CIO Ron Kifer wants to ensure that the outsourcing providers he hires are aligned with his own company's objectives. But Kifer uses more than the usual questions that examine whether the work can be delivered on time and on budget. He looks at social and ethical factors, too.
"We just got into IT outsourcing within the past couple of years, and we're trying to apply the same ideas: giving back to community, supporting the economies in which we live and work, green initiatives," says Kifer, who is a group vice president at Applied Materials, a California-based company that creates and commercialises nano-manufacturing technology. "We need to make sure that our suppliers are operating to the same high standards" as the company, he says.
Kifer is ahead of what some see as the next wave in contract employment: socially responsible outsourcing.
The International Association of Outsourcing Professionals (IAOP) lists socially responsible outsourcing as the No. 1 trend in the field for 2008. The association predicts that companies providing, using or offering advice on outsourcing will increasingly develop standards that go beyond pure business objectives to address ethical questions. It expects that these standards will touch on topics that indicate how a company interacts with people, the community and the environment, such as labor policies and green initiatives.
This isn't just a feel-good move, however. Proponents say that outsourcing providers with socially responsible policies -- as well as the IT shops that hire them -- will find that corporate citizenship has business value, too. It can lower expenses, such as the cost of replacing burned-out employees, and provide better outcomes.
"Social responsibility is good business, besides being a good thing to do," Kifer says.
How to check
An outsourcing provider's record on social and labour practices gives an insight into its ability to deliver products. Poor working conditions will contribute to high staff turnover, for example, says Christine V. Bullen, a senior lecturer at Stevens Institute of Technology and president of the Global Sourcing Council, a non-profit professional organisation.
Here are some questions that Bullen and others suggest asking to evaluate an outsourcing provider's record on social policies:
- What percentage of the local workforce do you employ?
- What are the laws in your area regarding the minimum age of employment?
- What is the minimum age of workers you will employ?
- What salary and benefits do you provide?
- Does your compensation plan meet your workers' needs, and how have you reached that conclusion?
- Tell me about workers' schedules: How many hours do they work in a week? How many days a week do they work? How many hours per shift? What are the starting and ending times?
- What career paths are open to your employees?
- Do you work with government or other stakeholders in the community to advance community development?
- Do you provide education or training for community members outside your actual workforce?
- How do you balance security needs and your employees' working conditions?
- What green techniques are you using?
- How are you reducing your carbon footprint?
- Does your company have any environmental initiatives?
Concern about socially responsible outsourcing has been building for years, stemming in part from the fact that companies are adopting ethical standards for their own operations, says Jagdish Dalal, managing director of thought leadership at the IAOP.
"More people are looking at the ethics statements of the companies they do business with to make sure their statements are congruent," Dalal says.
There has been plenty of bad press over outsourcing and offshoring and the effects such practices have on employees and communities. Such coverage has raised concerns among companies that have seen the impact of their own corporate citizenship initiatives weakened by negative perceptions of their outsourcing partners, says IAOP Chairman Michael Corbett.
While critics have charged that workers employed by outsourcers -- particularly those offshore -- often earn unfairly low wages, Dalal says IT outsourcing providers certainly don't fit the stereotype of industrial sweatshops, with child workers and others labouring in unsafe conditions.
Still, Dalal says, "sweatshops exist anywhere there is unethical practice." In the IT realm, companies that expect workers to be on call constantly or to always put in extra hours without additional compensation could be downgraded in the eyes of prospective partners. And companies that hire such outsourcing providers could face negative public pressure, Dalal says.
The potential for bad PR isn't the only reason IT shops are beginning to look at this issue. Corbett says outsourcing has become a critical factor in the success of many IT departments, which heightens the need for proper management of it.
"It's not a new topic, but there's a new focus on it," Corbett says. "Businesses are increasingly looking at how the outsourcing decisions they make affect the communities they're working in."
Companies are still developing guidelines on this topic. "We're looking at general categories, making sure it's a safe environment, that there are no children in the workforce," Kifer says. "But I think eventually you'll see organisations drill down and come up with concrete and specific requirements."
Already, IT departments are asking their outsourcing providers about recruitment and retention policies, compensation plans, employee training and benefits packages, says Stephanie Moore, an analyst at Forrester Research Inc. But Moore and others question whether the trend will go beyond those basics. She hasn't seen any contracts that ask about charitable giving or community-focused activities, for example.
Attorney Melise Blakeslee is even more skeptical. IT departments still focus on key business issues when evaluating outsourcing contracts, says Blakeslee, the leader of the tech transactions, Internet crimes and e-business groups at McDermott Will & Emery LLP and author of the upcoming book Internet Crime, Fraud and Tortes (Oxford University Press, March 2009).
IT managers want to know how outsourcing providers handle and safeguard their data, whether they can deliver on time, and how much they charge for their work, Blakeslee says.
The issues that fall under social responsibility aren't addressed in the contracts, and so far aren't discussed, she says. Although some companies do ask about a provider's diversity initiatives -- it's common corporate policy to ask such questions with all business partners, Blakeslee says -- even that issue carries little weight.
"I have never seen it determine anything," she says.
"Cost is king," Moore adds. "Cost comes first, flexibility of terms comes second, and maybe then, if you're stumped, you look at [social responsibility]."
But Corbett and Dalal maintain that examining a provider's social policies has business value. For example, they point out that ethical labour practices, such as offering training and benefits, translate into better employee retention and improved engagement.
"Few would do it if it didn't produce a financial return, and it's becoming a competitive advantage," Kifer says. He cites environmental policies as an example, noting that reducing a data center's cooling requirements can save serious cash in this era of escalating energy costs.
One indication that the trend toward socially responsible outsourcing is real is that outsourcing providers are responding to it.
Dariusz Sus, head of global business process outsourcing product development at Capgemini, a global outsourcing provider, says clients are asking about his company's compensation plans, diversity initiatives and work schedules. He says clients want to ensure that Capgemini treats employees fairly so it can attract and retain qualified workers.
"Our clients are concerned about social responsibility because they treat our people as an extension of their own [workforce]," he says.
And though companies haven't been as inquisitive about Capgemini's green policies and corporate citizenship initiatives, Sus says those questions "may come sooner [rather] than later."
He remembers one client asking about Capgemini's community initiatives because the client had plans to eventually expand overseas and wanted to be seen as a good corporate citizen.
Sus says he believes client companies will start looking more closely at these areas when selecting providers.
Some already do.
"All things being equal," Kifer says, "we will select an organisation that has a plan and demonstrates [a determination] to use a level of social responsibility that's consistent with our goals and objectives."