Succession Planning, Outsourcing, Offshoring, and Telework
Dr. Robert Freeborough
December 27, 2016
In today’s fast-paced and fiercely competitive business world, it becomes more difficult to keep costs in-line with benefits derived. Additionally, today’s younger employees are not as loyal, and they expect more to remain satisfied with their jobs. Because of this, many companies utilize measures such as outsourcing, offshoring, and telework flexibility because these activities tend to lower costs, frees-up skilled employees for ‘important’ job functions, and providing flexible work-from-home capabilities enhances employee participation/commitment/satisfaction (while also lowering overhead costs. Prior to implementing any cost-saving activities, management must analyze the possibilities to ensure they will strengthen and support company goals and mission. This paper discusses: implementation of succession planning, the impact of outsourcing and offshoring, and the benefits of telework.
In today’s business world, competition is stiff, and companies must find effective methods to lower costs without decreasing performance and/or product quality. While there are numerous methods that can increase cost-to-benefit ratios, ROI, and engage employees, the methods discussed here are succession planning, outsourcing and offshoring, and telework (telecommunication or remote work). These methods have been in use for many years, evolving with technology advances and company requirements, although outsourcing/offshoring is decreasing somewhat, telework is increasing, and succession planning is an essential method to include in company strategizing .
Succession Planning (SP)
In any company, there are positions identified as necessary to operations – usually senior management responsible for key functions or hard-to-fill job slots. SP (succession planning) identifies all such positions, providing contingency plans to ensure key function and hard-to-fill job slot personnel transitions do not disrupt normal operations. Valentine (2012) indicates that “succession planning may be a key element in dealing with the culture problems associated with leader succession” to ensure corporate culture remains intact. SPs are a ‘grooming’ process where potential replacements are trained on requirements of the position, and leadership skills to facilitate culture maintenance, including but not limited to:
SP’s two purposes are:1) smooth transitions with departing employees, and 2) identifies potential candidates who can “assume high-level responsibilities” that management assists in skill development. SP can be as simple as a replacement chart – listing key positions/personnel with corresponding replacements and readiness time, or complex as required by company structure. However, as with any plan, SPs are only as effective as the preparation, monitoring, and cohesiveness with company goals, objectives, mission/vision, and corporate culture. To be effective, SPs must: 1) link with company strategies and modifications, 2) effectively monitor progress and measure outcomes, 3) iterate HR functions with SPs to ensure both function in tandem, 4) requires centralized SP coordination, and 5) must engage all company management. Key positions and required skills to adequately perform those job function must be planned for, potential replacements must be identified and ‘developed’, and monitoring/measurement/evaluation, and modifications to ensure current goals, etc. are reflected are essential .
- Providing an effective role model
- Ability to motivate/inspire
- Capable of refurbishment/strengthening existing culture
- Affirming/celebrating existing cultural ideologies and values
- Carries on existing traditions
- Makes continuity appealing and vital .
Tichy (2014/15) states, “failed CEO succession is the single biggest destroyer of shareholder value or…future success” , and even though the CEO (or top leader) is critical to organizational success, more than 80% of these positions are not properly ‘filled’. He further states that, if performed properly, SP and leadership development are extremely similar. Any organization can successfully implement/maintain SPs by ensuring the following factors are present.
By incorporating the above factors and placing top priority on maintaining/modifying the SP and developing potential replacement candidates in-house, companies foster a ‘we care about our employees’ atmosphere that motivates employees to grow in the company. It also decreases the need to recruit key position employee from workforce pools that may not be adequate– causing a ‘crash & job burnout’ that could devastate the company and its stakeholder value. As with all operational and strategic plans, SPs must be given top priority – fully analyzed and researched prior to design/implementation, regularly evaluated and modified to reflect current objectives, goals, etc., and facilitate leadership and skills development .
- Genuine power balance between board of directors, chief HR officer, and the CEO
- Elevating HR officer to a genuine leadership position/power
- Robust leadership ‘pipeline’ incorporating good judgment
- Measurable success track records
- Technical/political/cultural conditions cultivating transformational leader development
- Performance assessments, regularly scheduled
- Rational evaluations based on impartial criteria
Outsourcing and Offshoring
Outsourcing and offshoring are often considered the same; however, there are technical differences. Offshoring involves relocation of production overseas, while outsourcing involves acquiring parts or services from outsides source that may or may not be located abroad. Companies may use only one method, but often combine both in cost-saving strategies. For example, GM has production facilities in China, and outsources certain functions (domestically), and the Chinese facility outsources parts from local suppliers .
Offshoring was developed to avoid Western high labor costs by moving production to countries where labor costs are significantly lower. However, wages in China and India have increased 10-20% annual for the past ten years, although European and US wages have not significantly increased over the same period. And, while Asian and Malaysian wages are still ‘low’, these countries do not possess sufficient supply chains, efficiency, or scale as found in China and India. Even though there are still large wage gaps, increasing transport and other costs have decreased the value of offshoring .
In fact, Booth (2013) relates a scenario where Lenovo, a well-respected Chinese computer company, is building a production facility in North Carolina to decrease it costs of transporting customized finished goods to Western markets. Additionally, many US companies, e.g. Google, Apple, Ford Motor Company, and General Electric, are participating in ‘reshoring’ (bringing offshored production back), although the few European companies that use offshoring have not changed back to domestic production. Increasing offshore transport costs, long transit times to receive finished goods, and offshore supply chains unreliability increases costs as well. And, the distance between production and R&D negatively affects innovation strategies; however, relocation of R&D can cause significant issues, especially concerns regarding loss of intellectual property .
Outsourcing has increased for certain functions, e.g. IT, back-office support, call and data centers, due to lower costs and ‘freeing-up’ domestic workforce for other duties. Widespread disappointment in outsourced results are fueling a decrease in outsourcing more sensitive and/or complex and proprietary data activities. However, low skill functions may still be outsourced, and smaller companies with insufficient internal resources still outsource much of their work wherever possible to remain competitive. Despite this, 75% of US companies outsource at least one HR function, and many companies continues to outsource other non-core job functions the specialized outsource vendors, e.g. technical support, because technology maintenance costs can be overwhelming & drain company resources), as can the skilled work required. India remains the supplier of 90% of accounting outsourcing, and costs of outsourcing programming and other non-sensitive technical function still save money as wages are lower and technical overhead is carried by the outsource vendor. So, while offshoring has decreased, and onshoring has increased, outsourcing (albeit, less involving proprietary and sensitive data) continues to increase and show little sign of a significant slowdown . Figure 1 below indicates the ‘status’ of outsourcing and offshoring.
Figure 1 – Outsourcing Effects & Data
Telework, also known to as telecommuting or remote work, refers to any work done from home. According to Brumm (2016) 37% of the US workforce participates in telework, which is quickly becoming a norm as younger employees value flexibility above pay, and supported by technological and informational advances. However, it can be difficult to set up and administer particularly with HR policies, nor has the impact on company operations been fully defined.
|view work more positively||teleworkers are more engaged|
|more satisfied, less stressed||lower turnover and recruitment costs|
|more balanced home-work life||direct cost savings – less electricity used; less furniture and office supplies utilized, and office space can be consolidated and used for other purposes|
|less likely to seek new employment||employees able to work during emergencies, e.g. inclement weather, or other circumstances|
|commute time/cost savings||wider geographic reach with employees in remote locations, larger candidate pool and decreased relocation expenses|
|can feel isolated or lonely, lack of work-related socialization||High-intensity telecommuting associated with deterioration of professional & coworkerrelationships and social isolation|
|work & home time/separation blurs; can cause conflict at home||Can inhibit team productivity & teamwork cohesiveness; could hinder performance|
|despite positives, many return to office work||Creates in-group/out-group biases|
|significant negative impact on worker advancement||Can cause employee tension/conflict due to perceived ‘perks’ of telework; requires HR evaluations, etc. to be revised to reflect telework focus & ensure no discrimination|
Figure 2 – Benefits & Drawback to Telework – teleworker vs. company
Telework is here to stay, and companies will continue to utilize teleworkers wherever feasible (to lower costs and increase productivity); however, the are other costs associated that must be considered, e.g. home-use equipment, supporting IT infrastructure, the need for evaluations, monitoring, and outcomes measurement to ‘fit’ teleworkers and well as those who remain in-office to work. Additionally, management must determine if cost-savings are ‘worth’ the additional concerns and procedures/policies required for successful telework .
Three commonly used methods – succession planning, outsourcing and offshoring, and telework, have been in use for many years; however, while offshoring is decreasing, the rest are increasing. This is especially true with succession planning, which is becoming more essential to incorporate into strategies and operational procedures, since these plans are designed to ensure key and hard-to-fill positions are successfully identified/fulfilled through replacement candidate development and guidance. The #1 cause of failure/disruption, and decrease in shareholder and company values can be attributed to failed succession planning for a departing CEO!
This is not to say that offshoring is never feasible, or that companies should increase their outsourced function, nor does it mean that neither should be used or avoided. What it does mean is that prior to decision-making, comprehensive research and analysis is required to determine which, if any, will increase production, company/shareholder value, etc. without negative impact to cost-to-benefit ratios and heightened threats of data loss and/or loss of intellectual property. Additionally, with public mindset being ‘against’ offshoring, it is imperative to determine whether any cost savings, etc. are worth the decreased public image perceived.
The same holds true for telework; it can offer significant cost savings (& cost increases, especially when technical ability is involved, and it can provide increased employee engagement and satisfaction. However, it can also increase employee conflict, decrease teamwork and productivity, and cause other problems, including possible discrimination if telework requirement and evaluation measures are not appropriately designed, implemented, modified, and in-line with company and employee goals.
Companies will always attempt to save costs, wherever feasible, although methods change with the market, global economic status, and in reaction to stiff competition. There is nothing wrong with doing so – provided all activities are well-researched and appropriately function in tandem with organizational objectives/goals, corporate culture, and are maintained to keep up with technological advances and ever-changing company and consumer requirements. Therefore, while advice on telework and offshoring/outsourcing is to proceed with caution – looking at long- and short-term effects, no company should be without some form of succession planning. Again, however, proceed with caution, evaluate long-and short-term effects, and most importantly, ensure all key positions and potential replacement candidates are fully identified and that replacement development is optimal to ensure a smooth transition between departing and replacing employees.
Brumm, F. (2016, May). TELEWORK IS WORK: NAVIGATING THE NEW NORMAL. Cornell HR Review, 11-15. Retrieved from http://web.b.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=87ea7939-dfc3-448b-a2f8-b9fbd5f2ee5a%40sessionmgr101&vid=1&hid=123
Mello, J. A. (2013). Strategic Human Resource Management (4e ed.). Cengage Learning.
Tichy, N. (2014/2015, winter). SUCCESSION How to Get This Process Right. MWorld, 13(4), 26-30. Retrieved from http://web.b.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=1a77bef7-92c6-4686-aa7c-2b8d8bce9e61%40sessionmgr106&vid=1&hid=123
Valentine, D. (2012). Maintaining Organization Culture Through Leadership Succession Planning. Feature Edition, 2012(1), 41-46. Retrieved from http://web.a.ebscohost.com/ehost/detail/detail?sid=604f225f-2a78-4d4b-9e0c-83b6c1124ac2%40sessionmgr4008&vid=0&hid=4209&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=bth&AN=82669722