Find out how IT managers handle the employee aspects of outsourcing.
In October 2000, Michael O’Neill had just put a down payment on a house, and he and his wife were excitedly awaiting the birth of their baby. But one day at work as a LAN administrator for one of the country’s largest insurance firms, he and 130 of his colleagues were told the company’s LAN administrative and help desk functions were being handed over to an outsourcer.
“When it happened I was angry and confused. What-ifs ran through my mind,” O’Neill says. “I was looking for security – I wanted a steady salary package.”
O’Neill had been with his employer for five years and thought he would work there until retirement. But the company, which asked not to be identified, decided to cut costs by outsourcing IT functions to Unisys in a three-year contract.
As part of the deal, O’Neill and 30 other IT pros moved to Unisys; the others resigned, were laid off or offered other positions. He now works at the same office and continues to manage the insurer’s LAN, but his paychecks come from Unisys, and his title is senior customer service engineer.
A Meta Group study says nearly all North American IT departments will outsource at least one essential technology operation by 2005. Last year, almost three-quarters of North American IT departments outsourced between 10% and 50% of their IT functions, and spending on outsourcing is growing at a 20% annual rate worldwide.
Of the corporations that outsource, 60% of those deals also involve the acquisition of the user organization’s IT staffers, according to Meta.
Network executives who consider outsourcing need to give much thought to the people aspect of the deal, as well as the transfer of systems, to reap the promised benefits. One consideration is when to broach the dreaded ‘O’ word to your staff – at the outset of the due diligence process with the potential supplier or after the contract has been signed?
O’Neill and his co-workers were angry because they weren’t told about the deal in advance. Rumors had begun to circulate that summer, and management denied it. “Thirty to 45 days later we were told it was all a lie,” he says.
Similarly, Rick Tompkins, director of network engineering for CSC Americas, was not told that his former employer, aerospace and defense group General Dynamics, was going to outsource all of its IT operations to CSC until his company was ready to sign the deal. Ultimately, though, all of the 1,200 affected IT staffers were offered jobs at CSC.
Tompkins says there are benefits to managers holding their cards close to their vests. “If people find out, they will want to know everything – you shouldn’t say anything unless you have something to tell them,” he says. Good people might get jittery and resign, and staff will get upset over nothing if managers decide not to outsource after all.
Steve Bellis, vice president of IT at medical and industrial gases supplier Air Liquide America, forewarned his IT employees during the company’s three-month due diligence process with CGI. In November 2002, the company and its sister company, Air Liquide Canada, outsourced their day-to-day IT operations to CGI, and 86 IT staffers from both firms moved to CGI.
“We could have either tried to keep it a secret or have a more open process and deal with the feelings people would inevitably have,” he says. “Whatever decision we would ultimately make, getting key IT people to participate in the due diligence process helped.”
Many outsourcing firms advise customers to provide as much information as they can to their staffers by posting FAQs and making senior executives available to affected employees. Owen Snyder, senior human resources business partner at Unisys, says: “People have fears and they don’t like change, and you’ll have to make the changes comfortable. They’ll worry about whether they’ll retain their jobs, whether they’ll have to prove themselves to the new company, and they are concerned about their benefits – medical, pension and 401(k).”
When he was told about the CSC contract, Tompkins, a 13-year General Dynamics veteran, was concerned that his salary would be reduced to boost the company’s savings. But his fears were soon allayed when CSC assured him that his benefits and salary would be matched.
At CGI, staff’s length of service at Air Liquide was credited toward CGI’s vacation allowance for each employee.
It is not unusual for affected employees to be offered bonuses to help ease the transition. For instance, CGI provided retention bonuses to affected Air Liquide staff to encourage them to stay through the transition period, which ranged from six to 18 months, depending on the project. And O’Neill’s former employer offered employees bonuses to remain until the start of the transition period.
Because the nature of outsourcing is to reduce the cost of managing IT, layoffs might be inevitable if job and skills overlap between both organizations.
Not all affected IT professionals at the insurance company were offered positions at Unisys, and the chosen weren’t informed until a few weeks before the start of the contract. “I would’ve liked to have known what I was up against [earlier on]. I would have put feelers out in other areas. Some people had all their eggs in one basket,” O’Neill says.
Despite the initial uncertainty and upheaval, both O’Neill and Tompkins are happy about their changes. They enjoy more training, the chance to work with like-minded people, and increased opportunity for promotion. Within four years of his transition, Tompkins went from managing General Dynamics’ 12-person telecom team to becoming director of network engineering for CSC Americas, overseeing its 300-person staff.
