Whose Workforce is it Anyway?

Welcome to Discuss HR, the HR blog written by Human Resources UK. 

We welcome back seasoned blogger Mervyn Dinnen, who follows up his previous post with a look at a growing trend within the workforce. (Ed Scrivener)

Whose Workforce is it Anyway?

Many people were surprised by the recent Financial Times report on working conditions at the Amazon warehouse in Rugeley. Most of the employees comprising the ‘human automation’ workforce were not employed by Amazon though, but by Randstad who manage them as part of their ‘onsite-flexible workforce solutions’ service.

As a result of this Amazon are able to ‘release’ workers who are not performing efficiently with little notice, whilst dangling the carrot that it is possible to gain permanent employment with them.

There seemed no shortage of people willing to talk about their experiences. Whose reputation is damaged by what they have to say – Amazon or Randstad?

Similarly many people have been surprised that the cleaners at John Lewis’ flagship store are contemplating strike action. After all, this is an iconic employer of choice, whose business model is held up as a blueprint to others, a paragon of ethical business. The workforce all share in the company’s success, leading to high levels of engagement.

But not the cleaners. They were outsourced through a facilities management company to a cleaning provider and are working for minimum wage with some picking up £72 a week for 6 days’ shifts.

Clearly not everyone who helps to provide the ‘customer experience’ that is so crucial to the company’s success is part of the envied co-operative partnership agreement.

Whilst the flexible/outsourced workforce is a growing phenomenon it’s not a new one.  Nearly 12 years ago a research paper on the challenges for HR in managing the outsourced workforce was published with this remit:

• For most of the twentieth century, the number of tasks and levels in large organizations grew incrementally, adding new job and career opportunities to full-time employees. In recent years this pattern has fundamentally changed.
• Global developments, both technological and economic, have led to many organizations cutting back their operations, closing facilities or outsourcing non-core activities to specialist providers.
• As we move further into the twenty-first century, we can realistically expect that the need for cost reduction, speed and flexibility will become even greater, leading organizations to reduce the number of full-time employees.
• As labour markets are becoming tighter and supply-driven, finding qualified staff will become more difficult and companies will increasingly have to depend on temporary staff and other types of non-permanent employees to meet their staffing requirements

I’m not sure whether we have really grasped this enough. We have performance arrangements in place to deal with outsourced arrangements, to ensure that SLAs are met and inefficient working is penalised.

But what about those much discussed holy grails such as culture, engagement and employer brand?

Both the examples that I gave earlier – Amazon and John Lewis – are from businesses who are employers of choice, strong brands with an assumed high level of engagement. We are used to reading reports of how permanent employees of some of the aspirational digital companies are willing to accept low pay and prospects as a trade-off for the chance to be part of the brand. And in a depressed economy, with meaningful jobs hard to come by, there may be no shortage of takers for low pay, low skilled jobs, either permanent or temporary, particularly within iconic businesses.

But what about less high profile organisations? How engaged are the flexible workforce when they are there for a pay cheque and not to be part of an employee experience? And what effect may this have on the all-important customer?

Many customer facing roles in the service sector – usually also the first point of contact for the customer with the business – are increasingly filled by people on a plethora of zero hour/permanent part year/fixed term temporary/managed outsourced contracts, all with varying levels of engagement and commitment.

I’m sure many readers with 10+ years in the workplace will recall working for businesses in which perks, benefits, parties and away days were for permanent staff only and not the temps. But this was a time when temporary and flexible workers were rare. Nowadays they are becoming an increasingly necessary feature of the workforce, and labour market commentators are expecting this growth to continue. I’m not sure than anyone knows the full longer term impact of a two tier workforce on performance, profitability and culture.

So what should HR be doing to embed these people in the company, especially when they are hired, fired and paid by a third party provider?

Let me know what you think…

Read about Mervyn and our other authors here

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Discuss HR is the HR blog written by members of Human Resources UK, the 10,000 member strong LinkedIn group dedicated to the HR professionals in the UK.  Discuss HR is published twice weekly and looks to take an insightful, informative and sometimes irreverent view on the world of HR – all with the purpose of generating a discussion.

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If you would like to be a guest writer for Discuss HR, you can find more information here.  Our next guest writer week is the week commencing 29^th April.

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Backshoring & Insourcing - the new Black?

Welcome to this week’s Discuss HR, the blog written for and by members of HumanResources UK.

This week we welcome our latest guest writer, Mark Greenhouse. Mark is a lean management coach and today he discusses the true cost of outsourcing and offshoring.  (Ed Scrivener)

Backshoring & Insourcing – the new Black?

“£30k investment brings manufacturing process back to UK”

“ BT to create 300 call centre jobs”

“Santander to bring India call centres back to the UK”

The elves were delighted that production wasn't outsourced

In recent years a trend has started in the manufacturing and service sectors that is gaining momentum – one of backshoring and insourcing.

That is bringing back work to the UK or Europe from the low labour cost countries or companies choosing to bring work back in-house. The same is true of US operations, being work back into the US. This isn’t about Protectionism, it’s often having a clear view of ll the costs and not just the product costs on a spreadsheet.

Why bring the work back? Surely the Business Process Re-Engineers and Downsizing fashions of the late 80’s, early 90’s weren’t wrong.

Since that time we’ve the benefit of experience and there are a number of studies into the true costs of Outsourcing and Offshoring. From these a number of “hidden costs” are beginning to be exposed.

Don’t get me wrong it can be great for some functions.  E.G. Facilities Management; there can be limited scope within a single firm for development of people and skills. Outsource this and the individuals can become responsible for a range of sites in different sectors and face different challenges. So the individual can develop and the outsourcing company can get access to better skilled staff, as well as cover for holidays, sickness etc built into the provision.

So what are the “Hidden Costs of Outsourcing & Offshoring”

Failure to make initial projected Savings

Imagine you outsource just part of the work of a department of say 20 staff. Doing so saves them from completing 24% of their work; by outsourcing will you lose 24% of them?

24% of 20 is 4.8 people, you can’t lose 0.8, so the maximum saving is 20% or 4 people. The first hidden cost is can you realise the full saving in people terms? And note, the cost often stays in the original business.

• Responsiveness

Possibly not as much of an issue with suppliers in the same time zone but once you start to move across time zones this can become a major issue. The people carrying out work may not be available to speak to, so a day can be lost waiting to speak to the people.

In your outsourcer has raised issues and has gone off at midday UK time and at 4pm you discover that they need an answer – what could the result be? You may have to repeat the work conducted by the outsourcer to fully appreciate their points – wasting effort.

Having outsourcing companies though can mean that responding to customer demands can be difficult, you know have to manage a change process in two organisations not just one.

• Service Level Agreements

Often Service Level Agreements (SLA’s) are worked up between organisations to complete work. Without tight controls on these, misunderstandings can occur and exist for years and the business carries the costs.

When does the clock start on the work, when it is sent from the original company, received at the outsourcer or started at the outsourcer?

This happens more than you’d think. We found an outsourcer receiving & paying bonuses to staff because it deemed targets to have been met. The original company withheld bonuses from it’s own staff, quite correctly, as targets had be missed significantly. The disconnect was due the interpretation of SLAs.

• Training & Development

The training and development of all staff is critical to maintaining business competitiveness.  Do you want to retain responsibility for the skills your “staff” have and the pace they learn at? Is it written into your contracts of supply, how often do you measure it?

Could outsourcing of your work give rise to new competitors. Could these outsourced employees be learning from being exposed to your work?

• Reputation

Outsourced companies can treat ethical and Health and Safety with scant regard. We’ve seen high numbers of suicides in manufacturing organisations, explosions, release of toxic chemicals, selling of consumer data etc. This is always an issue when we give work out to others to be completed in our name. What is the cost of protecting your company against such issues should they arise?

Think about which CEO ultimately left his job as a result of the Deepwater Horizon oil platform explosion in 2010? Was it BP or the companies doing the outsourced work?  

• Underestimating the set-up costs

How do you account for the costs of setting up the outsourcing, offshoring deals? A recent example in the legal world made reference to their own experience for a small program, where they put the legal costs alone at £25-37k? Does that appear in your cost considerations?

• On-going Management Costs

Well you’ve set-up your outsourcing deal, how do you manage it?

Often the purchasing company assume that the internal resources required to manage the outsourced provider already exist, they may not. The outsourcing provider will often provide you with an “Account Manager/ Relationship Manager” but who will liaise with them from your side? You may find you’ve outsourced operational costs but added in management costs.

Apple have found that they needed to invest considerable resources (management time) to develop, train, monitor and control off shore suppliers than anticipated.

• Finance

If you’re in manufacturing this can be a big issue. Imagine you ship a product in from China, only you don’t ship one item in, you ship a container load. That container could easily take 16 weeks from the Chinese manufacturer to being unloaded at your place. So who pays for the 16 weeks of stock in your system? 

You do. Only it’s likely to have several cost implications – you’ll need the money on hand to keep purchasing this stock. You probably need to commit cash to stock well in advance of sales and ahead of other potential investments. You’re probably paying finance costs on that cash as well in the form of loan and overdraft costs.

If you bring these costs down by reducing the time what would it mean for your finances?

• Are you paying for your competitors?

When involved in several outsourcing provision situations my department costs were never split into pots to be attributed to each client. Though I knew which clients took up 2% of my department budget and others 10-12%. Experience tells me that costs in the outsourcing provider, not directly related to the product, will be apportioned on an overhead basis, not on consumption.

So you could end up paying for your competitors work.

• Quality Control

There are numerous reasons why this occurs and manufacturing, were the outputs are very similar often suffers from this, so what about industries where everything is bespoke?

Recently we’ve seen service industries with an outsourced function who send work back to the UK with 40% of it not suitable to progress. At a manufacturing plant, who outsource some part production, we found 25% of incoming parts needed to be re-worked.

Re-work eats into the time available to do work, if it increases it impacts on plans and delivery commitments. The effects of poor quality on customers are well documented, what is often not considered is the effect on costs.

Hidden Risks -  some of these risks include;

1. Changing customs regulations and local practices can require the skills of specialists to avoid fines and penalties.
2. Geographic risk from natural disasters that require contingency plans be developed and maintained.
3. There may be Judicial, Political and Cultural instability which also require contingency planning.

These risks aren’t reasons to avoid outsourcing but they need to be properly considered.

So outsourcing v offshoring isn’t as straight forward as considering the pure product costs; there are a host of hidden costs that need to be considered. 

If you think this might just be the current fashion or fad, then you’d be partially right. In the price conscious market of high street fashion, one chain makes 76% of it’s clothing in the Eurozone. Zara have found that this has given them 30 years of growth and it allows them to respond quickly to changing fashions and trends.

Next time you think about outsourcing or offshoring think consider this quote from the MD of a legal firm “if a supplier is to cut your costs by 10%, then realistically, they have to provide the same service for 25% less than your internal costs to allow for their margins. So how can they provide the same level of service for 25% less?”

 What does this supplier know that you don’t?

About the author

Mark began as an Operations Improvement Manager, moving to Marketing in the early 2000’s. He’s held several roles in the outsourcing companies in Food and Drink, FMCG, and Finance. He’s a Masters qualified engineer with a Diploma in Direct Marketing. A Lean Management consultant to MAS, the Manufacturing Advisory Service, he lectures on the application of Lean Management at the University of Leeds Business School, on the undergraduates and postgrad courses. Mark has also published articles on the application of Lean Management in Marketing and Legal environments.

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Discuss HR is the blog for Human Resources UK, the leading LinkedIn group for those involved with HR in the UK.  Next week’s Discuss HR will be published on Thursday 18^thAugust and will be written by Leadership Coach Dorothy Nesbit.

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