Outsourcing has become common over the past several years. Nearly every organization deals with outsourcing of some sort.
It is a bit controversial. When companies outsource with offshore workers, we hear complaints of moving our jobs overseas, putting our own domestic workers in jeopardy.
Even when jobs are outsourced domestically, arguments spring up that there is no loyalty from corporations anymore. People argue that organizations summarily discard the loyal employees that got them where they are, replacing them with the lowest bidder.
These are valid arguments, but there is more to it. Companies have some valid reasons for outsourcing.
Reasons companies outsource:
Rapid change in technology. Advances in technology have always been an agent of business change. Going back a few decades, room-sized mainframes gave businesses opportunities to change the way they did business, automating accounting and many other facets of their work. By contrast, consider the technologies the onset of the internet in the 1990s has introduced: cloud computing, big data, social media, search engine optimization, etc. On top of that, mobile phone technology has created vast opportunities for companies in the ways they make and use technology.
Many of the technologies that are in use today didn’t exist a mere ten years ago. The speed at which technology advances, continues to increase. As a result, the skills that companies need from their employees evolve just as quickly. If they hired a COBOL programmer in the 1970s they could use those skills for years, perhaps the rest of the employee’s career. Today, the programmer they hire may have stale skills in less than a year.
Imagine no employees
Whether it’s because of changing technology or rapidly changing consumer tastes, a company’s staffing needs change quickly. When a company finds itself stuck with a full-time employee with an outdated skill set, their options are limited. The first thing they can consider is retraining the employee. They can retrain them today for the skills they need, but how long will those skills be needed?
Another alternative is layoffs. We saw over the past recession how costly that is for a company in real dollars and in employee morale for the remaining workers.
If you outsource the skills you need, you can swap an existing outsourcer with another one with more appropriate skills for what you need, with a lot less pain.
Reduced competition. New technologies have reduced barriers to entry into many industries. Consider the example of publishing. There was a time when the only way to publish a book was to submit a manuscript to publishing companies. The odds were stacked against you as only a small fraction of submitted books were accepted.
Self-publishing has enabled anyone with word processing software to publish a book. Theresa Ragan has self-published seven novels and has earned over $1 million from her writing. Because of this, large companies are not just competing for skills from other large companies. People can just as easily work for start-ups or start their own business to compete with the behemoths. Almost every industry faces some form of new competition that wasn’t possible before these technological advancements Because of this, they need to be more nimble with their staffing
Affordable care thresholds. Because the new Affordable Care Act requires healthcare coverage for all full-time employees, many companies are designating some portion of their staff to thirty hours per week in order to status them as part-time. An additional strategy to get around the requirement is to contract with outsourcers resulting in fewer full-time employees.
Outsourcing to the max:
These and many other factors are affecting rapid change and the need for flexibility that has never been seen in the history of the business world. So what if we took this trend and maximized it. Instead of hiring full-time employees, what if every worker was brought on as a contract worker?
Many firms already contract out certain non-core functions like accounting, IT maintenance, building maintenance and advertising. What if the company contracted everyone from the CEO down to the assistant purchasing agent?
Each employee would be responsible for their own training. The higher trained and experienced the worker is, the higher their market value. If a worker wants to spend his day cruising the web, there is another worker in the market willing to work harder. And it will be easier for the boss to swap them out without all of the red tape from HR.
The Argument against:
This controversial idea could get a few people excited. The primary argument is: Companies will treat their workers as disposable resources even more than they do today. “I needed you yesterday, but not today so you’re gone. Worse yet, “I hired you yesterday, but I just found someone for a dollar cheaper, so you’re out on your ear.”
On the other side of the coin, employees will have incentives to leave when a better offer comes along. How different is that from today’s full-time employment model? How many of your co-workers have left your company for a better offer? How many have joined your current firm for the same reason? How many of them are actually looking but haven’t found the right offer?
Turnover happens all the time. Much of what we call employee loyalty may simply be complacency. Are companies really loyal in today’s model?
Releasing workers in today’s business world – even poor performers – is difficult. Most organizations have legal and HR policies that involve documentation of specific issues and putting the employees on performance improvement plans. These can be large hoops to jump through requiring employers to deal with poor performers for extended periods of time. These policies enable some workers to perform at levels below par, but just above what constitutes fire-able offenses. They figure out just how much they can slack off without getting fired.
With the no-full-time-employee model, companies will have to pay top dollar for the skills they need. Loyalty will be driven by that invisible hand of the market. The more marketable one’s skills, the more value they provide to the client, the more they will be worth to that client.
Just as in today’s economy, if companies want to retain a worker’s valuable knowledge and experience, they will have to make the deal sweet enough to keep the worker from being stolen away by a competitor. Companies will benefit from increased productivity. The employees they have on staff will have the right skills for the job to be done. Theoretically, workers won’t spend a lot of time standing around the water cooler or shopping online, because they will know they need to be productive or they can be replaced.
Many people will argue against this concept. Workers shouldn’t be interchangeable parts. We need loyalty. We need people on our staff that know the business intimately, not a revolving door of people who don’t know our business model.
Perhaps. So how do you explain the massive layoffs of people over the past recession? What does the company do when key people leave for better paying jobs? They figure out a way to deal without the person. Smarter firms figure out ways to retain their employees through better pay, better benefits or some combination of the two.
One could argue against this concept with a number of seemingly valid arguments but how is this concept drastically different from how staffing is practiced today?
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As always, I welcome your comments and criticisms.