Whether unions or management like it, outsourcing is the future

0 Comments | Insight on the News, Dec 9, 1996 | by Gene Koprowski

When General Motors tried to increase the amount of work it outsources - subcontracts out to smaller, lower-cost, nonunion suppliers - the United Auto Workers were incensed. UAW members staged a series of strikes that shut down operations at key plants in Janesville, Wis., and Indianapolis to render the world's largest corporation impotent.

GM relented, but the union offered veiled threats that the walkouts would continue if management didn't discard the idea of outsourcing. "We can't tell what is going to happen at the other locals," said UAW president Stephen Yokich in a press conference in November. "I would suggest that GM work very hard to get their locals cleaned up."

The fact is, the UAW and other unions seeking an end to outsourcing, a cutting-edge management practice, are being disingenuous. At UAW's Solidarity House headquarters in Detroit, the union outsources crucial functions, including parking-lot security, food services and the printing of its magazine, Solidarity, which it has used extensively to deride the outsourcing movement.

Michael LaFaive, a scholar at the Mackinac Center for Public Policy, a free-market think tank based in Midland, Mich., has conducted an extensive study of UAW's outsourcing practices for several years. "It's really just a matter of walking up to the front gate of the UAW and asking them who the workers are," LaFaive tells Insight.

"On the right-hand side of the gate at Solidarity House there is a guardhouse," says LaFaive. "They wear blue caps with gold stars on them that say Guardian Security." He contacted the security company and asked them whether they were a union or nonunion shop. Apparently, the company has separate divisions, one unionized and one nonunionized, that guard clients' properties. "The division they use depends upon the customers preference," says LaFaive. While Guardian would confirm that they work for UAW, they would not tell Insight whether the UAW employed unionized or non-unionized labor. "There's also a little red car parked right there, with a sign reading 1-800-GUARD US," says LaFaive. I hope it was a GM car."

UAW spokesman Reg McGee defends the unions practices. "This is not outsourcing," he says. "This is using outside companies to perform work that we don't have the capability to perform in-house. Its ridiculous to think that we could do these things ourselves.

But using an outside firm to perform work one is not capable of - and focusing on ones core competencies - is the textbook definition of outsourcing. In fact, about 40 million Americans work as independent contractors from offices in their homes, and another 40 million telecommute, according to Home Office Computing, a trade magazine. The trend is growing rapidly. Insight pointed this out to McGee, who denigrated the findings by LaFaive: "The Mackinac Center is a very conservative group. They're trying to discredit us."

GM would not comment on the union's practice. According to research by LaFaive, however, organized labor has a long history of endorsing outsourcing. In 1896, workers were vocal advocates in their support of the practice, then viewed as a way to privatize government functions, as evidenced by the June 1896 issue of the American Federationalist, the official monthly publication of the American Federation of Labor. When the federal government began to print postage stamps, previously a private function, many of them were produced poorly, sometimes unusable, according to the American Federationalist: "The expense of printing largely exceeds what it has been when the contracts were let out to the lowest bidder."

Outsourcing once was confined to lower-level, lower-skilled jobs - such as security guards. But no more. GM and other large corporations claim that outsourcing can save a company 50 percent of its manufacturing costs. The term has been recrafted to encompass the professions as well.

"We're redefining, as a nation, the notion of employment," says Ray Marcy, president and chief executive officer of Interim Staffing Services, the Ft. Lauderdale, Fla., parent company of Interim on Premise. The hottest areas in outsourcing today, according to Marcy and James Halling, vice president of Tascor, a division of Norell Corp., are accounting, advertising, public relations, health care, human-resources management, benefits management, call-center management and information-systems management.

For the most part, these outsourced jobs pay full-time salaries and benefits and are located at one site for up to a year. But Interim and Tascor sign workers' paychecks rather than IBM, AT&T, Unocal, the Sports Authority, Pioneer Financial Services or Scripps Health, for example.

"Major Fortune 500-level companies are focusing more on their core functions," says Halling. "They're trying to reduce costs and operating efficiency. But they still need the skills that the professionals supply. And rather than employ them directly, they outsource the entire function, such as information-systems management."