Tuesday, March 20, 2012

Outsource or Not-What Are The Human Costs?

Outsourcing Has Human and Financial Considerations

Often when I read articles talking about whether or not to outsource support functions in organizations, they focus primarily on financial costs and metrics that refer to customer satisfaction surveys. I have also seen articles that talk about the benefit of outsourcing much of the administrative nature of HR so that HR practitioners can be freed up to focus on strategy. I have worked through HR task outsourcing and IT outsourcing and I am not convinced that those ideas are always as great as they appear to be on paper. There is a human cost in all this outsourcing that business executives would prefer not to discuss in any meaningful way. When mass layoffs occur they often outsource some aspects of that activity to a third party.

Understand the Financial Perspective But…
I understand the value of outsourcing from a financial perspective, but my question lies with whether the ‘on paper’ financial value really does outweigh the value of doing things in-house. Having heard all the arguments for that to date, I still am not entirely sure which is the best answer. But perhaps the “Occupy” movement provides some clues-the loss of community, the loss of jobs, the seemingly unfeeling nature of placing a dollar value on everything and seeing that dollar value as being more important that the humans that are affected. Perhaps the backlash costs provide some clues as to some of the very real costs that are ignored in these decisions.

Humans-Remember Them?
If your job title includes the word human or people in it-isn’t direct interaction a significant part of the deal? And what is lost when we send opportunities for face-to-face interactions out to a third party? Do we gain more than we lose? This is something that is hard to measure and as outsourcing has been around for so long now it would be hard to measure the impact as many people won’t remember what it was like to have a person within the organization to talk to when having problems with benefits or signing online for programs in the organization. Or the value of having a competent IT support person to show up and help with a problem, face-to-face.

Culture, Trust & Communities
Another point to consider is that when we outsource any role to a third party we are also displacing people within our organization, which has a deeply unsettling affect on the culture and the level of trust in the organization. We see so much about ‘engagement’ these days but if you are wondering when your job is going to be outsourced just how engaged do you feel like being? Outsourcing also affects the communities the business operates in and it is not likely that the effect can be measured in financial or statistical terms precisely, but it seems within the realm of reality that it is a significant effect.

Hiring Unemployed People?
I read another one of those discussions about why some companies refuse to consider unemployed people for employment recently-they have been popping up quite a bit since the recent economic meltdown. The argument that people get laid off because they are incompetent or lazy or a troublemaker seems to be the going thinking among some. Yet when we look at the massive numbers of layoffs (we have seen numbers such as 15,000, 30,000, 3,500 etc.) in some organizations it defies logic to believe that an organization could have recruited hired and retained that many problematic employees. That would say a lot more about the executives that laid those people off than it does about the employees. Is it really reasonable to believe that if a company laid off 30,000 people that all 30,000 were as described by those who refuse to consider people who are unemployed? And what about outsourcing-about two years ago a very large local data processing company decided to outsource 80% of the jobs held locally to India. That does not mean those employees were in any way at fault-it meant that the business, which by the way is a multi-billion dollar business, wanted to reduce costs by outsourcing to a country where they could pay far less in wages than they can locally.

Right or Wrong?
I don’t know if there is a right or wrong answer and it is likely one of those “it depends” situations. I do believe it is time we started placing a higher value on humans than we do on dollars. It isn’t necessarily good business to take the “profit as the only goal” strategy when the potential human costs are so high.


  1. Your Post is So interesting about Outsourcing and it is very helpful and useful for the Software Developers. Thanks for share this valuable Post.

  2. Thank-you George. You may be interested in the post I will be putting up on July 12 in which I also talk about the 'human' aspect of how organizations manage the employee functions.