Ethical Consideration of Outsourcing - Essay Example

ETHICAL CONSIDERATIONS: OUTSOURCING Outsourcing and contracting are not new trends and those who feel that it is just a short-lived management fad are clearly in denial. We need to take a look at the well documented history of contracting to see that it was commonplace in 18th and 19th century England though not without its share of problems. Outsourcing has taken over a more aggressive role in today's competitive environment where no one wants to be the jack of all trades and master of none. Firms would rather try to be indispensable in their niche area even if it means that they would have to let go of some of their operations. This is where outsourcing steps in. Many firms are trying to achieve better results by out sourcing their operations so they can concentrate on those things that really matter. While outsourcing provides an enviable opportunity to increase profitability through reduced costs, it also results in sizeable displacement of workers. Outsourcing is still a viable option and it is important to provide alternative job opportunities to displaced workers. When we move operations, we also move employees; which means a certain number of people would always lose jobs when operations are handed over to some other firm. And to lose jobs simply because a firm needs to be more cost efficient or rather wants to dominate its niche market may bring into play the long-standing conflict of ends not justifying the means. "The opportunities that seem to be available to those who have suddenly found themselves without work have either been nonexistent or offer less in wages and benefits than the jobs they previously held." (Loarman, 2004) Outsourcing has resulted in increased efficiency and productivity as many firms transferred their mundane activities like data entry, data center operations, application maintenance and development, network management etc to a third party while they concentrated on the core tasks. "Outsourcing by the private sector is a growing phenomenon as companies subcontract with specialized firms to operate their computers; handle their logistics (such as warehousing and delivering); assemble parts; run their company cafeterias; process their mail; do their advertising, marketing, and public relations; staff their telephone order and help lines; administer their payrolls; manage employee benefits; and perform other mission critical functions; and, thereby, turn themselves into virtual corporations." (Johnson & Walzer: 41) Outsourcing of IT operations, for example, is widely sought. While transferring all of their IT operations to an outside vendor these companies retain just a few of their senior IT personnel to help in the strategic management process of the company by forming a liaison between the two companies. Firms are not only trying to achieve cost advantages only but they are also trying to concentrate more on their core activities. In order to be completely customer-centric they want to get the expertise of other firms in handling those departments that they excel in such as IT operations. With this they are aiming to achieve both competitive advantage and cost efficiency. The cost factor is only the part of the whole deal, "retailers are looking for innovation, better response time and ongoing process improvements when outsourcing" (McEachern, 2004). IT operations is one area where changes take place at a faster pace and catching up with innovations in IT while removing outdated modes of IT operations requires substantial cost, planning and efforts. Though adopting innovations in IT area would definitely help the overall process but a successful company must perform all functions efficiently and not just one. So in this scenario where customers require most attention, utilizing IT capabilities of an outside firm can help a great deal in concentrating on the core processes. White (2000) writes that "[t]he use of a contractor is a great way to eradicate backlogs and reassign repetitive and routine operations that involve little if any intellectual contribution, such as processing book orders.Just about all organizations work under headcount ceilings, and it makes sense to save those slots for the highly skilled people you want to interest in a career appointment." Leaving the IT task to those who can handle it best because it is their area of concentration and expertise can bring many advantages and that is what most firms attempt to achieve with their outsourcing contracts. On the one hand it appears that outsourcing is a viable option for firms that need to focus on some specific areas. On the other hand, when we consider the employee side of the equation, we are suddenly left with a feeling of uncertainty. How do you balance a firm's need to maximize profits, achieve cost benefits and excel in its niche area with the needs of its employees for job security and protection. This is a relevant question and sooner or later, each firm that chooses to outsource its operations has to face this problem. When a firm tries to leverage the use of outsourcing (the means) to achieve greater profitability through reduced costs (the ends), many are left with an uneasy feeling that something is missing in the equation. The missing factor is the employee who is left with a completely uncertain future when he is moved either out of the job or to a job he may not find himself suitable for or interested in. that is when some ethical theorists are forced to argue that in this case ends do not always justify the means. Kathy Carter (1997) describes the actual effects of outsourcing on employee when jobs were suddenly reduced from 59 to 29 in one firm: "During the year following the decision to outsource, most staff members experienced the classic stages that follow a major loss: denial, anger, depression and acceptance." (Carter, 1997) Outsourcing usually has an unsettling effect on employees regardless of the setting. At one place for example outsourcing resulted in "tears and more tears, anger, long lunches, late arrivals, absenteeism and overall poor morale." Those who were not laid off but transferred to other departments "brought their ill will with them," thus hurting the environment and productivity of all departments. (Fetch, 1999). Some are also concerned about the quality of work done when certain operations are transferred to a third party. However Herbert S. White (2000) sees no harm in outsourcing and is not particularly concerned about quality as he states "it's possible to achieve better service quality, although usually at a higher cost, by contracting out" Schneider (1998) lends supports to this arguments saying that outsourcing in a way that "you retain control over the decision - is wise; outsourcing everything - where you relinquish control - is not." Having discussed the views expressed by experts in the field, we need to move on to the crux of the issue. While we may argue that outsourcing benefits the poorer nations such as China or India, we cannot deny the fact that it is resulting in massive displacements. People who were once considered irreplaceable are quickly losing their jobs and have become vulnerable to outsourcing attacks. Is it even reasonable to say that we are helping poorer nations when our own people are being robbed of job Let us consider the utilitarian viewpoint here. When we are confronted by an ethical issue, it pays to study the problem from both the utilitarian and deontological perspective. According to utilitarianism any action is good and just if it results in maximum happiness. In other words, if an action produces happiness for the majority, it should be considered an ethical one. However in this case, we also have to bring in the question: who should those people be Is the happiness of our own people more important than the happiness of nations we do not know or does sentimentalism and nationalism have no place in the equation. This question is important because while outsourcing results in happiness for a large number of people in some distant land, it causes massive unhappiness to our own people. If utilitarian view doesn't have an answer, we should also study the deontological perspective which states that motives are more important than consequences so as long as the motives are ethical, we can say that the action was ethical too. When studied in this framework, outsourcing appears to be as ethical an activity as any other in normal business operations. The company's primary motive is cost reduction and better quality which it hopes to achieve once it can concentrate on what matters the most. For example we have seen that in the recent past, many organizations have shifted their call centers to India, Pakistan and such other poor countries. It is done so firms could provide better service in its niche area while its customer service was handled by a third party expert. However if motives were all that we were to be concerned about then this discussion is needless to begin with. But apparently that is not the case. Displacement of workers resulting from outsourcing is a serious problem because it results in massive resentment, higher unemployment, greater burden on tax money etc. For this reason, we cannot deny that ethical considerations are important when discussing outsourcing. So what should be done Should be stop outsourcing which we must agree results in mutual benefits for at least the two main parties involved It is almost impossible to stop outsourcing because it leads to job insecurity and displacement. Outsourcing provides numerous benefits to the firms involved and is definitely a very popular trend as Deal and Kennedy (2000) state: "The Outsourcing Institute also estimates that by mid- 1996 the industry was at least $100 billion in size and growing at a rate of between 20 and 30% a year. A poll conducted by consultants A. T. Kearney (cited in Business Week in 1996) claimed that 84% of U.S. companies contract out at least some services (up from an estimated 52% in 1992). Our guess is that both of these estimates are on the low side." (p. 95) We need to understand that as long as free trade is the main driving force of the economy, we cannot stop any firm from moving its resources from one location to another. It has been happening for a long time and it was only in recent years that it took its current form. Now that most poor nations have become more resourceful and have greater better business acumen, firms in the developed countries have no reason not to shift their resources to those locations especially when it costs them a fraction of what it would in their own country. Therefore, stopping outsourcing or stemming it is not even an option. However what we can do is provide displaced workers with alternative jobs and help them cope with sudden loss of their place. Firms need to become more conscious of the effect outsourcing has on employees and should design training and development programs while creating alternative job opportunities for displaced workers. We must not forget that even in this age and time, nothing can replace compassion, understanding and sincerity. Workers need to be treated as valuable assets and for this reason, when outsourcing becomes inevitable, new job opportunities along with employee training and development programs must be introduced so workers have something else to look forward to and so they know they are valued. References 1. Carter, Kathy. 1997. Outsourced Cataloguing and Physical Processing at the University of Alberta Library in Outsourcing Library Technical Services Operations: Practices in Academic, Public and Special Libraries. Chicago: American Library Association. 3-14. 2. Fetch, Deborah. 1999. The Human side of outsourcing: highlights from the ALCTS president's program. Library Collections, Acquisitions, and Technical Services 23 (1): 110-13. 3. Deal, T. E.; Kennedy, A. A. (2000) The New Corporate Cultures: Revitalizing the Workplace after Downsizing, Mergers, and Reengineering: Perseus Publishing Cambridge, MA. 4. Loarman, P. (2004) Ethics of outsourcing. Christian Century Nov 16. 5. McEachern, C. (2004). Best Buy Reassesses IT Needs. VARBusiness. Aug 13. 6. Schneider, Karen G. 1998. The McLibrary Syndrome. American Libraries 29 (1): 66-69. 7. Johnson, Robin A; Walzer N. (2000) Local Government Innovation: Issues and Trends in Privatization and Managed Competition. Quorum Books. Westport, CT. 8. White, Herbert S. 2000. Why Outsourcing Happens, and What to Do About It. American Libraries 31 (1): 66-71. Read More