Working Lives and in-House Outsourcing

Chewed-Up by Two Masters

Jacqueline Zalewski, Jacqueline M. Zalewski

• Publisher: Routledge
• Year: 2018
• eBook ISBN: 9780429885549
• Edition: 1
• Topic: Ciencias sociales
• Subtopic: Sociología

This book offers a sociological account of the process by which companies instituted and continue to institute outsourcing in their organization. Drawing on qualitative data, it examines the ways in which internal outsourcing in the information technologies and human resources professions negatively affects workers, their work conditions, and working relationships. With attention to the deleterious influence of outsourcing on relationships and the strong tendency of market organisations to produce social conflict in interactions – itself a considerable 'transaction cost' – the author challenges both the ideology that markets, rather than hierarchies, produce more efficient and less costly economic outcomes for companies, and the idea that outsourcing generates benefits for professional workers in the form of greater opportunity. A demonstration of the social conflict created between employees working for two separate, proprietary companies, Working Lives and in-House Outsourcing will be of interest to scholars with interests in the sociology of work and organizations and the sociology of professions, as well as those working in the fields of business management and human resources.

1 “Trading in human beings on behalf of cost reduction”

An introduction to in-house outsourcing (inO) and why companies outsource

Introduction: how did I get here?

My journey with “in-house outsourcing” (inO) began in May 2002 on my best friend’s porch in the Midwest. I was visiting George in a big city and a number of his local friends were there for a barbecue. They are all white-collar professionals with successful careers. Like my friend George and his friend Melissa,¹ many had jobs with companies who had excellent reputations as “good employers.” From past conversations, I was well aware that both George and Melissa’s firms used contingent workers (i.e., temporary workers). For example, George’s employer Foreign Motors Inc. extensively used temporaries in production jobs in one form of contingency. Per Melissa, Concerto Inc. regularly employed consultants who worked on special projects in professional roles in another form of contingency work.

This time, however, Melissa told us that her employer Concerto Inc. had recently decided to outsource all of their information technology (IT) infrastructure, hardware, software, and most of their support to another company. Yet most of the hardware, business processes, and the people doing the work would continue to remain onsite at the physical location of Concerto Inc. While Melissa was not personally affected – she was part of a small group of IT development staff retained to work on special projects related to Concerto Inc.’s core product lines – hundreds of other IT professionals at her company would be outsourced. Per Melissa, rumors were rampant onsite and warned that this would not be the last large outsourcing deal Concerto Inc. employees would see at their company.² The rumors emphasized the CEO planned on shedding most of Concerto Inc.’s administrative operations to outsourcers so that the company could better focus on their “core competencies.” In this case, those primary functions were developing home product remedies and marketing them to consumers.

I was dismayed by Melissa’s news. My sociological understanding of organizational changes in the workplace and the effects of new technologies strongly implied that a developing outsourcing trend likely meant that the middle-class lifestyles white-collar professionals like Melissa had enjoyed because of their jobs in stable positions were becoming tenuous. Indeed, since our conversation, they have weakened.

After that gathering with friends through early 2018, I have extensively read news reports and scholarly studies that discussed the increased outsourcing of jobs. Most often, I found that the causes for its growth and the advantages of outsourcing were discussed in public media and academic sources. Only sometimes did media outlets discuss potential disadvantages of outsourcing for the companies and affected workers. A year after the barbecue, in 2003 at a family celebration, Russell – then the IT security director for Merchant Inc. – told me his employer was outsourcing a significant portion of their IT business processes, hardware, and support. Russell described the emotional anguish experienced by upwards of a 200-person IT department. At the time I heard of this case, Merchant Inc. had not decided which employees would be staying at Merchant Inc. as a direct employee (Russell included) or transferred to the outsourcing company. Furthermore, employees did not know if the new jobs with Master Technologies – the chosen outsourcing “vendor” – would remain onsite or be moved from their physical suburban location.³

In 2004, I chose to research business process outsourcing for my dissertation for several reasons. Foremost, in the public sphere, I felt Americans were missing an unfolding and important story about widespread changes to the company job. In 2004 and 2005 (when I started interviewing), the dominant theme in news reporting was the exporting of work and jobs to less industrialized countries. The outsourcing archetype seemed to be the movement of IT work and jobs to nations like India.⁴ At the time, offshoring was the form of outsourcing that then presidential candidates Bush and Kerry were debating. Little else was being said about “business process outsourcing” as it is commonly called and – especially – the “in-house” kind of outsourcing affecting those close to me. There were occasional exceptions, such as small reports of deals in the business section of the local newspaper.⁵ Ironically, the Bureau of Labor Statistic’s (BLS) own estimates of job loss due to the domestic relocation of work to outsourcing provider firms in the US indicated that they accounted for two-thirds of the job losses in this category during the first quarter of 2004 (as reported by Hopkins 2004 for Reuters and MSN Money; BLS 2004).

“In more than seven out of 10 cases (of layoffs at companies with at least 50 people), the work activities were reassigned to places elsewhere in the U.S.,” The Bureau of Labor Statistics said in its report on mass layoffs for the January-to-March period.

More recently, in their mass layoff statistics, the BLS reports that a significant number of “separations” (i.e., layoffs) occurred in 2012 and 2013 because these jobs moved to a different US location. In 2012, their figures imply that layoffs preceding the shift of jobs to another US company were greater compared to those that moved out of the country. In 2013, the BLS data shows that this ratio reversed and the number of jobs and workers that “separated” and moved offshore was greater than those that moved to another US location. Per a recent inquiry I made to BLS on January 29, 2018, since 2013 the mass layoff statistics program has been discontinued. No more data has been collected or is available from the BLS on mass layoffs in the US.

It was clear there was – and still is – a lack of labor analysis and media coverage on the jobs that are being outsourced to provider firms who continue to deliver the work onsite or situate the job and provision of work within US borders. The result is that one in three US adults, according to a recent PEW research survey (Graf 2018), perceived the “increased outsourcing of jobs to other countries as the top trend they say has hurt their job or career.” Compared to the predominant perception about outsourcing as the offshoring of jobs, since 2004, inO has been a significant trend in which the public has not been sufficiently informed. Labor economists, as do I, lament this lack of public awareness. For example, David Weil recently contributed to the Huffington Post an article (12/14/17) titled, “Millennial Employees Aren’t the Problem. The Transformed Workplace Is: The Nature of Work Has Changed, and Millennials Are Getting Screwed.”

I also have an ongoing interest in work and workplace changes because of my social location. I grew up in Kenosha, Wisconsin, a working-class community in the US Midwest. Kenosha’s economy and jobs grew around the production of durable goods and most notably the automobile. Over the 20th century, Kenosha was home to Jeffrey Motors, then American Motors, and then Chrysler/Jeep manufacturing plants. Like industrial centers throughout the Midwest, economic recession, deindustrialization, and greater competition in these and most industries in the 1970s and 1980s led to considerable job losses in Kenosha. See, for example, Kathryn Dudley’s (1994) excellent research on displaced automobile workers in Kenosha, Wisconsin in her award-winning book The End of the Line: Lost Jobs, New Lives in Postindustrial America. Job loss hurt many working-class families when they were forced from good paying jobs that afforded middle-class lifestyles into work that offered significantly lower wages, more instability, and fewer employment protections. Clearly, the economic and social landscape became more chaotic, competitive, and cut-throat. Peoples’ lives and livelihoods across the US were increasingly at risk.⁶

In graduate school in the 1990s, I became interested in the growth of contingent work. Firms began instituting “just-in-time” inventory principles as a dominant labor strategy and making historically permanent jobs increasingly temporary. During the summer of 1998 – with the help of friends in the industry – for a master’s thesis I completed field research as a temporary worker in a Chicago factory and experienced the degrading effects from the job conditions, the unstable working time, and witnessed the precarious effects on peoples’ lives from this just-in-time and low-wage labor practice. After this, I completed comprehensive exams in the sociology of work and new technologies fields. Finally, in 2005, I started conducting qualitative research on the inO of information technologies (IT) and human resources (HR) jobs and work. I completed data collection 12 years later in early 2017. This book is based on the 51 interviews and – over the past 12 years – ongoing news reporting, emails from the Outsourcing Institute (OI) about their “roadshows,” observations and subject contacts I made at two of their events, industry reports from the OI and other market analyst organizations, and academic research on outsourcing.⁷

The outsourcing of work

Many companies in the US and other advanced industrial societies and economies have been outsourcing work for some time (Abraham & Taylor 1996; Kalleberg & Marsden 2005; Pfeffer & Baron 1988). For example, as described by Abraham and Taylor, “over the period from 1972 to 1993, the Bureau of Labor Statistics shows that jobs in the business services industry grew by 288%” (1996:413). When I asked about the outsourcing of other jobs at their employers, most subjects in my study replied similarly to Russell and Barbara below. Their employers had been outsourcing functions such as sanitation, logistics, and heavily regulated (and standardized) tasks like payroll and benefits administration to third party suppliers for some time.

Merchant Inc. outsources all of their logistics. In other words, the moving of products from a distribution center to stores. That’s all outsourced to a trucking company. They don’t have their own trucks. [J: HR?] People Solutions does some of their payroll processing. Benefits… . They don’t outsource 100% of everything in a given area but they outsource chunks. Except for trucking, that’s totally outsourced. Merchant Inc. has their own warehouses but they outsource all of the transportation to those warehouses.

(Russell, former IT Security Director at Merchant Inc.)

Rapture Hospital’s rationale was their expertise is patient care… . Rapture Hospital had always outsourced what they considered their non-expertise type functions to outside companies. They had outsourced their food service, their security, their housekeeping, their engineering services, building services, all that kind of stuff. That’s all farmed out.

(Barbara, former IT Manager at Right Technology Solutions)

The inO of IT and HR jobs in this book are similar to the traditional outsourcing in more routinized (e.g., sanitation) and heavily regulated (e.g., payroll and CDL drivers) job functions identified above. Although, similarly to economists Hira and Hira in their analysis of the outsourcing of jobs in America (2005), most people would characterize the workers in these professional fields as embodying higher-level skill sets. In Zuboff’s terms, the IT and HR work outsourced in cases here required “intellective skills” involving theoretical knowledge, and inferential and procedural reasoning (1988).

To understand what outsourcing is, it helps to note how it differs from other forms of nonstandard work like employment in the temporary help industry or jobs in contracting. Importantly in jobs working for temporary agencies or consulting for a company, the customer retains control and ownership of the work. Because of this, within legal parameters, customers also have the power to direct workers in these types of contracted jobs (Henson 1996; McNally 1979; Osnowitz 2010; Parker 1994; Rogers 1995; Smith 1994). In contrast, per industry insiders – for example Peter Bendor-Samuel (2000) below – and the subjects in this research, the key difference with outsourcing is that “the control and ownership of the work gets transferred” to the vendor company. The customer of an outsourcing agreement determines the end results of the business process, i.e., the configuring of “measurable performance metrics” (Gartner Inc. 2005). However, the provider firm chooses the best means of accomplishing this outcome because they own and control the work. Legally, the customer no longer has the power to direct the work of employees working for outsourcing companies.

Outsourcing takes place when an organization transfers the ownership of a business process to a supplier. The key to this definition is the concept of transfer of control. This definition differentiates outsourcing from business relationships in which the buyer retains control of the process or, in other words, tells the supplier how to do the work. It is the transfer of ownership that defines outsourcing and often makes it such a challenging, painful process [my emphasis]. In outsourcing, the buyer does not instruct the supplier how to perform its tasks but, instead, focuses on communicating what results it wants to buy; it leaves the process of accomplishing those results to the supplier.

(Bendor-Samuel 2000:25)

Bendor-Samuel has been an active proponent in the outsourcing industry since the 1960s. He is currently CEO at Everest Group, a company that markets itself as a “consulting and research firm focused on strategic IT, business services and sourcing.” Sourcing is a popular way for identifying traditional outsourcing; i.e., the kind represented in this book. Similar to my discussion in Chapter 3 of the problematic social relations typically involved in “reworking a new arrangement” in the cases here – it is interesting that Bendor-Samuel notes the process of transferring ownership over the work from a customer to the vendor is fraught with “challenges” and is “painful.”

To understand why outsourcing has grown, academics generally identify economic and technological causes. According to economist scholars, economic conditions in the US began changing in the 1960s because of the “unbalancing of institutional circuits that connect production and consumption” (Piore & Sabel 1984:4). Essentially the Fordist system of mass production, utilized by many large US manufacturers during the mid-20th century, became unsustainable. It was untenable because of the customized consumer preferences that were beginning to characterize the American public’s buying patterns (DiTomaso 2001; Harrison 1994; Reich 1992). Along with this, US manufacturers began feeling pressure from foreign competitor companies (Hollister 2011). This was most obvious in the automotive industry, as manufacturers such as Toyota utilized tiers of suppliers and flexible systems of lean, specialized production to produce more customized automobiles to better match the consumer preferences of the American public (Womack, Jones, & Roos 1990).

Japanese companies posed serious challenges to US based manufacturers, as they began whittling away at their market share in the automobile industry. As a result, greater uncertainty in markets and increased economic globalization from the growing presence of foreign competition produced greater volatility in most US consumer markets. This uncertain economic environment led many companies to strategically begin instituting a variety of cost reduction strategies to reduce their risk and sustain the profitability of their companies (Kalleberg 2000; Pfeffer & Baron 1988; Powell 1990). Economically then, these realities have preceded the dismantling or externalization trend of vertically integrated organizations and they have directly affected the growth in the outsourcing of jobs.

Scholars examining the growth in nonstandard or contingent work and the externalization of jobs also highlight the importance of technology changes over time to explain these patterns (Hollister 2011; Pfeffer & Baron 1988; Piore & Sabel 1984; Powell 1990; Sennett 1998). For example, Pfeffer and Baron identify the “meterability of computers and the decreased cost of computing power” as interacting with the eco...

Table of contents

• Cover
• Title
• Copyright
• Dedication
• Contents
• List of tables
• Acknowledgments
• 1 “Trading in human beings on behalf of cost reduction”: an introduction to in-house outsourcing (inO) and why companies outsource
• 2 “Betrayed, sold, and rebadged” to outsourcing companies
• 3 “Chewed-up”: the adversarial nature of work relationships in markets
• 4 “It all revolved around numbers”: greater commodification of the work and culture with outsourcing
• 5 “(Only) better for some”: consent, resistance, and professional careers with outsourcing companies
• 6 Conclusion
• Index