Question

DISCUSSION :

We have pointed out that the value chain will indicate many support areas that could be candidates for outsourcing. These are not essential functions (accounting, human resources, training, support technology, facility maintenance, security, phone call center,etc.) for the company and perhaps could be or cheaper and better by an outside firm.

a. Is this a case of "its just business" or is it unethical to outsource certain functions meaning you lay off long term employees that are specialized?

b. Would this be a good reason to outsource? What about the community you are located in?

c. Your thoughts if you are the CEO or top management in the firm?

• Discuss the pro's and con's of these possible actions as if you were top management.

Answer 1

In the absence of specific context - the answer to the question assumes a generic scenario of a typical organization and the context of outsourcing operations and functions in the day-to-day running of the business.

a) Studies and analysis of operations of any company will always point to areas of inefficiencies and improvements as far as costs and output is concerned in relative terms. This does not and should not be construed as a judgment on individual performances of people - these evaluations are part of continous improvements within the organization aimed at long term growth, sustainability and profitability. While saying "ïts just business" may be trivialization of the issue, it must be kept in mind that at times the survivability of the organization itself may be impacted by these decisions. It may well be that in the absence of such decisions the viability of the business/organization may itself be called into question. Hence the action may actually be more "ethical" than maintaining status quo where losses across various tangible and intangible dimensions could be witnessed.

b) The question of the larger community is always a very relevant one, and has been given a lot more importance in recent years as management thought has evolved. There is a conscious move from protecting the interests of just the shareholder through management decisions, to a wider purpose which includes and accords great importance to other stakeholders like the employees (and hence their dependents) and the community at large. So the actual decision to outsource needs to take into account the efficiencies obtained by outsourcing the function in light of the notional losses to aforementioned members of the community. While this cannot be a purely quantitative exercise, it can be made rigorous through a deeper understanding of the various scenarios that will play out in the event of making different decisions.

c) As a CEO, such decisions are always tough and it must be remembered that there can be no standard playbooks on what is right, wrong, morally/ethically palatable etc. What is important is a set of clear objectives that value chain evaluations are going to fulfil, an understanding of the issue at hand, a model/forecast of possible future scenarios considering various possible decisions that could be made and a rigorous cost-benefit analysis of these scenarios. Any decision made post such a comprehensive engagement is more likely to be holistic and better globally over a long term regardless of whether a change towards outsourcing is mandated or not.