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    Entries in Outsourcing (5)


    Spreading risk, shirking responsibility?

    One of the most commonly repeated business maxims of the last two decades or so is one that goes something along the lines of 'Focus on our core competencies', i.e., that tying to do too much, to expand into lines of business that don't really leverage the key strengths and value-add capability of the firm are simply not worth doing, or at least if they are necessary to provide the finished product or service, should be outsourced or offshored. Whether it is the high-tech, mass-production supply chain of Apple, or other popular manufacturers, the outsourcing of common and non-differentiating administrative functions like employee benefits, or even simply the offshoring of customer support and service call centers by financial, insurance, or other consumer companies, there definitely continues to be an almost relentless drive towards this kind of 'core competency' structure.

    As Apple has recently and famously seen, sometimes the tension that arises from these kind of arrangements, and reconciling and rationalizing how much responsibility the firm has for the business practices, processes, and even ethics of its sub-contractors and value chain partners can be incredibly complex to navigate. How much, if at all, should Apple, or any other firm that engages in these kinds of widespread and high volume outsourcing of its operations, be held to task for the kinds of problems, some dramatic, others more routine, that inevitably arise in the course of the manufacture of products or the delivery of services?

    While the Apple story and its relationship with one of its prime manufacturing partners Foxconn is widely known, last week the PBS Frontline series ran a segment about a similar set of problems in the Unites States wireless communications industry, while less well known, are no less troubling and illustrative of the moral and ethical dilemmas that sometimes arise in these arms length outsourcing and contracting arrangements.

    The segment, titled 'Cell Tower Deaths', investigates the dramatic rise in the number of deaths associated with the wireless industry in the United States since 2003. Since that time, nearly 100 workers have been killed on the job, and on the towers that allow wireless service to function.

    (The first segment of the Frontline report is embedded below, email and RSS subscribers may need to click through)

    Watch Cell Tower Deaths on PBS. See more from FRONTLINE.


    According to the Bureau of Labor Statistics, the death ratio for cellphone tower workers is 184 out of 100,000, putting the job at the top of the “Fatal Job” list. For example in 2006 alone, 18 people were killed on the job.

    Some of the reasons are kind of obvious - the rapid expansion of wireless devices and smart phone use, the creation of an entire new class of devices (tablets), that connect wirelessly to the internet, cutthroat competition between carriers to build out the most complete coverage networks the fastest, and lastly, the ability and common business practice of providers to hire sub-contractors, (who often hire their own sub-contractors), to do the dangerous work for which they never have to take full responsibility.


    We see in the Frontline piece, that often the workers at these small, local, very loosely supervised and managed sub-contractors receive less than adequate screening, training, and even safety equipment before they are thrust into an incredibly dangerous, tense, and demanding environment. We also learn that the major service providers are able, due to the fact that their contracts are three or even four steps removed from the firms that actually build and maintain the towers, to generally hide from responsibility for these business practices that, all too often, have led to injury and even death of usually low-paid, inexperienced workers.


    Should the carriers, (AT&T specifically gets talked about quite a bit in the Frontline piece), have to own more of the process, if not directly in the form of actually employing the tower workers, at least in having more oversight for training and safety practices of those firms it hires to do work on its behalf? 


    For that matter should Apple, Microsoft, Dell, et al, shoulder more of the load for the working conditions in their manufacturing partners facilities around the world?

    While the Apple story is familiar, it has that other characteristic of being distant - the workers in China, are well, workers in China. We don't know any of them and we're likely never to meet any of them. We can still keep a comfortable separation, at least in our minds.

    As the Frontline piece so poignantly describes, the workers that have perished working on cell towers are quite a bit closer - Indiana, Iowa, Tennessee. Whether that does or should make a difference to how we feel about this, I will leave up to you to decide.


    What do you think - how much responsibility does any large firm have in the behavior, practices, ethics, and working conditions of the sub-contractors it hires?

    Metric of the Day - $10M in Revenue per Employee

    Ten million in revenue per employee? How can you possibly get there? You're thinking revenue per employee comes in at around $150,000 maybe $200,000 in a good year.

    One of the ways you approach $10M in revenue per employee is by outsourcing relentlessly everything that you consider non-essential to your business, thus significantly reducing the number of people you directly employ, and allowing you to focus more fully on those critical differentiators for your business.

    The details behind this story are taken from a piece on Bloomberg Business Week about privately-held electronics manufacturer Vizio and their purposeful strategy of outsourcing most every function that they perceive to be not core to the design of their high tech products and to the customer experience they are trying to deliver. Vizio controls product design and customer support in-house, and just about every other function in the manufacturing and distribution process is contracted out to a large network of partners and suppliers across the globe.

    By shifting the employment relationship from in-house to contracted out, Vizio has managed to rack up close to $3B in annual sales while directly employing only about 300 people. Sure, there are tens of thousands of workers scattered across the partner ecosystem, and Vizio has to skillfully manage and coordinate this partner network to ensure production standards and shipping obligations are met. But I wonder if supply chain and vendor management for a few dozen, (or even a few hundred), key partners is in the long run a more manageable and profitable task than trying to directly recruit, employ, compensate, manage, develop, and do all the other 'people management' tasks that are often so hard to pull off well.

    Sure someone else, in this case the partner and supplier organizations still have to do all those pesky 'people' chores, but for a company set up like Vizio, it has to be seen as an entire set of challenges and problems that are not worth undertaking. They can maintain a really small but focused core team, can concentrate on the design and support processes they see as fundamental to their success, and can likely move and respond more rapidly to changing market conditions over time.

    And they probably have a lot less drama than naturally occurs when trying to get 50,000 people to all row in the same direction, play nice in the cube farms, and not leave a big mess in the break room microwave.

    What do you think? Are these kinds of 'networked' organizations the way of the future? Would it work in your business?

    Have a great weekend! 



    Career advice for kids? Learn how to build robots

    By now you probably have caught the story of the latest step in what some might see as the inevitable 'Terminator'-like march towards the complete and total domination of the human race by our robot overlords - Foxconn Planning To Hire 1 Million Robots.I'll be back - with your iPad

    You know Foxconn right? According to Wikipedia, they are the largest maker of electronic components in the world. Foxconn is probably where that little iPhone or iPad that you are so attached to was assembled. Apple, like so many tech hardware organizations has long realized that design, development, and writing software were the keys to success and competitive advantage, but the actual manufacturing and assembly of its gadgets was better positioned elsewhere, with a company like Foxconn that has clear labor cost (and likely other) advantages over domestic manufacturing.

    It is an old story, chase less expensive manufacturing labor and capacity offshore, while keeping the essential elements of the organization stateside. As long as the good ideas keep coming, and the manufacturing operation can keep up with demand, maintain quality standards, and hold the line on costs, well, you have the Apple story essentially.

    But as we see from the Foxconn/Robots story, even a seemingly inexhaustible supply of lower-cost labor might not provide the competitive edge forever, and whether it is labor cost pressure, difficulty in meeting the insatiable demand for Apple toys, or internally driven profit motives, even a company like Foxconn is looking to aggressively manage labor costs via automation.

    We have all heard, and have advised students and others for ages - if your job can be replaced by a computer, or a robot, or an offshore worker willing to do the same job at half the cost, then you probably ought to have a backup plan in the works. Now it seems like we might have to start giving that same advice to the proverbial 'half the cost offshore worker'. When the robots start replacing the low-cost labor at Foxconn, well it is probably time to think about a new career in robot design. Or landscaping.

    So kid, what do you want to be when you grow up? (Hint: say 'Robot Designer').

    Until of course the robots figure out how to design and build themselves...

    Aside: I like in the TechCrunch piece about the Foxconn story, they refer to the acquisition of the robots using the term 'hire'.  Makes me think about the questions the recruiter would ask the robot during the interview.

    'So tell me your biggest weakness?'  

    'Well, people say I am a workaholic, and I don't know how to unwind. I say that is silly. I had 30 minutes off for maintenance and a software upgrade last year.'


    Can Compliance be Strategic?

    Last night on the HR Happy Hour Show I tossed out the idea that perhaps to further the HR organization's ability to pursue more strategic objectives and more value-added activities, that the traditional 'compliance' related functions be spun-off to another part of the organization, (perhaps finance and accounting).

    My (shallow) reasoning was simple: if HR departments are truly getting bogged down in compliance and and administrivia, why not spin off those functions to another department (or outsource them)?

    Shedding those non-strategic processes, I proposed, would really empower the HR organization  to focus on strategic planning, aligning the workforce and their skills and capabilities with the organizational objectives, and equipping line managers with the tools and abilities they need to succeed.

    A win-win right?

    Well, some of the guests on the show, China Gorman, Mike VanDervort, and others did not like the idea. They essentially said that giving up the control of these processes to accounting (or someone else) would not be a mistake and that HR has to own those processes.

    So here is my question:

    If HR needs to get more 'strategic' and compliance and regulatory issues are in the way, can you just outsource, spin-off, or otherwise de-couple them from the real value that HR can deliver to the organization?

    Can compliance really be strategic?


    You can listent to the entire conversation, and the rest of the HR Happy Hour 'Is HR Dead' Episode here:



    Guest Post - Head in the Cloud? The move to On-demand

    NOTE : This Guest Post is from Denis Tournesac, Executive Vice-President OnDemand at NorthgateArinso, a global provider of HR software and service.

    In the article, Denis examines the impact of the economic climate on HR’s technology.Denis Tournesac


    The global economic downturn has brought about interesting times for the HR team. We only need to open a newspaper to see stories of job cuts, recruitment freezes and absent bonuses. Employees are worried about the future and the fate of their company, which doesn’t lead to a happy working environment. All this leaves HR dealing with staff cuts, while managing the needs of those people left behind.

    When CEOs are looking to cut overheads, justifying the HR team’s time and resources is more important than ever. Reporting is crucial and technology can have an important role to play in helping the HR team operate as efficiently as possible.

    However, at a time when budgets are stretched, how can HR choose between the myriad of technology delivery models on offer? The average HR manager wants a global view of HR, as well as in-depth local knowledge and expertise that’s not bogged down in admin. But is it possible to have your cake and eat it too?

    Sign of the times

    The recession brings with it fewer opportunities for extensive capital expenditure. The initial layout for a big software project can be huge and updating existing systems is seen as a ‘non-urgent’ task that can wait until more secure financial times.

    As a result, now is a good time for managers to be looking at alternative models of software delivery, including software delivered ‘on demand’, which can be well suited to recessionary times.

    Monthly bills rather than a large initial payout are an attractive proposition for the finance team. OnDemand HR applications are rapidly maturing with multi-tenant systems that leverage scale and the increased acceptance of standardized approaches to HR processes. This combination, in conjunction with faster employee adoption thanks to improved user interfaces, mean that HR managers should be taking a serious look at the OnDemand delivery model to support administrative and value-adding HR processes.

    Going on demand

    OnDemand technology is nothing new. It comes under several different names – cloud computing, utility computing, software as a service – but all have the same basic attributes. Thanks to companies like salesforce.com, it has already proved it can work for applications like CRM and marketing. However, there’s no reason why HR shouldn’t enjoy the same benefits.

    Users are much more demanding of workplace technology than they were a few years ago. As a result, it’s no longer acceptable to go into work the next day and use non-integrated technology and information that is locked away in non-connected systems. Most HR professionals aren’t IT experts, and don’t expect to be bogged down in complex procedures. A good OnDemand system has got to have a good user interface to be successful.

    We also expect applications to ‘just work’ – it should be clear how to access information, and how to save and store details. An intuitive system rather than one that requires detailed training is no longer a nice to have, it’s crucial to the success of any IT system used by non-IT people.

    Weighing it up

    However, it’s important to remember that when it comes to HR support, one size certainly doesn’t fit all. The benefits of an OnDemand system are clear, but a business considering an investment should be careful to look at all available HR service delivery models, and weigh up the right choice for them. Technology has evolved to such a state that OnDemand solutions can seamlessly co-exist with systems which have been in place for years, creating a promising hybrid environment.

    A factor to consider when implementing IT to support HR is what it’s actually going to be used for. It’s often assumed that IT will support the processes and admin that so often weigh the HR team down. Traditionally, the biggest benefits for HR have been felt when admin like absence requests, tax forms and employee information have been automated.

    This is still the case, but HR directors also need to look at how integrated systems can support the more strategic part of HR. As we’ve already said, talent management is very important to the business during recession, and there’s no reason why this can’t be supported with the right IT platform.

    A good example of managing talent adequately can be found in succession planning. Over the next five years, the post-war ‘baby boomer’ generation will retire, and unless companies are prepared, they’ll take with them a huge amount of knowledge and experience. The ‘knowledge crunch’ when baby boomers retire could well hit businesses just as they’re recovering from the recession, and managers need to be preparing whoever will take the place of these managers.

    Having it all?

    Just because the economy is in a bad way doesn’t mean investment in new solutions to improve efficiency should stop. In fact, it’s more important than ever for reporting to be transparent, in order to improve talent management and competence management processes.

    Ultimately, the Company only talks in numbers, and if they can see the direct financial results of the work HR is putting in, the team can justify its role a lot more easily.

    The HR director looking to do this should carefully weigh up all the options available. OnDemand technology can help manage costs, and is more easily scalable than some other delivery models. However, different models suit different companies, and OnPremise software has moved a long way from the expensive dinosaur it once was, to become an integral part of hybrid landscapes. What is important is that when the right system is up and running, it helps prove HR’s value to the rest of the business at a time when the team is needed more than ever.