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Monday, August 29, 2011

Outsourcing: who's pulling the strings

Outsourcing: who's pulling the strings

Outsourcing is seen by firms as a way of hedging economic risks. Stephen Overell looks at the psychological consequences for the workers who have to deal with the uncertainty
Illustration of an employeee being controlled from above
Outsourcing: discovering just who is in charge of a certain aspect of the business can be difficult and frustrating. Illustration: Scott Garrett for the Guardian
There is nothing new about outsourcing: the butcher, the baker and the candlestick maker had their supply chains, too. But the scale of it is new. Some 86% of organisations outsource some operations, and well over a third of public service workers are employed by private and voluntary sectors. This means millions of people effectively work not for a single organisation, but for networks of subcontractors, many of whose interests they are under some obligation to satisfy, but none of whom could be said to be entirely responsible for the work.
The economics of outsourcing hogs the headlines, but perhaps its chief cultural legacy is the sense that work has become an elaborate distancing operation.
Chris Morrison, a systems engineer who has been outsourced twice, says living through it is frightening and confusing. "The feeling we had was how little we mattered – we were just part of a massive IT contract," he says.
Not everything has worsened in the 13 years since it first happened. "Perhaps the work is more interesting, and people are promoted quicker than in the old civil service – and managers at least go through the motions of being an equal, which they never used to," he says. "But my abiding memory is of the insecurity and mayhem."
Yet shock has long since been replaced by farce. He recalls the difficulty of getting a faulty door changed at the Inland Revenue office in which he works. His employer called the building's owner, who called the facilities management company, who in turn explained that the "hard FM" contract (buildings) did not cover issues of "soft FM" (security). The decision involved four organisations – before a fifth was called to change the door.
The ideal personality the system seems to call for is either a master of statecraft, or a bureaucratic doormat. But the system also means rethinking the old assumption that employers control work. That is no longer the way most workers see it.
According to the government's Skills Survey series, the main source of control over work comes not from bosses cracking the whip, nor from technology or peer pressure. By some margin, employees say the people who call the shots are clients and customers. In other words, power over work comes mostly from outside the employing organisation.
At a more serious level, the arrangement can mitigate against commitment, status and security. At the end of these convoluted supply chains are workers whose jobs are vulnerable to the next swing of the market and who shoulder the greatest personal risks. They have incentives not to care about their employer because they know the contract will change hands soon.
Issues of safety on oil rigs, maintenance on railways and poor cleaning in hospitals, have all been linked to the culture of outsourcing. For example, where cleaning has been contracted out, nurses have no authority to direct the work of cleaners – although, that said, data on hospital-acquired infection is not necessarily more flattering of in-house cleaning.
The Health & Safety Executive has warned that subcontracting has the effect of diluting legal responsibility. The security guard employed by a contractor, but working on a client's site, is in a legally ambiguous situation where one is responsible for employment, but the other controls the work environment, and both can legitimately claim their liability is limited in the event of an accident. "In practice, it is often unclear where one organisation ends and another begins," write the authors of a collection of case studies of outsourced contracts called Fragmenting Work, led by Professor Mick Marchington at Manchester University Business School. "Nominally employed by one organisation, workers wear the uniform and get taken on the corporate away days of their client. 'Who do you work for?' is not an easy question to answer, as staff become extras in the evolving client-supplier psychodrama. Imbalances in power between clients and suppliers routinely re-emerge as increased risks for workers."
One IT worker, who asked not to be named, says that her colleagues still feel loyalty to Scottish Power, from which they were outsourced 11 years and three contracts ago: "Every little detail gets referred back to the client."
Terms and conditions are protected thanks to Tupe – the domestic version of a European directive safeguarding employment terms. But the stress involved for the Scottish Power staff was "massive", the IT worker claims. Each time the contract was re-tendered the new employer reviewed roles and processes with a view to "standardising" them. Some roles go, others are reorganised while staff change offices and are given new equipment – an upheaval that can take years. And then it gets repeated.
From inside, she says, it is hard to see the efficiency. Standardisation of a single process can come at the expense of a bigger picture. For example, rather than send an IT specialist out to fix a computer problem at a client's site, one contractor decided it was more efficient to remove the computer, leaving the client's staff unproductive and PC-less for six hours or more. "Each company has a different way of doing things, but day-to-day the job is the same," she says.
How do outsourcing companies overcome the demotivating effects on staff? Daniel Kasmir, group HR director of outsourcing company Xchanging, accepts there may not be a logical incentive for staff to engage with their new employer if contracts are relatively short. But he argues that if an obscure, back-office function transfers to a new firm for which that function is core business, better career opportunities open up.
When Xchanging takes over a client's staff, it works to a six-point plan. First, there is "disorientation" as transferred staff are led to doubt the wisdom of their old work habits. Next comes a period of "self-examination", leading to "mutual change recognition" – the feeling that their new employer might have something to offer, then "realignment" followed by the construction of a "new service mindset", and so on.
If that sounds a bit like having an operation, it may have something to do with "transactional" outsourcing's fundamental principles. The industry applies lean manufacturing techniques – consistency, standardisation – to services. Every process is analysed for efficiency, innovation and the potential use of technology, in an echo of the classic 19th centuryscientific management approach to factory productivity.
From the client's point of view, that means they are buying a consistent service. From the worker's perspective, it arguably diminishes the scope for judgment: automated scripts and pre-determined interactions are the new production lines. Once standardised, work is more easily offshored, too.
According to the French sociologists Luc Boltanski and Ève Chiapello, who wrote the sociological blockbuster The New Spirit of Capitalism, outsourcing is one of the key tools through which work is intensified and insecurity is spread. But it also brings with it a "new network morality".
"For managers, it remains possible to satisfy their sense of justice by concentrating on 'their' employees whose potential they will seek to develop … But in order to avoid redundancies, they are also going to avoid recruiting those who are most interchangeable, so as not to give them false hopes, not to mislead them about the rules of the game – especially that tomorrow they will possibly no longer be needed."
Outsourcing is not simply about hedging economic risk, but a form of psychological protection from the personal traumas of making redundancies.
Among the most effective responses to outsourcing have been the Living Wage campaigns involving contracted-out cleaners, caterers and security staff in the City of London, which have challenged the ability of clients to distance themselves from what happens among their suppliers' workforces. The campaign was based on establishing a conversation between outsourcers and the outsourced about the nature of working in the same office. It is harder to see the people on the ends of mops, or inside the high-visibility waistcoats, as "them", not "us", if you have met them, know something of them, have asked about their families.
As Maurice Glasman – ennobled for his work with the campaign by Ed Miliband, and now a prominent "Blue Labour" thinker – reflects in a book of essays, although it was hard to get meetings with executives, pointing out the common ground at shareholder AGMs proved highly contagious. "It worked time and again … more times than not it has led to cleaning and catering staff being brought back in-house."

Cost trumps quality

The business case for outsourcing rests entirely on economies derived from the way in which workforces are managed and rewarded.
Judging whether that involves efficient new working practices or cuts to pay, conditions, levels of service and workforces – or indeed a mixture – is not easy: outsourcing contracts are so diverse that systematic, impartial research is relatively sparse. But there is no logical reason why domestic outsourcing, unlike its offshore cousin (though, evidence is mixed), should increase unemployment.
2008 National Audit Office paper – one of the few systematic surveys – examined 43 public sector outsourcing projects employing 12,300 staff and initially found overall growth in employment of 21% between January 2000 and October 2004. The paper also found turnover was lower than in the wider public sector.
There is firmer evidence, however, that outsourcing has negatively affected the pay and conditions of workers at lower levels of skill and pay. The National Audit Office study found that although differences in pay between transferred and new staff to a contract tended to erode over time, almost three-quarters of staff surveyed were in "manual/operative" grades and did experience deteriorating pay rates. Middle managers, by contrast, saw their pay go up.
This view is borne out by a series of reports by Steve Davies of Cardiff University for Unison, examining contract cleaners and catering staff in schools. A cost-before-quality ethos, occasionally compounded by a lack of competition, drove ultra-flexible employment patterns and the use of local pay rates rather than national arrangements.
Former public sector staff had significantly better holiday and sick pay and pensions (often nonexistent among contractors). In other words, outsourcing appears to transfer market risk to the least well-off and least skilled.

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