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Outsourcing and Employee Morale
Note: This article was published in the September, 2015 issue of the Small Business Journal, as part of a series on the dynamics of outsourcing. Click here to view the published version.
OUTSOURCING AND EMPLOYEE MORALE
You have a 100 employee company and are experiencing steady growth. 20 employees perform low to midlevel clerical tasks. These positions are ideal candidates for outsourcing. You have calculated potential annual savings of $400-600,000. However, if you outsource, there will be resistance from existing employees, including those not in the affected job slots. What should you do?
The answer to this question, based on the experiences of my company, will surprise you. If you own a profitable company, where there is movement of people to positions of more responsibility, there is one path to an easy YES answer that depends on two quantifiable numbers within your organization:
– Your company’s rate of hiring growth and
– Your company’s annual rate of employee turnover.
If your company’s employment needs are growing at 10 percent per year and your annual turnover is 10 percent or more, you should be able to implement the 20-job program with no negative impact on employee morale. Over the next year, approximately 10 people will leave and 10 new positions will be created. A carefully crafted outsourcing plan will result in no layoffs, yet achieve most or all of the needed savings. Some people will move to positions of higher responsibility. Others can continue in the same position, even if the outsourcing goals are being realized. Some undesirable employees will just leave.
What happens to the dynamics of a company when outsourcing enters the picture?
For employees in good standing, who do their jobs competently, and have been treated properly by their management, there will be no effect on morale if they don’t feel threatened. These employees need to know their company-
– has no compelling need to squeeze every dollar of labor savings through a switch to outsourcing,
– is reassuring its employees, through deeds more than words, that they will not be outsourced, even if some of their duties will be, and
– is creating opportunities to move existing solid employees to duties with greater responsibility and higher compensation.
For employees that have performance, attendance, or behavioral issues, the outsourcing threat is real. Many will oppose outsourcing and, when realizing what is happening, may leave. Others will passively accept the situation with no improvement in performance or attitude. A few will improve themselves in the name of job preservation. Losing employees who can’t or don’t want to perform is not a negative.
Forcing employees to improve performance and attitude is a definite positive.
What should an employer do in this scenario?
#1- Be honest and open about everything you tell your employees
Any change in business practices that impacts on employees creates confusion, followed by nervousness. If employees detect any deviation from the truth, resumes will fly out the door. Fast. The better people will always leave first.
#2- Explain the program accurately, the underlying reasons for the program, and how employees jobs are affected.
Employees fully understand that businesses are operated to maximize long-term profits. They just need to know how it affects them. If certain jobs descriptions are changing in major ways, they must be carefully explained. Most of the following issues are worthy of discussion with employees:
Converting to a paperless environment, which facilitates outsourcing, requires major changes in how people get things done.
Working with people in another country, with a very different culture and perspective, often requires employees to reevaluate their own perspectives and prejudices.
Often, when outsourcing, work is allocated in different ways from the past to separate the verbal language responsibilities from other functions. Specifically inform your employees that anyone who is able to take on different, often higher-paying responsibilities, has nothing to worry about. Weaker employees will derive a different message from the good ones. Some will leave.
#3- Meet with each good employee one-on-one
Make sure he/she understands where they are headed, jobwise, with respect to the outsourcing program. Explain all changes in responsibilities and the underlying reasoning behind those changes. Give reassurance. Explain the upsides. For growth-oriented employees, outline career paths that will result in specific forward progress for the employee.
#4- Turn some employees into winners from the program
Employees who take on more responsible duties should be promoted and recognized publicly as soon as possible. Nothing is better for morale than promoting good and deserving employees.
Outsourcing works most smoothly when companies are profitable and growing, when there is enough time to implement carefully and gradually, and when employees are kept in the loop, with a substantial number coming out ahead.
Profitable companies should have at least a small program in place as soon as it is practical. You will understand why when you consider the next scenario.
You’re a service company with 50 employees and not growing. Your biggest customer, which accounts for half of your business, gives you sixty days’ notice to cut your price by 35% or lose the business. The threat seems very credible. You crunch your numbers and realize that you can keep the customer and remain viable by replacing 20 people with an outsourcing program. What do you do now?
Your company is at serious risk. To save it, you need to implement an outsourcing program that will cause a major disruption in your operation. There is no escaping the reality. While this, in itself, is risky, you have no choice. There is no way of avoiding a major drop in overall employee morale.
Recognizing this, the steps are similar to the above, with one critical exception. You must immediately inform employees that you absolutely must retain in order to survive, what is happening. You gather them in a group after hours and lay it out. Then you meet with each one individually and tell them how this will play out for them. Then you follow a modified version of the four steps above.
– You remain honest and forthright
– You announce what’s happening and why.
– You meet with each employee in a one-on-one meeting.
For good employees you know you need to terminate, you let them know their termination date. Offer a bonus on top of severance pay if they stay until the last day they are needed. Allow them time off for job interviews.
For good employees at risk of losing their jobs, depending on who else leaves, tell them the truth. Give them their termination dates, and offer bonuses for those who stay until they are no longer needed, if their presence is required. For those employees who are sub-par, inform them of their severance package and let them know how much notice they need to give you in order to collect it. They should also be given time off for interviews.
The last few paragraphs above contain a blunt discussion of what a business in trouble needs to do in order to survive. In these circumstances, execution must be perfect. However, sometimes perfect execution becomes impossible with just a few words from management that exacerbates the panic.
Outsourcing work overseas for a company in trouble is much more complicated and fraught with risk than for growing companies. In these uncertain times, companies are best off continuously keeping costs at a minimum while building a stable business with happy employees. Happy U.S. employees and employees overseas are not mutually contradictory concepts. In fact, they can be complementary, if everyone stands to gain from the experience. For this reason, the best time to outsource is when a company is growing and profitable.
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