To outsource or not to outsource?

2011

Since 2009, two of Australia's biggest trade unions have been outsourcing one of their core business activities – member recruitment – to the private sector. The firm, Work Partners employing 90 recruiters, was paid $500 per new union member recruited. As a headline in The Australian newspaper put it, "Unions employ ultimate in outsourcing".

So were they successful?

Brian Henderson, Secretary of the Victorian branch of the Australian Education Union, said that "the company (Work Partners) had brought in 7000 new members from schools, TAFE colleges and early childhood centres over the past two years."

As one would expect, there has been much opposition within union ranks to this scheme. Australian Workers Union national secretary, Paul Howes, said at the time that he was opposed to the use of Work Partners. "We don't use them. We are not going to use them as we don't think you can outsource core union work," he said.

Other officials said the recruitment strategy was a "bad look" and a questionable way of addressing declining union membership.

Shift now to May 24, 2011.

The phrase "ultimate in outsourcing" in the 2010 headline was apparently not "the" ultimate. You might think that the dissent among union ranks has led to the review of the union's relationship with Work Partners. You'd be wrong.

In fact, Work Partners has now attempted to outsource its own jobs overseas and devised plans to set up a call centre in The Philippines. Additionally, Tony Sheldon, the federal secretary of the Transport Workers Union, was reported as saying there had been a "fundamental failure" to have the employees' (the 90 local workers) entitlements protected.

He also reiterated that there was a danger that contracting out recruitment to a private company would cause a disconnect with workers.

Whilst this may be a local issue and isolated to Australia, it brings into focus the whole notion off outsourcing and offshoring in all Western countries.

What are the benefits to businesses? What are the downsides? In particular, what are the implications for managers who now perhaps have to manage an additional stakeholder – the overseas workforce?

Are benefits such as new members (or customers), cost cutting or financial gain worth the angst that often comes with outsourcing?

Outsourcing and offshoring have been around for 20 years or so. The ongoing debate rages around cost/benefit versus local job loss/retainment. And these are valid issues. They can be particularly relevant to the long term success of the business from both a financial and cultural (organisational) perspective.

The nature of which jobs can be outsourced is also often raised in such debates. For example, many organisations have successfully outsourced some of their back-office jobs. Back-office IT outsourcing is quite common. Other functions are also being outsourced. In Australia for example, most local bank branches used to handle all legal (mortgage) documentation. That was then centralised to a department in a capital city (where there was a high rate of unemployment). These functions have now been totally outsourced, most notably to firms in India.

But in the headlong rush to outsource everything and reduce overheads (both financial and non-financial), many firms have lost the plot. Now they are outsourcing the sharp end of their business – their customer interface.

Many people reading this article will have stories to tell about their experience with an off-shore call centre. Mine came recently.

After more than twenty years with my phone provider, I was threatened with disconnection because I was "approaching my credit limit". The reason? I'd been travelling overseas and global roaming can be expensive. My bills are always paid on time. My current bill was not yet due (in fact I'd not received it). However, if I did not make a payment immediately, my connection would be cut. I made a payment.

I also called the service hot line. Where was this located? Yes, you guessed it, offshore! To cut a long story short, I became angrier and angrier as the call progressed. The operator had no idea about my long term relationship with the company. Her "canned" responses to my questions did not satisfy my requests nor appease me.

I immediately looked for another provider. The first question I asked was "Where is your call centre located?" With "offshore" responses at the first two, I moved on and hit pay-dirt at the third. Not only were they local, but the service I received was far superior to the first two.

As a keen student of management, I decided to find out a little more about the management of this provider. Is there perhaps something driving this emphasis on service?"

To my surprise and delight, I found that David Thodey, CEO of Telstra (my new provider) and his entire senior team had recently spent a day on the phones themselves answering customer service enquiries. The old leadership adage of "Do as I do" was obviously in play here.

Yes, these senior managers needed some training, education and coaching (each had a buddy sitting with him/her whilst on the phone). And yes, as you might expect, they were quite nervous. However, the benefits far outweighed their slight discomfort.

As David Thodey, the CEO said after his experience on the phones "My respect for the consultants and the way they interact with customers, has always been high. Now it's even higher. . . listening to customers, really understanding what they need, confirming what they say, finding all the information. . . it was great."

David Thodey became Telstra's Chief Executive Officer on 19 May 2009, announcing a strategy of market differentiation and a renewed focus on customer service and satisfaction. He's obviously been true to his word.

One interesting result is the Telstra share price. Until recently, the share price had never reached the original float price set 10 years ago. It has been a poor performer. However, since the new CEO came on board two years ago, the price has steadily increased and is at last approaching its original float price.

Is there a message here for managers and their organisations?

Organisations cannot successfully outsource the sharp-end of their business, whatever that sharp-end may be. It has to be done in-house. How else do you know what your customers want and need? And it's only when managers experience the sharp-end interface that they understand the challenges facing their people.

There may well be a place for outsourcing certain aspects of the business. However, making that decision requires considerable thought. Will it help achieve the long term goals of the business? Will it support and enhance the corporate culture? How will all the stakeholders (including the society) view the decision?

As the Australian unions discovered, a decision to outsource based purely on cost/benefit analysis in the longer term is sure to prove costly in more ways than one.

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About The Author

Bob Selden
Bob Selden

Bob Selden is MD of the Australian National Learning Institute and author of What To Do When You Become The Boss. He has been a boss many times over. He's also worked for many. Some of these relationships have been fantastic and some did not work as well as they might have.