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Donkin on Work - Outsourcing

September 2005 – When outsourcing goes wrong

One advantage of travelling with Ryanair on a recent trip to Norway was the opportunity to read a book without interruptions for in-flight meals. The airline does not provide catering on its short haul flights apart from selling snacks and drinks. This saves money on the ticket price.

I am quite capable of making a sandwich so have never understood the need for in-flight catering, even on relatively long flights. The ritual of removing plastic knives and forks from their little bags for the sake of consuming some rubbery scrambled egg and a chipolata sausage, rarely seems worth the effort.

It is certainly not worth the kind of delays that ruined journeys for thousands of passengers last month when British Airways baggage handlers walked out in sympathy with striking workers at the London subsidiary of the in-flight catering company, Gate Gourmet.

To lose your flight because of technical problems is one thing, but to do so because of a lack food is ridiculous. I heard of one executive complaining that, as a result of the dispute, he was given a single sandwich to tide him over a 22-hour journey to Australia. Set against the plight of people in New Orleans last week I do not call this suffering.

But the airlines have encouraged their passengers, for various reasons, to subject themselves to nursery-style nannying dressed-up as in-flight service. We press a button and someone brings us a glass of water or even champagne if our companies are prepared to stump up the exorbitant premiums for travelling business class.

We have become accustomed to the ritual of the packaged in-flight meal which creates so much plastic junk that there is a real skill to keeping it all on your tray and a real problem doing anything else before cabin staff clear it away. I have always regarded this ritual as more a form of control than a service.

But rather than overhaul the system, BA has followed the business re-engineering fashion for sorting the things it does in to two baskets: one for its important stuff, such as flying people places, and one for less important stuff. In business jargon that’s “core” and “none core”.

Thus, Rod Eddington, chief executive of BA, explained in an open letter to staff that “we are an airline and not a catering company” and, therefore, would not be taking catering back in to a business that was intent on driving out “cost and complexity”.

But how do you gauge the cost and complexity of dealing with 70,000 irate passengers who are unable to use one of the world’s busiest airports because of a wildcat strike over planned redundancies at one of your suppliers?

BA did not have an alternative supplier. Gate Gourmet took over the whole catering operation that had been performed in-house up to 1997 and that is still based physically within the Heathrow community, providing 80,000 airline meals a day.

The employers that are based at Heathrow may be tempted to forget sometimes, when they do their core/none-core assessments, that they are all members of an inter-dependent community. Funnily enough, Heathrow employees seem to have a better understanding of this. A large proportion of the Heathrow employment community is of Asian origin, often bound together in strong family networks. It was this sense of solidarity that led baggage handlers initially to support the strike.

In spite of all the industrial relations legislation that was framed in order to curb the powers of trade unions, there remains little that can prevent spontaneous action of people with a grievance and all the injunctions in the world can do little to repair the damage that can result.

This is not the first industrial dispute at Heathrow during a peak holiday period. We can only guess how people may factor this in for the future. I do so already. I would far rather use a low-cost airline flying out of one of the smaller hubs.

The fashion for contracting out various services, now better know as outsourcing - another piece of business jargon - has become so entrenched that it has become a significant influence in the development of emerging economies. But some companies are growing wary of transferring services outside where their only influence on employee relations and working conditions is the stipulations in their service contracts.

Indeed most of these stipulations tend to be related to maintaining levels of service rather than good rates of pay and sensible people management. Service providers tend to be left to sort those issues out for themselves. This is mooted as one of the attractions of taking the contract outside in the first place. Meanwhile the contracting companies play what they consider to be the smart game of forcing competing suppliers to undercut each other. The big supermarkets have been doing this for years to the stage that many small farmers are scarcely able to carry on their businesses.

But companies that divorce themselves from the employment concerns of their suppliers are taking a large risk.

Nick Starritt, a non-executive director of Northgate Information Solutions, created a revolution in employment services at BP a few years back when as the then director of Human Resources he was responsible for handing over many of the company’s HR support functions to an outside supplier, Exult.

“It’s important to do a risk assessment when you go down the outsourcing route so that you know what might happen if things go wrong. While there are clear attractions of having a single supplier it leaves you with no alternatives to mitigate the damage that can be caused by a strike,” he says.

“We outsourced a whole bunch of activities to Exult but it did not all go smoothly and we did suffer some initial hiccups with the payroll. For the outsourcer it was like being given a computer programme without the code. The problem was consolidating a lot of separate in-house activities.”

Mike Emmott, employee relations advisor at the Chartered Institute of Personnel and Development believes that many of Gate Gourmet London’s problems stemmed from a clash of cultures as managers of the US-owned company struggled to rid its UK business of 1970’s style working practices. These are issues for the company. But they are also issues that cannot be ignored by its airline customer.

“There are only so many things you can do, however, when you are not managing the employees yourself. How do you build up a relationship of loyalty and trust with staff you do not manage directly?” he says.

Recent research published by the UK’s National Outsourcing Association highlighted fears among its membership that decisions by some companies to take back some services in-house were a growing trend. Cost saving will continue to balance such considerations.

In the meantime there needs to be some radical re-thinking around the notion of core and none-core.

©2006 Richard Donkin - all rights reserved