IT Outsourcing and Offshoring of Personnel in the Financial Sector - Essay Example

Name Institution Tutor Date Introduction IT outsourcing and Offshoring continue to be on the increase with increased reforms in the financial sector. As the situation turns from bad to worse, there is a developing conflict between senior managers in the financial sector and their IT department employees. In an article by Bennet (2012) in the Australian on the increasing cases of IT offshoring, Bennet points out that with the increasing costs of maintaining IT departments and functions in financial institutions, outsourcing and offshoring seems to be the most logical answer. Westpac bank and Macquarie are some of the affected financial institutions as they aim to reduce running costs of their businesses. Westpac bank mostly offshores its IT workers to India while Macquarie is reported to have culled about 1000 jobs and offshored many more. The finance sector union estimates that a minimum of 6000 jobs in Australia have been offshored between 2007 and 2012 and that there is a high probability that the trend will continue. While employers view offshoring as an opportunity to reduce their operating costs and make back on their investments, offshoring is not a very welcome idea to worker’s unions and the thousands of employees losing their jobs. This paper will study the conflict brought about by outsourcing and offshoring of personnel in the financial sector. It will come up with solutions to this continuing conflict between senior management and their employees and settle on the best solution among the available solutions. Offshoring Nassimbeniet al(2011) define Offshoring as the relocation of processes of an organization from one country to a foreign country irrespective of the affiliation between the service provider and the offshoring organization. Outsourcing on the other hand is the relocation of services or processes to external providers, their location notwithstanding. Therefore, the concept of offshoring is associated with international relocations while outsourcing may include the transfer of processes within a country or between countries. Offshore outsourcing is therefore the transfer of jobs, services and processes to a provider outside the firm and one that is internationally located (Nassimbeniet al, 2011, pg 406; Agrawal et al, 2010, pg 239-241; Rudy et al, 2009, pg 317). Conflict between the employees and the owners of the firm can arise due differences in interests between them. Greenwood (2008) points out that the employees of any organization make up its most important stakeholders. They are interested in maintaining their job security and increased avenues for job advancements. Employees also view the impacts of the offshoring process not only on themselves but also their workmates as well as their families. They would analyze the physical and psychological impact of offshoring before making decisions on whether or not these impacts favor them or not .On the other hand employers also have their interests to consider. They will mostly be interested in maintaining or improving on the financial performance of the firm. They will be interested in saving on operational costs for the company by cutting on costs and adopting measures that would increase the profitability of the firm (pg 1, 2, 3). The interests of employers/managers/owners would start to be in conflict with those of employees when either group feels shortchanged in its returns. Ranganathan and Balaji (2007) point out that the employees of offshored firms have to deal with problems ranging from language barrier, challenges arising from changes in time zone and differences in organizational and nationality culture. Offshoring could also cause a variety of changes in the information structure of the business units. The employees will also face problems arising from the new environment such as privacy, security of data and dispute resolution avenues. (Ranganathan and Balaji, 2007, pg 1-5). Senior managers of firms can argue in their defense that offshoring creates several theoretical advantages on paper that would otherwise not be conceivable. It is pointed out by Bunyaratavej et al (2010) that offshoring has developed into both an important economic and social phenomenon. They argue that offshoring leads to the saving of costs in the firm that would be a big incentive to the owners and managers of the company. Cost savings arise from employee layoffs and wage reductions. The writers also argue that offshoring to countries like India make it possible for the firm to access a highly qualified labor force. Skilled labor and personnel in India is as a result of the agglomeration of pioneering investors who generated positive externalities. Gaston (2005) puts the number of skilled personnel in India at over seven million. (Bunyaratavej et al, 2010, pg 74, 75; Gaston, 2005, pg 263,264) Option 1 One of the major disadvantages of offshoring is the reduction in morale in the permanent employees of the firm (Agrawal et al, 2010). This comes about due to the inevitable cuts in remunerations to fit into the new country and the laying off of their fellow workers. One option that could remedy this situation and renew the faith of employees in their employers would be to offer different terms of employment to the permanent and the new employees. Instead of wage cuts the permanent employees of the firm should be offered improved terms of payment as compared to the newly hired workers of the host country. This would pacify the resentment of the employees towards the employers and reduce the conflict and animosity between them. This is an added advantage in that improved morale among the permanent staff leads to improved productivity in the firm. This is not only of benefit to the employees but also to the employer as well. High morale among the established employees would attract a more talented workforce. This is because higher morale among the workers creates a good reputation for the firm. Therefore both the employers and the employees would be satisfied with the offshored venture as it would work to their best interests (Bowles and Cooper, 2009). Option 2 To ensure that the offshored workforce does not suffer from culture shock, a suitable strategy should be employed before the movement of the firm’s activities or parts of its activities offshore. Cultural shock can also be felt when the offshore brand is underappreciated or misunderstood by the host firm and population. It should therefore be made sure that the culture and compatibility of the offshored unit and the host firm are in synch with each other. A mitigation plan will therefore have to be developed to reduce the conflict between the employees who will take time to get used to the new working conditions and their employers who will expectthem to hit the ground running and deliver results.Pre-training and pre-education on the new environment will go a long way in creating awareness among the employees of what to expect hence better performance. This strategy should be employed early enough so that at the time of the actual offshoring, the conflict between the employers and their employees is kept to a minimum. Option 3 The biggest conflict arising as a result of offshoring is the loss of jobs that arise due to the offshoring process. Fastenberg (2012) points out that this can mitigated by retraining the laid off workers for new jobs. As most of the offshored jobs are in the high-tech sector like IT, it would not cost the firm a lot to retrain the laid off workforce and integrate them into other operational departments of the firm. The firm could come up with programs that would help in retraining its workers for integration into the current workforce or for future employment opportunities. If this strategy works, it would resolve the conflict between the potential victims of the lay off and the owners of the firm (pp 13). Ethical behavior Even though the three options available to me all make sense, as the HR officer, I would choose the third option as it is the most ethical and fundamentally right of all the decisions that could be taken by the firm. The third option advocates for the retraining of those workers laid off from the firm as a result of offshoring. This option not only pacifies the laid off workers but also works towards reducing the discord felt by the permanent workers towards the owners due to the sacking of their friends and colleagues. Knowing that their colleagues who have been laid off will not be abandoned will ease some of the antipathy felt by these workers, hence increase their morale. This will in time translate into improved returns for the firm. Also, this option is the most ethical choice among the choices given. Ferrell et al (2009) defines ethics as an inquiry into the environment of morality, where morality is said to be the moral judgments, principles, rules and guidelines of conduct. This differs from professionalism which is the adherence to a given set of professional guidelines. Ferrrell et al (2009) feel that the choices, philosophies and codes of conduct can be measured against what is morally acceptable. Therefore in deciding the option that is ethically right in the above case, values and judgment should be given an emphasis to help in the picking of the best option. Schroeder (2012) stresses that, in certain cases, it is not enough to base the firms decision on the economic conditions facing it but also on the moral factors. Schroeder argues that moral values and functions are fundamental in influencing the decisions made by the firm (Ferrell, 2009, pg 6; Schroeder, 2012, pg 190). Based on the importance of ethical considerations I would prefer to utilize the third option on moral grounds. The first option calls for permanent employees to be offered different terms of employment compared to the host employees. Offering different terms of employment to workers of an organization based on their nationality is ethically wrong. Workers should be paid in accordance with their contribution to the organization irrespective of the country of origin. It would paint a picture of a firm encouraging discriminatory practice within its ranks hence its elimination as the most suitable choice. The second choice of setting a suitable strategy to address cultural shock fails to suitably relate the woes of the laid off employees to the development of the firm. The third option which calls for the retraining of the laid off workers makes the best argument along ethical considerations. It would go a long way in pacifying both the employees and the owners in conflict. This option puts into consideration the pain felt by the laid off workers as well as the unease felt by the employees who are to remain in the firm. Their uneasiness arises from the fact that the firm they entrusted their service to could turn on them and lay off most of their friends without care. Retraining the workers will paint a picture of a concerned management that took its decisions for the good of the organization. It will show that the owners are faithful to their employees and would do anything to ensure that they are taken care of. This induces confidence in the employees and builds a rapport between the employees and the owners of the company. Conclusion Offshoring is the relocation of production from one country to another. Offshoring is prevalent in the IT sector with more and more institutions offshoring their technology sections to countries like India and the Philippines. As offshoring continues to increase, conflicts are reported to arise between the owners of these institutions and their employees due to offshoring. Factors leading to these conflicts arise from attempts by owners to cut down on the operational costs of the firm. These factors include laying off of some workers and cutting the wages of the remaining workforce so as to maintain a sleek and inexpensive workforce. One option available for the resolution of the conflict between the employers and employees is increasing remunerations for the permanent employees to improve their morale and collaboration. Another option is the education and pre-training of workers to deal with the changes in operating environment after offshoring. The last and most ethical option available would be to retrain the laid off workers to the satisfaction of the employers and their employees. References Bennet, M. (2012). You can bank on rise in IT offshoring. The Australian. 23rd April. Available at Bunyaratavej, K. et al (2010). Conceptual Issues in Services Offshoring Research: A Multidisciplinary Review. New York: Sage Publishers. Schroeder, M. (2012). Should I stay or should I go? How moral arguments influence decisions about offshoring production. New York: Sage Publishers. Agrawal, S. Goswami, K. &Chatterjee, B. (2010). The Evolution of Offshore Outsourcing in India. New York: Sage Publishers. Nassimbeni, G., Sartor, M. &Dus, D. (2011). Security risks in service offshoring and outsourcing. Industrial Management & Data Systems Vol. 112 (3). 405-440 Gaston, R. S. (2005). Outsourcing information services in investment banking : A personal view. New York: Sage Publishers. Ferrell, o.c., Fraedrich, J. & Ferrell, L. (2009). Business ethics: ethical decision making and cases, New York: Cengage learning Bowles, D. & Cooper, C. L. (2009). Employee morale: Driving performance in challenging times. London: Palgrave Macmillan Fastenberg, D. (2011). Is Outsourcing Good For The Economy -- And Workers? Available at Ranganathan, C. &Balaji, S.(2007). "Critical Capabilities for Offshore Outsourcing of Information Systems," Indiana University, USA . Sprouts: Working Papers on Information Systems, 7(14). Greenwood, M. (2008). Classifying employees as stakeholders. Monash university working paper 4/08. Rudy, R. et al (2009). Information system outsourcing. New York: Springer Read More