The Inner Cost of Outsourcing

Savvy CIOs know there are a plethora of factors to consider before deciding to outsource. How much will outsourcing cost? How long will it take? What technical skills are required? What are the economic risks?

But even the smartest CIOs can miss one of the most important considerations–the human cost of an outsourcing decision. In the best-case scenario, where there is decent communication from management, and workers keep their jobs or smoothly move on to new ones, the attendant changes can still cause fear, uncertainty and doubt. In the worst case, a major outsourcing decision can have devastating effects, triggering deep depression and even violence among affected employees.

Mark Goulston, senior vice president of emotional intelligence at business consultancy Sherwood Partners, and author Get Out of Your Own Way at Work (Perigee, 2005), says the pressure CIOs are under when making an outsourcing decision can cause them to ignore the psychological effects their decisions may have on their employees. Goulston, a practicing psychiatrist for the past 20 years and coach to Fortune 500 executives at FedEx, GE and IBM among others, says that’s a major mistake. Choosing not to address the emotional toll an outsourcing decision can have may lead to actual costs, in the form of reduced morale and productivity or an unsuccessful outsourcing relationship. And turning a blind eye to the human price of outsourcing can erode a CIO’s overall effectiveness in the eyes of his colleagues and his employees.

CIO: Why should CIOs consider the potential psychological effects of an outsourcing decision on their employees, both those who will be directly affected and those who are not?

MARK GOULSTON: The simple answer is you never know where you’re going to be down the road. The way you treat people has a way of coming back to you. To treat people with consideration at least–even if you can’t muster up actual compassion because you’re so left-brained–it’s the kind of thing that will get you respected not only as a CIO but as a leader. The less you consider people, the more you will diminish your own success and career.

What happens to employee morale and productivity when rumors of offshore outsourcing and attendant layoffs are afloat inside a company?

Rumors are really destructive. They metastasize through the fabric of the company. If a company is reassuring its employees one week and making job cuts the next, that’s even more traumatic for people because they can’t believe what they’re being told. Uncertainty breeds fear, fear breeds panic, and panic breeds paralysis. Employees who don’t panic start polishing their resumes in a discreet manner.

If the outsourcing rumors are unfounded, a CIO can firmly say they’re unfounded. If the rumors are on target, what quells these situations are facts. But the facts you give have to be measured. You have to find out how much people want to hear so you don’t overload them. You can tell them their jobs are safe, or safe for now, that you’re taking active steps to figure out how they can remain employed, if not at your company, then somewhere else.

How important is it that employees understand the rationale or business case for the outsourcing decision?

It’s only important after they’ve overcome their fear of falling through the cracks. On [Abraham] Maslow’s hierarchy of human needs, safety and security are near the top of the list. Only after those needs are met can the mind open up to other things.

I wouldn’t tell employees what’s going on until you’ve come up with an idea or solution for what you’re going to be able to do for them so they can land relatively safety. A person’s first question is never Why is this happening? but What is going to happen to me?

What should a CIO do in a situation where work is outsourced domestically? Typically in these situations, employees go to work for the outsourcing company.

A good leader will concern himself with where those employees end up. The parallel I use involves children. If you send your children to a camp or school, you want to do the due diligence to find out certain things about the place.

Why don’t most CIOs approach these outsourcing decisions in an open, honest way?

At the top of a company, you’ve got the pressure of your stock price on you. And your fears often overtake your conscience. It may not be unethical to do what you need to do to make sure the company survives, but that doesn’t make it right. And often people high up in a company are insulated by layers of management from the angst of people on the front lines. And many executives don’t have the courage to stand up to the CEO or chairman and say that our employees are our family and we have to take care of them.

What advice do you have for CIOs thinking about outsourcing, in terms of mitigating the psychological effects on their staffs?

How would you want your kids to be handled if they were suddenly laid off? How would you want their company to deal with them? If you have a young child who, say, had his heart set on being on the basketball team, and out of the blue, he’s cut from the team, would you just say, “Life is tough. Get used to it”? You don’t want to coddle them, but on the other hand you want them to be able to bounce back. When delivering bad news that creates fear and anxiety, you have a moral responsibility to create some options for those people you’re creating fear and anxiety in. You shouldn’t do anything to your employees that you wouldn’t do to your own child.

I am a great believer in tapping into what people have already experienced as opposed to convincing them of something that hasn’t happened yet. With IT workers, you might ask them to tell you the top five skills they’ve learned that have opened the most doors for them in the past. Why can’t that happen again? Or talk about something they didn’t think they could learn, but then did. That helps to rewire their brains so they go from “can’t do” to “can do.” You can approach employees whose jobs may go offshore and say, Because we care about you, we’re going to spend some time not just teaching you how to learn new things, but showing you that you can learn new things. It shows goodwill and calms the troops. And as they begin to realize they can learn things, that may be all they need.

Last April, a 41-year-old software engineer in California committed suicide, according to his father, because the bank he worked for offshored his job. Is there anything CIOs can do to prevent that kind of tragedy?

One of the dangers in corporate America is that when you need to fill a position you tend to tune out things like personality or psychological elements that ought to be taken into consideration. A layoff doesn’t cause someone to commit suicide, but it’s a trigger if the person is predisposed to that.

You can help people to anticipate the changes that are going to occur. We’re going to go through this period, there will be downsizing and so forth. Some employees are going to be more prone to anxiety and depression, and you should encourage them to use company benefits to find help. The most enlightened company would create a support group for downsized employees. I have never heard of this happening, but it would be a great thing.

Can addressing employee concerns when considering outsourcing make you a better leader?

Dealing with a potential crisis as a manager is an opportunity to really develop your leadership skills. If you want to command respect, you need to do four things: Have the wisdom to know the right thing to do in any circumstance, the integrity to do the right thing, the character to stand up to people who don’t do the right thing and the courage to stop people who won’t do the right thing. If you can do that, you’ll command respect and people will beat a path to your door.

That said, hard times happen, and sometimes you have to fire people or lay them off. What happens for leaders is that often what’s good for the company is not good for the people.

It all comes down to your own values.