Shared Services in Lieu of Outsourcing: Offshore Captive Internal Bank
October 16, 2009 by Bierce & Kenerson, P.C.
Summary.
In making the classic “buy vs. build” decision in relation to services to manage sophisticated business processes, enterprises may elect to establish a captive enterprise to perform “shared services” for affiliates. The “shared services captive” is an alternative to buying outsourced services. But it is also an alternative to internal administration of a business process separately by individual departments, divisions or lines of business. Shared services captives can provide key advantages for diversified multinational enterprises, particularly as a cost-reduction technique when sales and sales margins might be eroding in a global economic downturn.
Captive Internal Bank.
Sony Corporation, the Japanese-based electronics and entertainment group, announced in June 2003 that it was planning a major expansion of intercompany banking services to help reduce financing charges and manage currency risks for all affiliates.
Cost Savings.
According to Sony’s managing director for Global Treasury Services, Mr. Hiro Kurihara (as quoted in an interview with the Financial Times), the London-based shared services operation will generate cost savings of approximately $30 to $40 million per year.
Risk Reduction.
In addition, Sony projected reduction of risks of changes in currency in connection with the settlement of intercompany transactions. Sony plans to offset foreign exchange risks with services — normally offered by money-center banks — of “automatic cashless settlements” and “automatic sweeping.” This requires investment in information technology and integration with others in financial services markets.
Centralization, Specialization and Scale.
Sony’s Global Treasury Services acts like a clearing bank for all affiliates. In this centralized function, the shared services affiliate can aggregate volumes of transactions that are generic, but whose handling requires specialized skills. As a result, economies of scale can reduce per-unit costs and increase focus on specialized transactions that internal financial executives in operating affiliates might not have, or might find difficult, time-consuming or costly to acquire. The Sony shared services affiliate reportedly manages 95% of the enterprise’s financial derivatives and exchange swap transactions.
Transition and Transformation.
The transition to an internal financial services captive is part of a global restructuring that will result in accounting charges of approximately $1.2 billion. Restructuring to include new, enhanced shared-services affiliates may help multinationals such as Sony to transform their services models by increased efficiency and cost management.
Integration with Insourced Transactions.
Establishment of a shared services affiliate requires careful attention to integration with other internal processes. The shared services affiliate must define its “services offerings” and enable managers in affiliated lines of business to use the services with minimal cost and delay. As a result, virtually all “shared services” are digitally integrated. The degree of integration may range from the use of telephones and e-mails to a web-enable Internet-accessible portal. As a result, shared service affiliates generally are purchasers of services and technology from third parties.
Integration with Outsourced Transactions.
Indeed, shared services providers may be the largest purchasers of outsourced transactions. For example, Proctor & Gamble was negotiating for a complete sale of its shared services affiliate to a global outsourcing services provider in 2002. When P&G was unable to obtain its desired sales price at for the services charges that it wanted, P&G chose instead to hire Hewlett-Packard to provide selective outsourced services to support its insourced “shared services” operation.
Advantages in Shared Services.
Shared services affiliates, or “captive” service companies, have many of the advantages of an outsourcing without any loss of ownership and control over business processes, technology, intellectual property and personnel. Shared services captives can develop and retain knowledge capital involving sophisticated business transactions that individual affiliates cannot acquire due to smaller volume of similar transactions. As the business process involved becomes more subjective and susceptible to business judgment, shared services captives retain an advantage over outsourcing because that very subjectivity might be a core competitive advantage and might not be scalable.
Risk Management in Shared Services.
Adoption of a “shared services captive” approach involves a number of risks that can be managed by treating the captive as an external service provider of outsourced services. Such techniques include:
- adoption of “service level agreement” obligations, with financial incentives and consequences for failure, applicable to the management and employees of the shared services affiliates;
- details concerning the integration of the captive’s services with those of the other operating companies or lines of business;
- suitable insurance coverages;
- suitable contracting procedures for outsourcing of certain perfunctory tasks of the shared services captive to independent outsourcing services providers;
- human resources and intellectual capital management techniques for aggregation and accumulation of related processes and improvement in business processes, quality of service and optimal alignment with the key performance indicators of the core business’s mainstream operations.
Shared Services on the Continuum of Insourcing and Outsourcing.
In conclusion, shared services companies, or captives, perform roles that run along the continuum of fully vertically integrated insourced operations to a skeleton of core competencies supported by a network of outsourced operations. If a business process can be outsourced, it can also be insourced after the outsourcing. If it has been insourced, it could be structured more efficiently as a captive to look like an outsourcing. And once structured as an outsourcing, it could become a true outsourcing service provider to support non-affiliated customers, and could even be spun off to shareholders or sold to a strategic buyer. Thus, the captive shared services organization can mutate according to trends affecting customers, suppliers, corporate strategies, changing processes and changing marketplaces. In establishing internal captives, the lessons of outsourcing can improve performance and flexibility.
Trade Secrets in Outsourcing
October 9, 2009 by Bierce & Kenerson, P.C.
Summary.
The ability to develop and protect trade secrets is an essential requirement for the development and maintenance of an enterprise’s competitive advantage. This commentary discusses some of the business, contractual and criminal issues involved in trade secrets in outsourcing. At a minimum, both users and providers of outsourced services should understand the nature and scope of trade secrets being used in the delivery of the services.
Business Issues.
Benefits to Service Provider.
Trade secrets give economic benefits to businesses by creating barriers to entry by competitors, facilitating and accelerating business processes that can be delivered to customers, and allowing the business’ employees, contractors and customers to collaborate efficiently. However, a trade secret loses its power if it becomes public. As a result, any business that has or uses trade secrets should take steps to protect and preserve them. Outsourcing service providers normally are keen to adopt and maintain appropriate measures to protect their trade secrets.
Risks to the Service Customer.
Trade secrets create risks for the customer. The service provider might not be willing to allow the customer to use the provider’s trade secrets after the service agreement expires. Well-advised customers adopt appropriate protections to ensure their ability to continue operations whether or not the same service provider continues to render the required services.
Contractual Issues.
Protection of trade secrets can be achieved by several methods:
- non-disclosure agreements;
- restrictions on access to persons within the business itself, such as preventing persons in one group from accessing confidential business processes in another group;
- retention of the key information in a small group of senior managers.
Intellectual Property.
Most laymen believe that trade secrets are a form of intellectual property. Actually, they are not owned, but only kept confidential. Indeed, many businesses in the same industry might know and use the same trade secrets in delivering goods or services to customers. However, none of them owns the trade secret, since the others that know it have the lawful right to use it. This assumes each acquired the knowledge without wrongful access to another’s secrets.
Trade Secret is Not a Patent.
Parties to an outsourcing contract should understand the differences between patents and trademarks. In general, a patent is a governmentally-granted monopoly, for a statutorily defined limited period, to make, use or sell products or services using an idea or process. In general, a trade secret is not exclusive, is not made public and may be continued in use for an indefinite period. An example of a trade secret is the secret formula for making Coca-Cola®, but not the formula for making soap.Misappropriation of Trade Secret under Common Law.
Misappropriation of a trade secret is a well-recognized tort under common law in England and other countries that adopt the common law system. Anyone who acquires knowledge of the trade secret by a disclosure that is not authorized can be held liable for “misappropriation” of the trade secret. Such misappropriation is a tort, or violation of a common law duty that causes damage that can be foreseen when the misappropriation occurs.Statutory Protection of Trade Secrets.
Trade secrecy rights arise out of both common law and state and federal statutes, as well as foreign laws. In the United States, trade secrets are also protected by laws adopted by states.WTO.
Article 39 of the Agreement on Trade-Related Intellectual Property under the GATT Uruguay Round likewise protects trade secrets in member countries of the World Trade Organization.Trade Secret.
Fundamentally, a trade secret has three components.
- The secret is some form of knowledge that is used in a business.
- The owner derives economic or business benefit from the fact that such information is secret.
- The owner has taken reasonable measures to keep such information secret.
Criminal Issues.
Criminal Abuse of Trade Secrets under the U.S. Economic Espionage Act of 1996.
The U.S. Economic Espionage Act of 1996 amended the federal criminal statutes to impose criminal penalties on persons who engage in misappropriation of trade secrets, whether for private gain or for a foreign government. Protection of private trade secrets is therefore a matter of public policy.
Definition of Trade Secret.
The Economic Espionage Act of 1996 defines trade secret consistently with the common law. The owner must derive economic or business benefit from the secrecy. The owner must take reasonable protective measures. And the information that is the trade secret can be very broadly defined as:all forms and types of financial, business, scientific, technical, economic or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled or memorialized physically, electronically, graphically, photographically, or in writing.” 18 U.S.C. 1839(3).
Economic Espionage.
In the case of espionage, the offense occurs when the misappropriation of trade secret is done “knowingly and without authorization,” while “intending or knowing that the offense will benefit any foreign government, foreign instrumentality or foreign agent.” 18 U.S.C. 1831(a).“Economic espionage” occurs when such a person “steals, or without authorization, takes, carries away, or conceals, or by fraud, artifice, or deception, obtains a trade secret.” 18 U.S.C. 1831(a)(1). Receipt of a stolen trade secret, attempted theft or attempted receipt, and conspiracy to do so, are also “economic espionage.” 18 U.S.C. 1831(a)(2), (a)(3), (a)(4) and (a)(5).
Theft of Trade Secrets.
Under the same law, the offense of “theft of trade secrets” occurs, when the same acts are undertaken “with intent to convert a trade secret…to the economic benefit of anyone other than the owner thereof” and “intending or knowing that the offense will injure any owner of that trade secret.” 18 U.S.C. 1832(a). Similarly, receipt, attempted theft, attempted receipt and conspiracy are all predicate offenses for “theft of trade secrets.”Penalties.
The penalties for espionage are more severe than for simple theft of trade secrets. For economic espionage, individuals are subject to penalties of $500,000 and 15 years’ imprisonment per offense, while any “organization” that commits an offense is subject to a fine up to $10 million. For theft of trade secrets, individuals are subject to fines and imprisonment of up to 10 years, while organizations are subject to fines up to $5 million. 18 U.S.C. 1831(b) and 1832(b).Inapplicability to Trade in Services.
The Economic Espionage Act of 1996 does not necessarily protect trade secrets when there is a delivery or performance of services that use trade secrets in only one state in the Untied States, or where there is no resulting sale of a product.Thus, in the case of “theft of trade secrets,” the offense exists only where the conversion (theft) of the trade secret “is related to or included in a product that is produced for or placed in interstate commerce or foreign commerce” of the United States. 18 U.S.C. 1832(a). If the thief is in the business of providing services, then this statutory requirement would appear to fail. Thus, customers that are consultants, advisors, or providers of intangibles (such as license rights, banking services, financial advice, etc.) would appear not to fall under this statute.
Place where Offense is Committed.
The Economic Espionage Act of 1996 covers conduct occurring anywhere in the world. However, acts done outside the United States are only covered where either (1) the offender (a “natural person”) is a U.S. citizen or permanent resident alien or an “organization” organized under American law, or (2) an act in furtherance of the offense was committed in the United States.” 18 U.S.C. 1837.Thus, economic espionage or theft of trade secrets could not occur if the act were done between non-resident aliens and there was no furthering act in the United States.
Criminal Abuse of Trade Secrets under the U.S. National Information Infrastructure Protection Act of 1996.
Similarly, the Economic Espionage Act of 1996 adopted a subtitle, the “National Information Infrastructure Protection Act of 1996,” that expands the scope of “protected” computers. 18 USC 1030. Under prior law, private industry computers used in government and financial institutions enjoyed protection from unauthorized access. The National Infrastructure Protection Act of 1996 expanded the scope of protection to include computers used in business. The new law criminalized the act of making any unauthorized communication to third parties, or the unauthorized retention, of “information from any protected computer if the conduct involved an interstate or foreign communication.” 18 U.S.C. (a)(2)(C). It is now illegal to attempt to extort “any money or thing of value” from any person, firm, governmental entity or other legal entity, by transmitting any communication (in interstate or foreign commerce of the United States) that contains a “threat to cause damage to a protected computer.” 18 U.S.C. 1830(a)(7).
Impact of Espionage Law on Outsourcing.
Outsourcing companies that manage “protected” computer networks for their clients must interpret this law. Does it prevent an outsourcer from threatening to “damage” a computer in order to get paid the amount lawfully due under the contract? The statute does not define “damage” to include consequential damage (where the client’s business is damaged but the client’s computers are not. Rather, “damage” is defined as “any impairment to the integrity or availability of data, a program, a system or information” that where the impairment causes any one of three types of loss: (1) any loss of $5,000 or more in value during any one-year period “to one or more individuals,” (2) any actual or potential modification or impairment to “the medical examination, diagnosis, treatment, or case of one or more individuals, (3) any physical injury to any person, or (4) any threat to public health or safety. 18 U.S.C. (e)(8).As a result, the National Information Infrastructure Protection Act of 1996 does prevent outsourcers from shutting down, or threatening to shut down, facilities or services that are used in providing medical, emergency or public safety services.
Criminal Prosecutions under the Espionage Act.
As of January 2003, only about 35 prosecutions had been filed against people accused of abusing trade secrets or threatening protected computers. According to a January 2003 article by The Associated Press, prosecutors charged a college student with theft of hundreds of secret documents from a large national law firm where the student had worked as a summer clerk. The student allegedly stole documents from files that his job required him to examine for purposes of litigation for the law firm’s client. The student reportedly sent copies of such documents to three websites for posting, though he was not claimed to have done so in return for any money. The trade secrets were owned by DirecTV, owned by Hughes Electronics Corp., which said that it had invested over $25 million in the development of its most recent “Period 4” anti-piracy access cards for viewer satellite TV signal descrambler boxes. The recipient websites, none of which apparently solicited this particular set of secrets, reportedly were offering their readership information on how to obtain access to satellite television signals.Lessons Learned from the Crimes of Others.
While this case focused on the prosecution of the allegedly rogue student, The Associated Press article did not discuss the vicarious liability of the national law firm that hired the student, or the liability of the national law firm for any negligence in the hiring or supervision of the student and the documents to which the student had access.Service providers should adopt measures in the fields of document access, physical security of documentation and hiring and supervision of employees. Ultimately, however, even a well-designed system to prevent “insider” abuses will not stop someone from abusing a trust. However, even the independent abuse of trust by a rogue employee might not shield the employer.
International Outsourcing.
This U.S. legislation governs activity conducted in the United States. It may cover foreign activity having an impact in the United States. But extension of criminal jurisdiction one country’s laws into another country generally is treated as an infringement on sovereignty, and lacking in “comity” between nations, if there is no treaty or convention authorizing such extension. Accordingly, contracting with foreign service providers does not involve the same legal enforcement rights as a purely domestic American contract.
Business Intelligence and Industrial Espionage in Outsourcing
October 9, 2009 by Bierce & Kenerson, P.C.
Boeing Loses $1 Billion in Transactions as Punishment, Escapes Debarment
Summary.
“Business intelligence” refers to the practice of collecting and analyzing competitive information in the marketplace to assist an enterprise in self analysis and redirection of its resources to maintain and improve competitiveness. “Industrial espionage” refers to the clandestine methods of obtaining competitive information that is not publicly available. As a legal matter, this distinction can have serious consequences. This case study offers some suggestions for staying on the right side of the law not only in business intelligence but also for internal audit controls and business ethics.
Boeing Punished.
In July 2003, the U.S. Air Force hit Boeing Company with the harshest punishment on any major U.S. military contractor in decades. Boeing was found to have stolen thousands of pages of confidential technical documents of its archrival, Lockheed Martin Corp. Boeing reportedly used such industrial secrets in submitting proposals to the Air Force in 1998 to provide satellite launching services. As a result, the Air Force transferred to Lockheed the services of providing seven launches previously awarded to Boeing, and in addition awarded three more launches to Lockheed.
Boeing Escaped Debarment: “Too Big to Punish”?
Many commentators on the Boeing punishment have asserted that Boeing escaped debarment under the Federal Acquisition Regulations simply because it was too big to punish. The losses by other agencies would have been considerable. Instead, the punishment related to the Boeing business segment that had allegedly violated the law, rather than to all other Boeing divisions. This punishment reflects the difficulty of the Government’s use of the debarment process to protect Government interests when the supplier community is highly concentrated and consolidated.
The Economics of Business Intelligence.
Business intelligence serves a valid competitive purpose in the marketplace. Gathering publicly available information:
- sharpens the competition and increases opportunities for consumer and customer choice;
- enables competitors to restructure their offerings of services and goods, often by restructuring key business processes for improved efficiency, reduced cost, better quality, a more attractive suite of services and goods and a broader appeal to a wider range of customers;
- and improves the efficiency of markets, accelerating improvements in customer service and thereby improving the customer’s quality of life, integration of external services with in house services and other external services.
The Law of Business Intelligence.
The law of business intelligence is limited by common law and statutes that protect proprietary rights, privacy rights and intellectual property.
Debarment under the Federal Acquisition Regulations.
Causes of Debarment.
Debarment can occur based on conviction, violation of law or a serious or compelling cause. Debarment is a remedy available to the U.S. Federal Government under the Federal Acquisition Regulations. The purpose is to exclude “ineligible” contracts from new bidding.
Violations. The debarring official may debar a contractor for a conviction of or civil judgment for:
(1) Commission of fraud or a criminal offense in connection with-
(i) Obtaining;
(ii) Attempting to obtain; or
(iii) Performing a public contract or subcontract.
(2) Violation of Federal or State antitrust statutes relating to the submission of offers;
(3) Commission of embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements, tax evasion, or receiving stolen property;
(4) Intentionally affixing a label bearing a “Made in America” inscription (or any inscription having the same meaning) to a product sold in or shipped to the United States or its outlying areas, when the product was not made in the United States or its outlying areas (see Section 202 of the Defense Production Act (Public Law 102-558)); or
(5) Commission of any other offense indicating a lack of business integrity or business honesty that seriously and directly affects the present responsibility of a Government contractor or subcontractor.
Nonperformance; Violations of Public Policy.
In addition, a debarring officer my debar a contractor, based upon a preponderance of the evidence, for:
(i) Violation of the terms of a Government contract or subcontract so serious as to justify debarment, such as-
(A) Willful failure to perform in accordance with the terms of one or more contracts; or
(B) A history of failure to perform, or of unsatisfactory performance of, one or more contracts.
(ii) Violations of the Drug-Free Workplace Act of 1988 (Pub. L. 100-690
(iii) Intentionally affixing a label bearing a “Made in America” inscription (or any inscription having the same meaning) to a product sold in or shipped to the United States or its outlying areas, when the product was not made in the United States or its outlying areas (see Section 202 of the Defense Production Act (Public Law 102-558)).
(iv) Commission of an unfair trade practice as defined in 9.403 (see Section 201 of the Defense Production Act (Pub. L. 102-558))
Violation of Immigration Laws.
Additionally, debarment is available as a remedy against a contractor, based on a determination by the Attorney General of the United States, or designee, that the contractor is not in compliance with Immigration and Nationality Act employment provisions (see Executive Order 12989). The Attorney General’s determination is not reviewable in the debarment proceedings.
Lack of Present Responsibility.
Finally, debarment may be imposed against a contractor or subcontractor based on any other cause of so serious or compelling a nature that it affects the present responsibility of the contractor or subcontractor. Such a determination is more subjective than other reasons, and may include abuse of confidential information through industrial espionage or as suggested below, failure to maintain internal accounting records and a history of unethical business conduct.
Consequences of Debarment.
Debarment prevents an entity from being an eligible bidder on new contracts but does not terminate existing contracts. Contractors debarred, suspended or proposed for debarment are also excluded from conducting business with the Government as agents or representatives of other contractors, from acting as subcontractors and from acting as individual sureties. Exceptionally, an agency head or a designee determines that there is a compelling reason for contracting with the debarred supplier. This exception leaves open the choice of sanctions for misconduct, and leaves the affected agencies free to decide to ignore the debarment for their own internal purposes. FAR 9.404.
Non-Procurement Common Rule.
Also, under the “non-procurement common rule,” debarred contractors may be ineligible for nonprocurement transactions such as grants, cooperation agreements, scholarships, fellowships, contracts of assistance, subsidies, insurance and other government benefits.
Existing Contracts Not Abrogated.
Notwithstanding the debarment, suspension, or proposed debarment of a contractor, federal agencies may continue contracts or subcontracts in existence at the time the contractor was debarred, suspended, or proposed for debarment unless the agency head or a designee directs otherwise. In addition, the Governmental agencies may continue to order goods or services under purchase orders against existing contracts, including indefinite delivery contracts, in the absence of a termination. However, agencies may not renew or otherwise extend the duration of current contracts, or consent to subcontracts, with contractors debarred, suspended, or proposed for debarment, unless the agency head or a designee authorized representative states, in writing, the compelling reasons for renewal or extension.
Business Judgment and Evaluation of Factors in the Decision to Debar.
Under the Federal Acquisitions Regulations (Section 9-406(a)), before arriving at any debarment decision, the debarring official should consider a range of business judgment considerations and an assessment of the impact on the government factors. The list includes:
(1) Whether the contractor had effective standards of conduct and internal control systems in place at the time of the activity which constitutes cause for debarment or had adopted such procedures prior to any Government investigation of the activity cited as a cause for debarment.
(2) Whether the contractor brought the activity cited as a cause for debarment to the attention of the appropriate Government agency in a timely manner.
(3) Whether the contractor has fully investigated the circumstances surrounding the cause for debarment and, if so, made the result of the investigation available to the debarring official.
(4) Whether the contractor cooperated fully with Government agencies during the investigation and any court or administrative action.
(5) Whether the contractor has paid or has agreed to pay all criminal, civil, and administrative liability for the improper activity, including any investigative or administrative costs incurred by the Government, and has made or agreed to make full restitution.
(6) Whether the contractor has taken appropriate disciplinary action against the individuals responsible for the activity which constitutes cause for debarment.
(7) Whether the contractor has implemented or agreed to implement remedial measures, including any identified by the Government.
(8) Whether the contractor has instituted or agreed to institute new or revised review and control procedures and ethics training programs.
(9) Whether the contractor has had adequate time to eliminate the circumstances within the contractor’s organization that led to the cause for debarment.
(10) Whether the contractor’s management recognizes and understands the seriousness of the misconduct giving rise to the cause for debarment and has implemented programs to prevent recurrence
Proposed Debarment of MCI WorldCom.
Debarment may also be asserted for lack of adherence to internal controls over accounting and reporting systems and business ethics. This argument was asserted against MCI (formerly WorldCom) on July 31, 2003, subject to administrative determination.
The argument is based on the contractor not being “presently responsible” because in this case, the contractor was alleged to have been previously involved in one of the biggest shareholder frauds in U.S. history and still suffered ten “material weaknesses” in the company’s internal controls. In the case of the General Services Administration’s notification letter to MCI WorldCom assorting the proposed debarment, “A material weakness is a weakness found to be pervasive throughout an encore organization. Each individual weakness is considered to be a significant control deficiency. The acceptable standard is for a company to have no material weaknesses or of one is found for it to be promptly corrected.”
In MCI’s case, the GSA alleged that the company needed to implement “procedures and controls to review, monitor and maintain general ledger accounts. Implementing adequate controls on the general ledger is significant because that is where all of the company’s financial transactions are summarized for all of its accounts.” MCI has promised to comply with Sarbanes-Oxley Act of 2003 by June 30, 2004 one year earlier than the statute requires. MCI noted it is aware of the deficiencies and is cooperating with the GSA and investigating agencies.
What a Customer Should Know about an Outsourcer’s Key Personnel.
Concentration of Sellers in an Industry.
Ordinarily an enterprise customer should not have many concerns about the prior employment history of a major outsourcing services provider. After all, the services provider’s business is to maintain the confidentiality of its customers’ confidential data. Without the customer’s trust that its data will be protected, the customer will not engage in outsourcing. If the outsourcing service provider is engaged in a tightly competitive environment with only a few competitors, the customer could become concerned that its confidential information might float around the industry and become known to multiple outsourcing service providers, particularly those who service the customer’s competitors. Thus, the customer should be concerned about the normal employment and privacy protection polices practices and enforcement methods that the external services provider has adopted.
Employment Practices.
Employment practices are probably the most frequently abused methods of collecting competitive information in an illegal or wrongful manner. Hiring an experienced person from a key competitor has long been a method of gathering competitive information. If the person was in a position of trust and confidence, having had access to key competitive policy, strategy and tactical information, the newly hired employee is in a position to damage his or her former employer’s business. Outsourcing customers may properly inquire about a proposed contractor’s hiring process.
Outsourcing: Evolution From Single Supplier to Best of Breed
October 9, 2009 by Bierce & Kenerson, P.C.
In a globalizing, services-based economy, outsourcing has rapidly grown in the last decade. Once confined to “low-value,” low-technology services such as a company’s in-house photocopy machines, messengers, food services and janitorial operations, outsourcing has moved “up the value chain.” At the same time, changes in the nature of outsourcing have led to a variety of other management tools such as multiple outsourcings for “best of breed,” greater internal discipline through “insourcing” under a “managed scorecard” and “shared services” subsidiaries. Roles and identities of service users are merging with those of service providers in a continuum of services.
This article focuses on the evolution of outsourcing in the last ten years and how new models have developed.
“Outsourcing” vs. “Out-Tasking.”
Outsourcing is the process of transferring to an external services provider (the “outsourcer”) the day-to-day responsibility for operating a business process of the corporate enterprise (the “user”). Typically, this involves a transfer of the personnel then employed by the user to the outsourcer’s payroll. Frequently, other assets are transferred as well.
In contrast, “out-tasking” is a more limited approach involving “contracting out” or “subcontracting” a task to a “consultant” or other service provider. This can run the gamut from individual projects for product development to a string of projects that are interdependent and require a certain workflow.
Types of Outsourced Services Today.
Currently, external services providers offer virtually any type of ongoing support for business processes. These range from human resources management, tax compliance, internal audit and real estate asset management to product design, manufacture, design, testing, marketing, logistics, distribution of goods and services worldwide. Given the right mix, one can “outsource” an entire enterprise. Indeed, some new businesses are based exclusively on Internet sales with outsourced support.
Deciding When to Outsource.
Outsourcing is suitable for many different situations. For publicly held companies seeking “efficient” and favorable share pricing, the earnings multiples generated by many capital-intensive assets might fail to support management’s high targets for ROI and ROE from “core business.” For such businesses, outsourcing allows liberation of capital from the constraints of price-earnings ratios and promote management focus on essential determinants of shareholder value. “Do the best, outsource the rest.”
For rapidly changing industries, outsourcing may be the tool of choice for obtaining rapid access to scalable production or to new technologies, a “partnership” with a recognized leader for transitional and long-term technology planning and marginal cost pricing for business processes requiring heavy capital investment.
In the context of mergers and acquisitions, divested companies need operational support from the day of a spin-off or split-off. Outsourced facilities can span the gap and give new management the necessary “breathing room” and allow focus on the core business. Outsourcing can also expedite integration of two merged companies with incompatible technical infrastructures.
Deciding What to Outsource.
In making any “buy” vs. “build” decision, as in outsourcing, financial considerations are critical. But the key driver is to distinguish between functions that are “core” (non-delegable) and those that are merely “essential.” Many “essential” functions are ripe for outsourcing under suitable conditions. For some enterprises, the “hard” decision is deciding what not to outsource.
The classic example of outsourcing revolves around information technology. Today, this field includes the converging technologies of data processing (especially using “enterprise resource planning” (ERP) and “supply-chain management” (SCM) software), telecommunications, Internet “e-commerce,” and remote processing through Internet service providers. In business and industry, this can involve both “back office” and “front office.” In financial services, it can even include the “middle office,” for compliance with financial reporting and securities laws.
At the “back office” level, this business function can be divided into a number of discrete elements. Customers rely upon, but rarely see
- the operation of a data center with mainframe computers running “legacy” applications,
- certain applications development and maintenance for custom programs,
- network administration for local area networks, wide area networks (including telecommunications) and now even “storage area networks” of storage devices for the burgeoning volumes of archival data and
- “help desk” services for employees with problems using the company’s information technology infrastructures.
At the “front office” level interfacing directly with the customer, outsourcers can provide “private label” services that allow a company to offer a host of resources that it does not own. In doing so, the company can specify in advance what it wants to do, how it wants to do it, and what it is willing to pay. By combining such services as customer relationship management, remote electric meter reading, electronic billing and the like, some new companies can sprout up to compete directly with “bricks and mortar” companies on a cost-effective basis without loss of service quality.
Evolution of Deal Structures.
In the early 1990’s, data services providers such as EDS, IBM, CSC, Perot Systems made their fortunes on long-term, monolithic packages of services covering a broad scope. The trend today is to find niche players to provide specialty services, but this requires significant supervisory and planning skills for the user enterprise. Sometimes one supplier acts as general contractor, or “first among equals,” and manages a consortium. Occasionally, joint ventures supplant the supplier-customer relationship, providing added incentives and risks for both sides. Current methodologies for competitive procurement of outsourcing services reflect the learning of former (or current) long-term deals. Renegotiation occurs regularly, but can only be effective if the necessary tools have been crafted into the deal in the first place.
Making It Work.
Senior management needs to be committed. After the deal is signed, in-house managers need to monitor and manage the supplier’s performance.
Done wrong, however, outsourcing can be a catastrophe. Multiple business risks are inherent in the outsourcing process.
If mismanaged, an outsourcing process could retard growth and result in unintended losses of momentum and key personnel. In such cases, the resulting disenchantment may swing the business process back to “insourcing.” However, “re-sourcing” to another vendor might prove more effective.
“Genetic Mutations” on Outsourcing: Shared Services, Insourcing, Managed Scorecard.
In the last five years, responses to outsourcing deals have generated the quest for “better” deal structures.
“Insourcing” is the process of bringing in-house a business function that was, or was at risk of, being transferred to an external service provider. “Shared services” subsidiaries provide common administrative functions for a group of affiliated companies.
To improve performance and forestall being outsourced, some in-house staffs are focusing on process improvement, sometimes agreeing to be managed as if they were external providers. In some cases, this reaction can produce self-management by “managed scorecard” techniques or in the establishment of “shared services” subsidiaries for cost efficiency. In either case, the “threatened” personnel then become external services providers of their own specialized, albeit generic, processes in the market.
The Independent Lawyer and the “Two Hat” Client.
Virtually every corporate user has the capacity to wear the two “hats” of “user” (in one outsourced business process) and supplier (in another). In major procurements, the assistance of knowledgeable “infrastructure services” lawyers can accelerate the process, reduce risk and facilitate future adjustments. For users-turned-suppliers, knowledgeable legal and business advisers can expedite the “go-to-market” strategy and achieve valuable payoffs in the selection, due diligence and negotiations phases.
Independent legal counsel with experience in both sides of these strategies can expedite and facilitate the process of determining the scope, selecting the outsourcer, negotiating the contract and ensuring implementation.
Sponsors of www.outsourcinglaw.com provide legal and practical business advice on the structuring and implementation of various strategies discussed in this article. For further information, contact one of our sponsors or Bill Bierce (author).
Deal Structure: Countertrade – Transformational Outsourcing — Call Centers — Customer Care
October 9, 2009 by Bierce & Kenerson, P.C.
Outsourcing Service Provider as Distributor for Customer’s Core Services
In early February 2004, IBM and Sprint Corp. prepared to announce a major outsourcing agreement for IBM to assume the responsibility for customer services for Sprint wireless PCS telecom services. The deal affects 5,000 to 6,000 jobs at Sprint. According to news reports, the value of the deal is estimated at $2 billion to $3 billion, which equals the total amount that Sprint forecasts in its own savings.
Scope; Metrics.
The arrangement appears designed to restructure existing call center operations, some of which had already been outsourced, to integrate call centers with technology-enabled data management on customer demand, customer satisfaction and market conditions in real time. IBM will be seeking to dramatically improve Sprint’s customer satisfaction through better customer segmentation, more efficient call routing, reduced average call handle times and a higher rate of first call resolution. IBM will provide customer self-service tools via the Internet and web-based services. IBM will also provide ongoing consulting services to Sprint to continually improve customer satisfaction. IBM will take over management of Sprint’s existing vendor-operated call centers (moving from one outsourcer to another) as well as a Sprint-owned call center in Nashville, Tennessee. IBM claims that in such outsourcing arrangements, “IBM is transforming, integrating and managing key business processes for [its customers] to become more flexible in adapting to market and customer variables in real-time.”
Countertrade: “Counter-Distribution Services.”
The transaction makes IBM one of Sprint’s largest distributors. In the joint press release, the two companies said the relationship will include “a long-term business alliance that designates Sprint as a key IBM vendor for wireless and wireline services and enables IBM to incorporate Sprint’s national PCS wireless services and its IT and data products and services into customized on-demand solutions for IBM’s customers.” Thus, IBM is expected to market Sprint’s core services — wireless and land-line voice and data services — to IBM’s other customers.
By appointing the outsourcing services provider as a distributor, this multinational outsourcing customer barters its purchasing power for marketing and sales, particularly with a global sales organization with easy access to the technical procurement executives in multinational enterprises. And as service provider IBM incurs risks of the failure of its customer Sprint to deliver promised services to IBM’s other customers. That results in a common effort that could be called a joint venture, but the parties did not call it more than a “business alliance.”
Countertrade: “Counter-purchase Agreements.”
The counter-distribution agreement has substantially lower risk of failure for the services provider than a simple counter-purchase by the service provider of its customer’s goods and services. When WorldCom went bankrupt in 2002, EDS took a substantial charge to its revenues, since the balance of trade was negative. EDS owed money to WorldCom for WorldCom’s services, but WorldCom was able to reduce its payments to EDS by reason of the bankruptcy protection for WorldCom’s operations. (Later, WorldCom changed its name to MCI). But if Sprint fails to deliver its services to IBM’s customers, IBM’s reputation will be tarnished, which could cause greater harm to IBM.
Outsourcing as a Tool for Business Process Transformation.
This deal contemplates the transitioning of Sprint from delivering classic telephony services in a “stand-alone wireless and wireline network.” Reading between the lines, IBM will probably help Sprint convert to Internet telephony, or “voice over Internet protocol” (“VOIP”). Telephony will integrate into the desktop and computer network environments.
The press release suggested initially that the deal looked like simply a transfer of Sprint’s existing call center operations from its existing service providers (and some insourced call centers) to a new service provider. IBM’s commitment to improved service level agreements was heralded as a means of “dramatically” improving customer satisfaction.
But the joint press release suggested, without saying clearly, that the deal has much more strategic impact, by asking IBM to convert Sprint’s wireless and wireline telephone service to a network capable of Internet telephony (called “voice over Internet Protocol,” or “VOIP”) for IBM’s other corporate customers. To cushion the shock of cannibalizing its own classic telephony services, Sprint probably enlisted IBM to bundle Sprint’s services into IBM’s other IT-enabled outsourcing services. IBM became a reseller of Sprint telecom services. More significantly, Sprint’s business was to be transformed into an Internet-based service provider to IBM’s other customers.
The deal has the potential, therefore, to transform Sprint’s customer base, its method of service delivery, its revenue profile, and its marketing alliances in addition to hiring a service provider to improve service levels in call centers.
Lessons Learned.
The counter-distribution model offers substantial flexibility for both the service provider and its customer.
- Service Provider’s Perspective.
For the service provider, credit risks (from a prospective bankruptcy of the customer) may be managed by financial management of the delivery of the customer’s goods or services. Similarly, the service provider might not need to make any financial commitments to secure and retain the right to resell the customer’s goods or services. - Enterprise Customer’s Perspective.
For the enterprise customer, access to a global sales organization may serve as a scorecard criterion for selection of prospective service providers. The customer might rightly conclude that a bigger, more global, more diversified service provider would assure a wider channel for the distribution of the customer’s own core business services. For telecom companies, using an IT services provider to distribute telecom services is a logical extension of the service proposition in response to the convergence of the Internet, telephony and digital communications. Reportedly, IBM will be selling Sprint services to large corporations so that employees of Sprint customers may transfer data from their networked desktop or laptop computers to wireless devices such cell phones, Blackberry® and Palm® handheld mobile devices. - Mutual Dependency, Mutual Risk.
For each party in a countertrade transaction, however, the lessons of the past invite caution. Once two parties are interdependent as customers or as marketers, the relationship requires a more complex management interaction. The risks for each are increased. If the customer wanted to fire the service provider for a breach of service level agreements, for example, the service provider might have the right to cancel the distribution rights (if unprofitable) or might seek to retain the distribution rights free of any “cross-default” clause. The stakes are higher for potential “win-win” or potential “lose-lose” outcomes. - Long-Term Impact.
If a Sprint-IBM countertrade model for distribution of the customer’s services were to become the model for a long-term outsourcing contract, securities law and antitrust laws might come into play.- Securities Regulation.
As to securities laws, the impact might be so important that investors might consider it “material” to decisions whether to buy, sell or hold the enterprise customer’s corporate securities. Initially, such a distribution model does not appear likely to generate any “material” revenue streams for the enterprise customer. Over time, the impact might grow particularly if the outsourcing has the goal or potential of restructuring the enterprise customer’s business model.At some stage, the disclosure required under applicable securities laws might become problematic, as information publicly disclosed could be used by competitors. As a result, both enterprise customer and the services provider have some incentive not to enter into transactions that are not so important and material as to require disclosure under applicable securities laws.
In reviewing the press release, one may question whether investors are adequately informed of the true nature of the risks of this transformation of the customer’s business, not from the standpoint of the risk of IBM’s nonperformance, but from the standpoint of Sprint’s ability to successfully transform its own service model by the counter-trade structure with IBM promoting VOIP to IBM’s other customers.
- Competition Policy and Antitrust Laws.
As to antitrust laws, reciprocal dealings by organizations in the same competitive arena could be unlawful as anti-competitive under U.S. federal antitrust laws and European Union competition policy. Before entering into a countertrade transaction, the parties should consider the likely impact of the distribution or counterpurchase operations as to exclusivity, market size, concentration of suppliers and customers in the relevant market, and other factors that define structural anticompetitive activities. As global customers hire global service providers to provide distribution services, the impact in any single country’s marketplace may be small compared to a similar business relationship between parties located only in one country or regional market. Consequently, the antitrust risks are relatively small at the global level. - If IBM were to repeat this paradigm in other industries, though, IBM might gain market power in an important array of global non-IT services. Further anti-trust reviews might be appropriate in such a scenario.
- Securities Regulation.
Frequently Asked Questions For Employees
October 9, 2009 by Bierce & Kenerson, P.C.
A) “Outsourcing” does not mean the automatic loss of your job.
It may improve an employee’s career opportunities by opening the door to new environments for providing service. Indeed, with the technical training that an outsourcing service provider gives its new employees, being “outsourced” can be a ticket to personal growth, improved opportunities for lifestyle change (e.g., telecommuting, or flex time), and backup to avoid being burned out as the only, “indispensable” employee supporting a business operation. For the employee, the challenges create opportunities. But, because the external service provider will be held accountable for agreed service levels, the employee will also be guided by new measurements and standards of performance.
B) “Outsourcing”: Same Threat to Your Job as in a Merger?
Employees in a company or department that is being targeted for outsourcing normally feel threatened by the uncertainty. This is similar to the fear, uncertainty and doubt experienced by employees in a merger. Yet the outsourcing decision is quite different. Indeed, in an outsourcing, management elects to maintain and effectively deploy all useful resources. External services providers typically do not want to hire someone just to fire them later. By hiring an employee whose job is being outsourced, the outsourcer (external service provider) assumes many responsibilities. Such responsibilities generate high costs in recruitment, training, transitioning in and transitioning out (including outplacement and severance, if applicable), pensions, labor law compliance and other legal and economic obligations. So the outsourcer will normally plan to maintain certain employment levels and efficiently use all personnel whose jobs are being outsourced.
The threat is not the same as in a merger. In a merger, attrition and job terminations are generally one of the compelling reasons to marry the two companies. So your job is more at risk in a merger than in an outsourcing.
C) Can We Avoid Outsourcing?
Yes. When a work group – however large and complex – has been mismanaged through neglect, lack of vision and poor processes, outsourcing might not be the only answer. Improvement of business processes before outsourcing can avoid those outsourcings that occur based solely on “cost savings.” But even good management and leadership cannot escape the compelling advantages of certain types of “strategic outsourcing” that adds a strategic benefit beyond mere cost savings.
D) Should Service Level Agreements Be Used only for Outsourcing?
No. In fact, today’s well-managed businesses often establish “service level” commitments from internal “in-house” staff. Indeed, some information technology departments propose “service level agreements” as a means of setting realistic expectations for business users. Studies have found that frequently, an in-house service department may suffer from criticism by frustrated in-house clients. After going through the process of asking what the in-house clients expect, and showing the costs of fulfilling those expectations, the in-house staff can compare itself to the “best of breed.” The process of defining internal service levels will help harmonize expectations of users and reduce stress by in-house service providers.
E) When Should We Outsource a Function?
Within a globally competitive environment, outsourcing could be useful, or it could unbalance a well-managed organization. The key is to find and maintain one’s balance. Rebalancing involves a candid reassessment of organizational strengths, weaknesses and the threats from the marketplace. Confronting this constant challenge, management must determine what functions fit within the core competencies of the organization, retain those and seek ways to minimize investment and risk in areas that do not add as much value to shareholders – and other stakeholders – as the core competencies.
F) What Alternatives Exist?
Outsourcing is one of a wide range of possible management strategies. Considering “in-house” strategies include:
- Inaction:
Do nothing. We’re doing a great job already. - Cuts Projects:
Eliminate wasteful projects (especially those that require an excessive investment). - Cut Jobs:
Eliminate jobs. Load more work onto existing staff. - Reallocate Resources:
Shuffle personnel to new, more effective tasks. (Training may be required. Transitions could be bumpy.) - “Strategic” initiatives include:
- Competitive Departments:
Make each department into a separate cost-center and allow it to compete for customers both in-house and in the market. General Motors follows this practice.- Shared Services Subsidiaries:
Form an alliance of similarly situated customers of the same service, and transfer the “generic” workload to a jointly owned “shared services subsidiary.” (This “shared services” subsidiary might compete in the market as well.) This requires some submission of control and political alliances with outsiders. Experience proves that a jointly managed subsidiary, without independent management of its own, can lose its way and flounder. In this case, outsourcing has been shown as an effective alternative to a failed experiment.- Joint Ventures with Services Providers:
A joint venture involves a sharing of risk and rewards. (Outsourcing involves shared responsibilities and possibly shared risks, and rarely involves shared rewards). Joining forces with a services provider can be useful where the functions performed by the joint venture do not require you to promote, directly or indirectly, the cannibalization of your own core business. The services provider, as your joint venturer, will undoubtedly expect a rate of return on its investment by selling the joint services to others – including your competitors – in the marketplace.- Other Paradigms:
Organizational management includes a panoply of other paradigms for speed, skill, technological competency and other goals. The authors of this Website would be pleased to explore such other paradigms with you, and to receive your comments on the effectiveness of outsourcing in relation to other possible paradigms.
Labor-Management Relations and Sinecures for Life: Is There a Better Way to Automate the Logistics of Business?
October 1, 2009 by Bierce & Kenerson, P.C.
Transportation services have long been a haven for American labor unions. As other business processes are automated, unions face increasing threats to demand for jobs for their members. This case study considers a modern manifestation of such tension between employment and automation in the business of global logistics.
Union contracts under the National Labor Relations Act are sacrosanct. Union labor has been fighting to retain rights and controls. The negotiations, under the guidance of the Federal Mediation and Conciliation Service and with a little coaxing by President George W. Bush’s announcement of a Board of Inquiry, appear to have broken new ground in labor-management relations. Does this settlement suggest that Big Labor is now willing to negotiate deals that would convert a port operator clerk’s job into an outsourced job for a major outsourcing services vendor’s “unionized” subsidiary? Should non-union service providers play with “union fire” by accepting unions?
Does the Impending West Coast Port Settlement Opens New Doors for Business Process Automation and Eventual Outsourcing?
In early November 2002, the Federal Mediation and Conciliation Service announced that West Coast port operators and union dock workers had concluded a tentative agreement on key issues in technology, with potential 50% increase in productivity for port operators from San Diego to Seattle. The International Longshore and Warehouse Union (“ILWU”), representing 10,500 West Coast dock workers, agreed in principle to key concessions on the introduction of technology following a 10-day strike that closed the ports and led to President George W. Bush’s order for mediation and return to work.
Chronology.
As reported by a Presidential Board of Inquiry:
The contract between the parties expired on July 1, 2002. Before the expiration of the contract, in May 2002, the parties began to negotiate over a new contract. Negotiations proved unsuccessful and, after the contract expired, the parties began to operate under short-term extensions of the contract. On September 1, 2002, the parties’ practice of operating under short-term extensions of the contract ceased.
The impasse resulted in a lockout.
Affected Parties.
The labor dispute affected, on the one hand, employees represented by the ILWU and, on the other hand, employers and the bargaining association of employers who are (1) U.S. and foreign steamship companies operating ships or employed as agents for ships engaged in service to or from the Pacific Coast ports in California, Oregon, and Washington, and (2) stevedore and terminal companies operating at ports in California, Oregon, and Washington.
Union Practices under Scrutiny.
The operating business model that existed prior to the settlement resulted in a huge bottleneck. While the terminal operators had software that allowed expeditious transit of cargo through ports, their systems came to a stop because the union contract gave the union exclusive jurisdiction over the process of transmitting essential information. In short, only union workers could re-key and re-format the data inputs, resulting in duplication of costs and delays, with a loss of productivity of the West Coast ports as compared to Asian and other Pacific port and terminal operations.
Key Union Demands in Exchange for Introduction of Information Technology.
The introduction of new technologies was expected to eliminate between 200 and 600 jobs, particularly marine clerks. Initially, the ILWU demanded:
- minimum staffing levels for marine clerks, even if they did not have any job to do due to the efficiencies of automation;
- protection of those jobs of currently registered dock workers (whose salaries are reported to be approximately $106,000 a year on average) who are displaced, for the remainder of their career, until retirement;
- the union’s retention of jurisdiction over marine clerical work, which may include some yard and rail planning work but not including vessel planning work;
- the union’s participation in the productivity benefits and cost savings for the employers, in the form of increased management contributions to pensions as payment for a share of the “increased wealth” that the new technology would bring.
Agreement on Terms of Service.
In early November 2002, the Pacific Maritime Association, which represents West Coast terminal operators and shipping companies, agreed to the protection of jobs and the union dropped its demand for minimum staffing, a practice formerly known in the railroad industry as “featherbedding.” Reportedly, the jobs will secure for the lifetime of the clerical workers. The union reportedly retained the jurisdiction over the marine clerical work and some other work in the terminal yards. At this writing (mid-November 2002), the sharing of productivity benefits had not been resolved, but the union took the position that such sharing was a “deal-breaker.” Negotiations appear to be on track for a contract only because, under federal law, the President has the power to force the parties to “go back to work” and use a “cooling off” period to negotiate a workable new contract.
Legislative and Judicial Context.
The “back-to-work” order, signed by President George W. Bush under the Taft-Hartley Act, ended the lockout instigated by the Pacific Maritime Association in anticipation of an impending strike. The President appointed a Board of Inquiry. See Section 206, 209 of the Labor Management Relations Act, 1947 (61 Stat. 155; 29 U.S.C. 176, 179). A federal judge began monitoring compliance by each side with the legally mandated procedures during such a back-to-work order.
Union Negotiations as a New Business Opportunity for Outsourcers?
The approach of the ILWU in the contract negotiations suggests that it will be a long time before unions voluntarily agree to improve productivity using information technology. The ILWU demanded that the jobs of the incumbent employees be protected for life at current salary levels and the union share in the productivity gains from changes in union work rules.
Competitive service providers will see this episode as further proof that unions do not accept business process re-engineering or any other change in the union’s “jurisdiction” over the “work” as classified in the union contract. Companies and governments that seek to improve their business processes through changes in work rules can be expected to confront similar resistance.
Is there a “Better Way”?
Nothing in the press announcements of the apparent reconciliation suggests that the unions were willing to accept any conditions on their “life tenure in employment” contract for the affected clerical workers. There was no mention of any duty to seek retraining, to increase personal productivity, to learn and apply new skills, or to make any other change in “business [process] as usual.” If their jobs had been eliminated due to imports of goods, they would be eligible for federally funded worker adjustments and retraining, as a principle of promoting international free trade under the WTO and U.s. enabling legislation.
In defense of the union, elimination of jobs due to technology is a constant threat to the number of union members. With declining numbers of members, a union becomes weaker and more subject to further defections.
In conclusion, there may be a “better way” if there are ongoing improvements in quality of service as a condition of job tenure. This law of business applies to business enterprises, which must constantly compete on the basis of service quality. Similarly, the classic “siren song” of the outsourcing service provider, willing to take over the “overhead” and “back office” employees of a customer as part of a long-term service contract, has been that the individual employee will become part of a team, dedicated to service quality, process improvement and where skill and initiative will be rewarded with upward mobility.
This promise of a new career path probably falls on deaf ears, though. Union leaders distrust the benefits of such a new employment environment, which might be available only to the best and most ambitious workers and not available to the larger mass of “ordinary” workers.
Management of unionized operations struggle for productivity improvements. Extrapolating on the ILWU-Pacific Maritime Association dispute, there will remain sharp differences between unionized operations and non-union operations. Where union labor has a right to share, as an equal “equity” partner with management and shareholders, in all productivity gains from business process improvements, they are only pushing management to find ways to circumvent their “jurisdiction,” such as by exporting jobs or eliminating entire classes of work. This struggle, under rules defined in the 1930’s, continues.
International Perspective.
Perhaps, in the long run, government and the parties will see the issue as one of international labor competitiveness. By applying worker adjustment assistance and retraining of workers who need ever increasing skills to remain competitive, government, labor and business might find a “better way” through such transitions to a redesigned workplace. Otherwise, valuably human capital investment opportunities could be lost forever to foreign labor and business.