How to bungle an outsourcing announcement

Even if a business has to keep its outsourcing plans secret, the leaders can still act like human beings once the news becomes public

Dear Bob ...

This may be a long-winded email, but I am really confused by a tactic that a CEO made at a company based in my hometown (which has a population of about 5,000 people, so as you can imagine, everyone knows everyone, and the opportunities are few).

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A group within the company was informed on a Wednesday that their area of the business would be outsourced the following Monday.

The manager of the team was told first by the HR manager, then the rest of the employees were informed early in the afternoon. After that, an all-employee email was sent from the CEO stating how hard of a decision to sell off the answering service was, but never provided a reason for the decision.

The communication process intrigues me. From speaking with people, I have learned that nobody but a few execs knew this was taking place. Now the CEO has a bigger problem because other areas of the business are concerned about jobs, and the newly outsourced team members have other family members working for the company. The company morale must be dropping to a new low.

Any thoughts on the rationale of why the CEO made a change in this way? I understand making changes; I just don't understand making changes without thorough communication, especially in a small town like this.

Unfortunately, I am missing the other side of the story from the CEO, so there very well could be more to the story.

- Puzzled

Dear Puzzled ...

All I can do, of course, is to second-guess what happened. My best shot is that the CEO and confidants decided the risk of premature employee departures outweighed the benefits of communicating with employees. They probably figured that once they announced the outsource, everyone affected would start looking for a job, and very likely they'd do so while on the job. Productivity would plummet, they'd end up understaffed during the transition, and the only upsides would be improved morale and feeling better about themselves. It's a reasonable position to take.

The arguments against are, of course, equally compelling: By restricting knowledge to just a few insiders, the chance that the decision was made well was significantly reduced. By springing this on everyone with no notice, morale had to plummet, as you noted in your email.

What I'm sure of is that the announcement itself was badly bungled. Given the decision, the CEO should have explained:

  • The problem that needed solving
  • Why this was the solution that made the most sense
  • The logic behind waiting until just before the transition date to inform everyone
  • What the company is doing for the departing employees

It seems to me the CEO missed an opportunity, too. This sort of functional outsource generally reduces both fixed and unit costs (less infrastructure needed coupled with the outsourcer's lower labor rates -- I'm assuming the work went offshore).

So instead of a secret outsource, the CEO could have offered a challenge to the employees:

We're in danger of becoming uncompetitive -- our costs exceed those of our larger competitors which means we can't offer competitive pricing. This puts our whole business at risk. We might have to solve this by outsourcing some business functions. Before we do, we want to see if we can find creative ways to cut our costs without taking that step.

Rather than limit ourselves to the brainpower available in the executive suite, we want to take advantage of the good thinking and creativity of every employee in the company. Here's the target we have to hit. If you have an idea on how we can reduce our costs to get us closer to the target, I want to know about it. We've set up a special e-mail address for this purpose. If we use your idea, you'll be eligible for a special bonus that's equal to 1 percent of the costs we save.

If nothing came of this, it would demonstrate the necessity to employees in a far more compelling way. And you never know -- the employees might have figured it out.

Anyway, I agree with you. Regardless of the reasoning behind the decision, the communication was badly botched.

- Bob

This story, "How to bungle an outsourcing announcement," was originally published at InfoWorld.com.

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