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Workplace Restructuring Presentation to Federated Press Conference David A. Boyle, C.M.C. January 27, 2000
David A. Boyle, CMC, is a human resources and business advisor with a practice focused on identifying the key people essential to achievement of demanding business plans. His work has four aspects: 1.)understanding the cost of the attraction, motivation and retention of key employees; 2.) selecting those key people needed to drive organizations and provide stability through systematic skill capturing, skill transfer and succession plans; 3.) assessing an organization's core competencies; and; 4.) outsourcing non-core competencies to enhance the possibility of meeting targeted objectives.. After graduate training in psychology, David began his consulting career in 1968 with Hay Associates Canada. He was appointed Vice-President Compensation Services for Tomenson-Alexander in 1975. In 1977 he set up his own firm in human resources and compensation consulting and has evolved this practice into its current form as Eureka Applied Management Solutions, a division of Life Ventures Ltd. David is also a partner in an outsourcing venture called HR-on-Demand. Eureka Applied Management Solutions is a practice of Certified Management Consultants enabling North American clients to build profitable businesses and alliances in targeted markets. HR-on-Demand is a partnership dedicated to managing and investing in significant outsourcing projects. Accreditation and Affiliations WORKPLACE RESTRUCTURING AND THE What is the way of the future? Keri Pearlson a business professor at University of Texas at Austin presents a scary thought as described by Gina Imperato (1999): "Zero time is about the ability to react instantaneously, to provide value for every customer at every opportunity." He goes on to say, "It used to take 20 years to become a $1 billion company. Now it takes as little as 3 years. How do you capture this compression of time in a way that enables your organization to evolve? By becoming a Zero time company. There's no other choice. Things are moving too fast." Mark Teflian, President of an organization called Time0 adds, "The most important kind of time is the time that it takes to acquire and retain your customers. That's what "time zero" is all about: How fast are you retaining customers that you already have? How fast are you grabbing new ones?" It is an old saying that "time is of the essence". To be strong in a business market being competitive in price and in time seems to be the only way to create job security. Today outsourcing is a part of this work process revolution affecting our jobs, businesses and life styles. Mentioning restructuring and outsourcing usually creates fear in employee hearts and excites their representatives, the bargaining agent However, these fears can be overcome if we take the time to understand what outsourcing is, what it is trying to achieve and the very necessary contractual relationships negotiated based on the right objectives, with the right attitude and the right results. Indeed, all parties whether management, union or worker can benefit from the increased revenue and savings, building stability and financial security for the future. The discussion which follows outlines how to bring in an outsourcing program into a unionized environment, successfully:
So where did outsourcing come from in the first place? If you are a student of history, you have learned that there are historical patterns which can be identified to predict almost every aspect of the future we face. Out of the history of the union movement itself comes the concept of outsourcing! Yes, the early trade union called a "Guild" was itself an early example of the concept of outsourcing. To find the best stonemason in London you went to the center for people most skilled in stonemasonry, the stonemason's guild. Some of these guilds acted as hiring halls but in several regions they evolved to become companies in themselves, providing skills on an outsourced basis to other local companies. Also from the history of Europe the concept of business "Clusters" has been an important step in the economic success of this region. The principle of a series of companies in a region each specializing in one skill and providing, perhaps, metal cabinets, brakes, chains and shared accounting services one to the other sounds a lot like outsourcing. Companies like Volvo have evolved from such a history. Out of such historical patterns the future is clear—outsourcing is here to stay—bet on it! To read the business literature, our future job security has a chance only if built on outsourcing opportunities. On the contrary, to read union press releases available on the net, the future with respect to outsourcing is very muddy, unions claim that no one or no company can feel secure when outsourcing is proposed. They suggest that both corporate and entrepreneurial interest in outsourcing is to be challenged at the negotiating table and defeated wherever possible. To determine who is right and when outsourcing is right, listen here!
What is outsourcing? Outsourcing is the strategic use of outside resources to perform activities traditionally handled by internal staff and resources. Outsourcing is a management strategy, by which an organization decides to out source major, non-core, functions to specialized, efficient service providers with an anticipated benefit through increased profit margin, more competitive cost, more sales, lower inventory and/or improved speed of delivery. Outsourcing the information technology department is the classic example use. Ross Perot, the former Presidential candidate made his personal billions developing a company called EDS. As the story goes, Ross sold Blue Cross Insurance on the concept of being able to produce claims cheques cheaper than the inside department. He made them an offer to reduce cheque costs by half, got the contract and made a pot because EDS costs were actually only 10% of the original Blue Cross cost. Another glimpse of history shows us that there is a long standing business practice of hiring special contractors, contracting out to level off peaks and valleys and reduce overtime costs. Similarly companies have a long history of forming partnerships with other organizations having capacities and competencies complementing their own, to access resources beyond their current reach. In concept, sub-contracts are usually simple in purpose and often temporary in nature, e.g., contracting with a third party labour pool or renting warehouse and distribution services during peak times. On the contrary, outsourcing involves the wholesale restructuring of the corporation to focus around core competencies and develop outside supplier relationships to satisfy the rest. "Do what you do best and outsource the rest" says the Outsourcing Institute. The Institute web site also quotes James Quinn a professor of business at Dartmouth College; " if you are not best-in-world in doing something, and are doing it in house, you are giving up a competitive edge. You could outsource to the best in the world, up the value and lower the cost." Professor Quinn goes on to say that "You need higher quality of management to outsource successfully".
Barriers to Outsourcing Outsourcing is not an automatic win. There is a need to build up stronger and more skilled management capabilities and to invest in better management information tracking and control software to capture the trends and the performance of the business. The better a business can measure the business the more likely it is going to anticipate a trend and develop an action plan to take advantage of the opportunity. In general, top managers and stakeholders love outsourcing. In management eyes, outsourcing generates greater profit, business expansion opportunities all within reasonable expectation for adequate business financing. Reality is, however, middle managers fear outsourcing, even hate it. Saving time and money are the two main motives for outsourcing, creating a threat to middle-management security by seeking new work process solutions. Often the tactical reasons companies outsource include surviving in the presence of merger and acquisition activity, the associated financial problems, the need to restructure business process and the need to recruit and retain more highly skilled management able to tackle the need to plan and execute more timely solutions. Middle management is squeezed and pressured in the change environment. It looks like the world is focused on them exclusively as the source of the solution to business issues. It is further written in the business press that Unions, but not necessarily union members, hate outsourcing because of the fundamental threat to separate out parts of the work force into lower wage companies, thereby reducing job security for the membership. A distinct reduction in union ability to influence wage rates and availability of skills in a marketplace become anticipated possibilities. Even when an outsourcing project has been announced the process behind outsourcing can be slow as watching glaciers melt. To make outsourcing work companies often need to develop a number of concurrent processes to get competitive products to the market on time. To take the time to develop product plans, to design an outsourcing strategy, to find and select a vendor will often discourage the participants, management and labour alike. The potential for a human resources nightmare during a dragged out outsourcing project is very real. Long periods of planning, with little open communication, is deadly to morale and productivity. Rumors fill the void of poor communication. There are also legal issues arising from employment standards laws, management rights, labour law and government relations. In most jurisdictions outsourcing used to break unions is against law. Severance pay, notice periods, retraining requirements, pension benefit rights and successor rights become highlighted.
Encouragement to Make Outsourcing Work According to the Outsourcing Institute, several trends are leading to the explosive growth in outsourcing:
People have been finding out early in the outsourcing process that the company actually learns more from its new suppliers than it would ever have learned from having a sole source internally, unless it already was best-in-the-world in that activity.
Top 10 reasons companies outsource The Outsourcing Institute surveys indicate the following reasons for considering outsourcing as a part of restructuring: 1.Accelerate reengineering benefits—see the benefits of more efficient management of non-core functions and increased focus on core functions 2.Access to world class capabilities—outsourcing providers gain expertise by working with many clients facing similar issues, streamlines technology and work processes—creates new career opportunities for personnel who successfully transition to the outsourcing provider 3.Cash infusion to the business—assets costly to maintain are transferred out—freeing up cash flow and possibly generating new revenue 4.Free resources for other purposes—focus all resources on what company does best 5.Control functions which have proved difficult to manage---once wayward functions are understood then specialists may be able to solve the problems 6.Improve focus of company efforts—allows more effort to focus on client needs 7.Make capital funds available—third party more likely to invest in a company with a clear core competency rather than one distracted by several non-core competencies 8.Reduce operating costs—by focusing on economies of scale, operating costs can be better managed 9.Reduce risk---dealing with a risk in a field you know is easier than dealing with multiple risks in several fields 10.Resources not available internally—Rather than building resources from the ground you contract them from third parties
Worker Perceptions So you have been outsourced, it is a done deal. What will happen? Yes nerves are jangled, fear increases and an anger reaction takes place. So how do you cope with being outsourced rather than being fired? Once outsourced, a worker often realizes that:
It appears that the average worker displaced by the restructuring trend goes through several stages of adjustment to the changed work environment and after about three to six months out begins to contemplate: 1.How serious am I about succeeding? 2.Am I going to spend all my time proving the old company management is wrong? 3.It hits me that what I focus on frequently happens! Think negative - get tripped up and I screw myself more than the company. 4.Do I want a future or will my career die with the old ways? A basic realization begins that the future will be defined by watching the old ways change or disappear, ideas begin to win big and old ways eventually fall by the way side.
Fundamentals of Outsourcing The fundamentals of outsourcing are quite simple. At the beginning there is a need to define the specific work that needs to be done, who needs it done and who will do it? Once these definitions are in place consideration is given to what agreements needs to be put into place to get the work done on a profitable basis. Then as Nike suggests: "Just do it!"
Union Contribution to the Four Phases of Outsourcing 1.Internal Analysis and Evaluation—While the initiative to outsourcing tends to come from the top, either management or ownership, Unions are a significant stakeholder too. Ideas often come from the plant floor, employee representatives have a responsibility to raise process improvement issues with management but there is a need to suggest constructive solutions rather focusing on and assigning blame 2.Needs Assessment & Vendor Selection---This is the research phase—where companies and unions have the opportunity to identify those factors which will make the outsourcing model work. All parties, especially employees, need the company and their bargaining unit to talk to them in context of the legal, HR, finance and procurement issues, specifying the function targeted to be outsourced. All parties need to be honest, not defensive—focused on making the relationship work—opening up the possibility to negotiate flexible contracts with the new corporate unit, commonly called the "service provider" 3.Implementation and Management---The hard work and challenge are in the transition phase while continuing to be focused in effort—unions and management have a role in keeping the focused effort on track -giving feedback to each other and the stakeholders sooner rather than later. 4.Enterprise Resource Planning—This is the longer term view, learning to build efficiencies over time---transition can be slow but the rewards for all whether shareholder, management or union are achievable based on increased revenue, greater focus and productivity. Once achieved the employees should be given the opportunity to benefit. Before we look at the necessary conditions for constructive union, management and shareholder collaboration during an outsourcing project, we need to consider the indicators of outsourcing success.
Top 10 factors for successful outsourcing 1.understanding company goals and objectives - how do we get there from here? 2.a strategic vision and plan - what is the project mandate? 3.selecting the right vendor, get close to the "best-in-the-world" 4.ongoing management of the relationship to achieve mandate 5.a properly structured contract with client, provider, bargaining unit 6.open communication with affected individuals, groups, unions 7.senior executive and ownership support and involvement 8.careful attention to personnel, employee relations issues 9.near term financial justification, building a good case 10.use of outside expertise to resolve contentious issues Charles Fine (1999) in his interesting book, called Clockspeed, comments on how our world is accelerating in speed. He believes that knowing what to outsource can help companies avoid supply headaches and keep control over their business destiny. He gives as examples:
Negotiating an Outsourcing Agreement with the Union In the wonderful world of business there are unions, there are outsourcing projects -so how do we get together to make good relationships happen? GM and the UAW had a set of tough negotiations over the past two years as GM tried to outsource its parts supply downstream to Delphi. The results are interesting and obviously both sides took the time and effort to be creative. Delphi is and example of sole sourcing, a GM owned subsidiary set up to have an exclusive contract to provide specific parts to GM factories. Such a sole sourcing contract often is the solution to streamline supply negotiation—developing a long term solution—giving both GM and Delphi the time to find and capitalize on parts price reductions through efficiencies rather than relying on a low bid competition. Predictability of supply and cost control generate opportunity for greater future job security. Joann Miller (1999) reports in Business Week that GM granted UAW workers a wage increase to $25 per hour up 25% from today after 4 years and richer benefits. To solve the Delphi Automotive Systems outsourcing issue, workers were provided with a nice plus, wage and benefit guarantees for parts workers in a corporate spin off like Delphi. The UAW gained a larger portion of profits and GM guaranted they will provide no resistance to unionization at other facilities. Why did GM do this? In this contract the UAW gave GM the freedom to restructure their workforce and boost efficiency based on a formula for replacing retirees and restructuring room to reduce the workforce by 20% over the 4 years. Similarly Ford can sell their share in Visteon Automotive Systems, based on a deal to lease Ford employees to Visteon until they are able to retire. Daimler-Chrysler and the UAW agreed no volunteer recognition of a union without 50% of signed workers. In all these contracts the car makers gained the right to negotiate competitiveness of a specific plant locally, motivating all parties to improve productivity without fear of job loss. Early retirement packages are expected to become even more frequent.
Assuaging Union Concerns Jeff Stratton (1999) is a writer who deals with corporate governance and negotiation issues. He indicates that cooler heads should prevail to build trust and work towards a win-win agreement. Companies and unions both need to park defensiveness and pointing blame before coming to the negotiating table. A more thoughtful approach to tacking problems is needed based on the understanding that sometimes your best solution lies in a combination of solutions. Mr. Stratton suggests a few sound principles: 1.Identify the problem before jumping to a conclusion 2.Take a measured approach 3.Find the facts 4.State the problem 5.List possible solutions to the problem 6.Consider each possible solution 7.Pick the best solutions 8.Write down the solution chosen to guide decisions of others 9.Communicate both the decision and the reasons behind the solution chosen When faced with the prospect of outsourcing unions are primarily concerned about :
In the automotive talks we know these issues were addressed by:
Communicating the benefits to workers Curtis Sittenfeld (1999), in an article describing how power can be given to the people makes the point that: "In the right environment people at all levels of an organization can make contributions…Will granting people an extraordinary level of responsibility allow them to achieve an extraordinary level of performance?…(his answer is a resounding) Yes" Mr. Sittenfeld describes what he considers to be the ideal - the socio-technical approach. He discusses an outsourcing venture called Consolidated Diesel, a 1980 joint venture between Cummins Engine Co. and J.I. Case. At Consolidated teamwork became the basis for building an engine where members of the team were extensively cross trained, a new culture adopted and a work code adopted, summarized as follows:
Through this socio-technical approach a bonus appeared - the company only needed 1 supervisor per 100 employees. Considerable savings were also realized by a shorter production cycle and a substantial reduction in injury rate to about 1/5 of national rate. It is important to note the key words implied in the Consolidated work code: INFORM & LISTEN CONSTRUCTIVE COMMUNICATION EMPHASIZE PEER COMMUNICATION SPEAK UP TO SOLVE AN ISSUE AVOID BLAME Which leads us to make the next point.
Dealing with people issues up front and openly Alex Markels (1999) describes Ko Nishimura the 61 year old CEO of Solectron Corp.—the world's largest and and fastest growing contract manufacturer, i.e. outsourcing provider. Dr. Nishimura emphasizes that globalization may be changing the face of manufacturing, but the actual source of a manufacturing company's success is decidedly local. … It take workers who have both the incentive and the authority to effect the necessary changes that will create the next small but important efficiency in manufacturing process and to accommodate the next small but inevitable change their OEM customers demand. It takes speed in responding to ever shrinking product life cycles, and it also takes focus to meet those uncompromising, just-in-time delivery schedules. Solectron's continuously improving processes have created a win-win strategy that lets both Solectron and its customer-partners concentrate on what each does best. Solectron has two guidelines—superior customer service and respect for individual workers. He pushes for fast-feedback from customers and giving employees the freedom to act in the best way they know how. While the customer is always right, problems are resolved by people. In this new century you keep the employee informed every step of the way. To do otherwise is a waste of good human resources and a lost opportunity to serve the client before someone else does. Polly LaBarre (1999) describes Australia's Lend Lease Corporation, a company based on "How can we do what's never been done before?" with a challenge to double their business every five years. This company has an internal "college" based on the principle: "..that happy, healthy, challenged employees are better employees. We help people reach their potential." At Land Lease communication with employees is continuous in every aspect of the work process through:
All of this communication is in recognition of their unique business principle "speed to market is the key to our future and the key to speed is flexibility—in our products, our people and our union agreements."
Bringing the union in on the program Lyle Spencer (1995) makes the point that to get buy in to restructuring you have to build the business case. The business case provides management with an understanding of the cost benefits and return on investment data in hard terms—dollars saved, dollars made—savings most often from productivity changes, sourcing changes, information changes or streamlining processes. But hello! Where is the union? Unions are not populated by Neanderthals? They have the resources to analyze and understand the business case too! Maybe-just-maybe a good idea will come from the union side. In a recent set of negotiations with a client our firm Eureka pointed out several value added opportunities which would benefit their bottom line. In preparation for the presentation we had a dilemma. If we the genius consultants said it, the ideas would be believed. If we told them the truth, that the union economist developed the ideas, the opportunity would be shot down in flames. We told the truth. The President stormed out of the negotiation room. Only to return in 10 minutes with 5 sheepish Vice-presidents in tow. He then announced to his Vice-Presidents that they should sit and listen to new value added ideas they themselves should have identified. The value-added idea generated by the union after review of the business case was -- Labour input costs could be reduced by 2.2 million US$ by spending $10,000 to train 200 employees on a specialized fluid handling skill key to plant operations. The moral of the story was and is bring the union into the business case analysis early. Grab hold of the "discretionary effect"---people cost is 60-80% of job productivity if performance is just what is needed to keep their job. People stretch to 100-110% of their capacity at no increase to input cost when fully motivated. An informed union employee is good business.
Union roles in leadership, quality and performance management The importance of new roles for unions is undeniable, companies who involve their unions profit from developing a shared vision with business owners and managers Charles Fishman (1999) makes the point: "Who is in charge of a place than runs its self? Everybody!" At a General Electric facility in Durham North Carolina it is realized that multi-skilling is how the place is kept together. People don't hoard their skills. The bargaining unit has been a key party to this discovery. One employee suggested that "Trust is a funny thing. It's a mystery - and the genius - of what goes on at GE/Durham." To transform the union-company and company-client set of relationships into a trusting culture it is necessary to reach agreement on a few issues:
To reach such agreements flexibility is the key and the win-win strategy must work. Bazerman and Gillespie (1999) note that differences of opinion about future events don't have to be bridged; they become the core of something they describe as a contingent contract. In effect, contingent contracts allow negotiators to be flexible without feeling that they have been compromised. Betting isn't always risky. In some cases, it actually reduces risk by sharing it among two or more parties. Business Week described Science Applications International Corporation the largest employee owned info-tech firm in the US. A leading privately held technology conglomerate in which 36,000 employees own a piece. This company sells automation control systems to healthcare, nuclear, oil, and utilities. The article makes the point that by increasing the involvement of employees and their bargaining agents in the business: "People are taking a more proprietary interest in the performance of the company"
Outsourcing is not always the perfect solution Peter Burrows (1999) makes the point in a Business Week Article that while contract manufacturers have moved from high tech snoozes into industry stars-- there are risks—when outsourcers get:
Thank you for listening! oOo
References Bazerman, Max H., Gillespie, James J. 1999 Betting on the Future: The Virtues of Contingent Contracts, Harvard Business Review, September-October Burrows, Peter 1999 Job shops take center stage. Business Week June 21 Business Week, 1999 Where owners and workers see eye to eye June 21 Fine, Charles H., 1999 Clockspeed, New York, Perseus Books Fishman, Charles, 1999 Engines of Democracy, Fast Company, October Imperato, Gina, 1999 Net Company Supplement to Fast Company, Fall Issue LaBarre, Polly, 1999, The Company Without Limits. Fast Company, September Markels, Alex, 1999, "The wisdom of chairman Ko", Fast Company, November Miller, Joann, 1999 Commentary: THE AUTO TALKS - WHO REALLY WON, Business Week, October 25 Sittenfeld, Curtis, 1999, "Power by the people", Fast Company, July-August Spencer, Lyle M. 1995. Reengineering Human Resources, New York, John Wiley & Sons, Inc. Stratton, Jeff, Editor 1999 Board & Administrator, December Volume 16, No.4
HR-on-Demand Inc. David Boyle [email protected]
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