clerk (something that they have not found a way to outsource…yet) needs a university degree to even be considered for the position. Since when do you need a Bachelors in Physics to sort mail? The bar has been raised, so much so that corporate jobs are increasingly becoming beyond the reach of the average person.

Corporations don’t want to invest any time in their employees anymore. They only want to hire those that can hit the ground running. For example, I have a university degree and a good portion of my professional designation completed but I only qualify for an entry-level position. I have plenty of education but so does everyone else. I lack experience and that is what is hurting me. But at least I qualify for a job. Those that don’t have the education either because they couldn’t afford it or it wasn’t their forte are condemned to McJob’s (or the lucky few who get factory work, provided the plant isn’t “relocated” to Mexico to cut expenses).

The root of the problem is twofold. One is the inequality of the international labour laws and the economic conditions in foreign countries. A corporation can get away with paying an Indian worker 5$ US a day, because to the Indian worker it seems like a decent wage considering the economic realities of his country. A Chinese worker that has little say about his pay because the local labour laws are light years behind that of Canada or the US.

The second problem is the genius that decided to try to align the interests of management with the interests of the shareholders by making management’s wealth and rewards tied to the fortunes of the company by offering them option packages. All this does is force management to look for ways to make their company look pretty in the financial statements, so when they are released it misleads investors into thinking that they are an attractive investment and boost the share price by investing in herds. Management looks for short term boosts so they can cash out and to hell with the long-term. Who suffers in the short-term? The non-management employees, that’s who. Who is left holding the bag? The shareholders.

It is directly from the CEO playbook, a new CEO gets hired the first thing he/she does is looks for ways to cut expenses. The easiest expense to cut? Employees. Fire a few people and make the remaining people work harder and outsource “unnecessary” positions to countries you’ve never heard of. The result, expenses are down, profits are up, and the debt/equity ratio looks pretty. All this translates into the CEO appearing like he/she is earning their keep, stock rise, CEO cashes out, company enters into a crisis, CEO gets fired and the process starts all over again.

It is in management’s best interest to behave like this because there are no repercussions for this behaviour. CEO’s often sign on with a company with a handsome bonus and a clause in their contracts referred to as a “poison pill” or “golden parachute” which basically states no matter how badly they fuck the company and it’s shareholders, the company must pay a king’s ransom to fire them. It was originally conceived as a defense against hostile takeovers (which usually resulted in management getting fired en masse), but lately CEO’s have been employing it as a carte blanche to do what they will in the company. Seriously, when you are making tens of millions in one year after you exercise your options and have a poison pill clause, so what if you get fired the very next year? You just move on to your next executive position.

So what can be done to level the playing field? CEO’s should be paid a salary (and they should also be barred from sitting on their friends Board of Directors, but that is another mess), no options that are tied to the stock price. Pay a bonus instead. No more poison pills written into starting contracts. If they want some protection have vested clauses instead (clauses that become active after a period of time, to reflect their performance and dedication to the company).

About outsourcing to other countries…this is a tricky one. You could legislate that all outsourcing has to be down within the country, but then corporations would pick up and flee the country. Or you could legislate that the only countries that can be outsourced to are countries that meet a certain standard for economic robustness and labour protection, and ban imports from countries and corporations that maintain offices there that don’t meet these requirements. The only problem is the corporate lobbies own the political parties, which is why outsourcing became an option in the first place.

I remember when I was taking a course in Cost Accounting. They focused heavily on ethics as well as the technical aspects of accounting. One such question was if a machine came out that could replace an entire department how would I handle the transition of the employees in that department as the ranking cost accountant. I answered that if the time frame was long enough I would gradually phase in the new machine as people retired or moved to new jobs. If the time frame were tight I would try to place what individuals I could in other departments and offer to re-train the rest for some other position. Being an ethics question I was told that there was no “right or wrong”, but my answer was optimistic and somewhat na├»ve. I guess I’m in the wrong profession as my answer wasn’t really cost effective.

Corporations have to realize that they have a social responsibility to their employees and to their country of residence. They can’t be allowed to callously take away thousands of families means to support themselves and write theses people off. They may create more choices for people with high-level skills but those people are in a minority, the reality is they are taking choices away from poor and undereducated to have a chance at a decent standard of living.

1 comment:

Anonymous said...

damn the man