Outsourcing is sometimes a four-letter word in unionized industries such as manufacturing, energy, and even information technology. Yet for many firms, strategic outsourcing can result in a clear competitive advantage that benefits management and labor alike.
It's no surprise, then, that companies are looking for ways to achieve the benefits of outsourcing while managing their relationships with labor unions.
Unions, for their part, are beginning to reconsider how they deal with outsourcing. "Organized labor is increasingly coming to the table with proactive solutions, looking for ways to work with companies on outsourcing," says Thea Lee, Policy Director for the AFL-CIO in Washington.
History of a Hard Line
Not surprisingly, unions have long been opposed to outsourcing. Communications Workers of America (CWA), which has argued that outsourcing impedes economic growth, created a unit called the Washington Alliance of Technology Workers largely to fight overseas job migration. And the International Federation of Technical and Professional Engineers -- the largest US union for technical workers -- has published "nine tactics to stop globalization."
"Organized labor views outsourcing as a key threat," says Julie Giera, Vice President at Forrester Research. "It's using collective bargaining and other means to try to prevent outsourcing."
In 1999, the state of Connecticut embarked on an ambitious plan to outsource IT and telecommunications functions. But the Connecticut State Employees Association waged a fierce campaign in opposition to the plan, forcing the state to require that workers be allowed to remain as unionized government employees. The deal fell through, at a cost to the state of "hundreds of thousands of dollars," according to Giera.
But increasingly, unions recognize that such tactics are only stopgap solutions. "These efforts by organized labor are at best fingers in the dam," Giera says. "Outsourcing represents mature business models with concrete advantages. The cost advantages of offshore outsourcing are so great that it will be difficult for organized labor to prevent it."
In response, unions are becoming more nuanced in their response to outsourcing. "The reaction tends to be negative in industries where there is no tradition of outsourcing," observes Robert Ingram, Vice President of HR for Capgemini's global outsourcing business. "But the reaction is more balanced when there is already of mix of in-house and outsourced jobs."
Organized Labor and Outsourcing Success
As a result, there's a growing list of outsourcing successes in unionized industries. One example is Corus, the UK- and Netherlands-based steel giant. Some years ago the UK arm of the company outsourced nearly 1,000 unionized IT jobs to Capgemini. "These were IT employees, but many worked in an industrialized environment and came from steel-working families," Ingram relates. "But there hasn't been a single day of dispute. The employees who came over to Capgemini continue to be represented by their trade union."
A more recent success is Hydro One, Ontario's largest electricity transmission and distribution company. In early 2002 the company transferred more than 1,000 jobs in accounting, supply chain, IT, and other functions to Capgemini. The company worked with unions to ensure "the best possible match between Capgemini serving its clients and the interest and ambitions of the transferred employees," Ingram says.
When It's OK to Outsource
In fact, there are situations in which unions recognize that outsourcing is appropriate. "If a company is reorganizing but retains union jobs, then outsourcing is a lot less objectionable," says Lee of the AFL-CIO.
Outsourcers agree that unions are becoming more responsive to outsourcing. "On a local level, unions are less likely to take a policy approach and more inclined to be pragmatic and look at outsourcing on a case-by-case basis," Ingram says.
What are some of these practical approaches? "There may be provisions in contracts that provide clarity about which functions will be subject to outsourcing and which will not," Lee explains.
Giera notes that the challenge for unions lies in their ability to help organizations compete in a global marketplace. "Unions need to strike a balance instead of taking an all-or-nothing approach to outsourcing," she says.
A Proactive Approach Yields Dividends
But the onus of that balanced approach doesn't lie solely on unions. Organizations that are considering outsourcing must also be responsive to unions.
"The most effective strategy is to get unions involved early in the process," Giera suggests. "The biggest mistake you can make is to work on outsourcing in secret and then spring it on the unions at the last minute." The solution is for organizations to be clear about which functions they plan to outsource and what they hope to achieve by doing so.
"We like to meet with employees as soon as outsourcing is mentioned," Ingram explains. "Outsourcing is sometimes an ugly word, but people's fears are usually out of proportion with what will actually happen." Ingram advises that organizations develop a communication plan so that workers have the information they need and aren't permitted to speculate.
Most important, Ingram says, is not to hide important details from unions or fail to keep them up-to-date. "As soon as you get evasive, it creates difficulties," he says. "Tell employees what's important to you, and find out what's important to them. Then you can work together to come out with a constructive solution."
Offshoring Remains a Sticking Point
Good communication aside, organized labor seldom takes kindly to offshore outsourcing. In Europe, for example, trade unions perceive offshoring as the No. 1 threat to service jobs, according to a recent Forrester survey.
With traditional outsourcing, it isn't uncommon for the outsourcer to hire some portion of the affected workforce. In IT outsourcing, for example, about 70 percent of workers typically keep their jobs, according to Forrester. With offshore outsourcing, however, the whole point is to use cheaper labor in developing countries.
But in many industries, employers may have little choice. "Often the only way to compete is to offshore," Ingram believes. "So there needs to be a serious discussion between the organization and the trade union about why offshoring is necessary, and how they can work together to minimize the damage to individuals."
Toward that end, US unions are collaborating with their overseas counterparts. "We're reaching out to unions in India, for example, to make sure they knew what the wages and benefits were for those jobs before they left the United States," Lee says. "And to the extent that there is a common employer across national borders, we want to develop common bargaining targets."
Going forward, how will unions vote on outsourcing? The most likely ballot is probably "it depends." But if organizations and unions work together to find balanced solutions, outsourcing can be a winning candidate indeed.