An Address to The Australian Workplace Changes to Law/Management/Practice. A Practical Approach
conducted by IR Conferences of Australia,
Melbourne, 22 July 2004.
Ladies and gentlemen
My thanks for the opportunity to talk to you today, and to IR Conferences of Australia for organizing this conference. My task is to look at the changing environment and trends relating to outsourcing and, in particular, to consider the risk and risk-management environment of outsourcing.
My comments are based on a proposition that industrial relations management has long ceased to be a process of managing union negotiations through industrial courts and tribunals, guided by specific legislative processes. Industrial relations have entered a new phase in which the core values of your individual businesses are coming under strategic assault. These attacks are conducted by adversaries who use networked and co-ordinated processes to damage or interfere with business brand names and reputations.
Outsourcing is a primary cause of this development. Further, the ability to successfully outsource depends on being aware of, and managing, this new "industrial relations" environment.
But first, some background.
I formed a Work Reform Unit in 2001 at a time when the business community had effectively become dormant on the workplace reform agenda. For example, the Business Council of Australia, long an important institution for reform, had just closed their industrial relations unit. There was a general view that the industrial relations boat did not need to be rocked.
But, we were receiving a very different story. A wide variety of businesses were telling us privately that there were continuing deep, systemic labour relations problems.
When we started the unit, our first task was to undertake detailed "on the ground" research about what was (and is) happening inside businesses and industries.
Our studies supported the stories we were receiving from business. For example, our investigation of the food manufacturing sector unearthed enormous labour problems, both cultural and structural, which were on such a scale that we concluded that the Australian food manufacturing sector was in a long-term process of closing down. And we didn't (and don't) make that statement flippantly.
Another important part of our research, for example, looks at various firm's capacity to manage as a consequence of industrial agreements. And that is not a good picture so far. You can find the work reform units output at our Website.
One of our earliest pieces of research involved a highly detailed, extensive look at the campaign being waged against the clothing industry over the outworker issue. Most people aware of our research have wondered why we bothered to look at this issue.
To my mind, however, the outworker research is the most important research we have undertaken so far, because it turned out to be an exposé of the trends, campaigns, directions and newly emerging corporate risks associated with my topic today: that is, outsourcing.
Outsourcing in all its forms is perhaps one of the most significant business structural trends of the last two decades. Outsourcing has many forms, but at its core it involves the deconstruction of the old Taylorist or scientific model of the firm; that is, deconstruction of the employee command-and-control pyramid. Outsourcing involves isolating the core things that a firm can do well, looking at the supporting elements that are required to enable the core things to function, and entering into commercial partnerships with other specialists to provide the supporting functions.
Outsourcing occurs internationally on grand scales. For example, it's understood that the USA Wal Mart supermarket chain consumes some 1 per cent of China's Gross Domestic Product -- that really is large-scale outsourced manufacturing! Or outsourcing can be small, involving the engagement of someone who works from their own home doing the bookkeeping or debt collecting for a small business. The possibilities are endless. But outsourcing has become one of the key productivity and wealth creation drivers in all economies and it is a core aspect of most businesses operations.
Yet outsourcing as an idea, a structure and a legal right is under sustained global and local attack. In the USA, outsourcing of American jobs to foreign countries, even with the clear benefits provided by free trade, is a major campaign item in the current US Presidential election campaign. In Australia, outsourcing is being pilloried and subject to legislative attack.
The most frequent (non-legislative) mode of attack against outsourcing involves targeted, co-ordinated, media assaults against the core brand name value of companies engaged in outsourcing.
The size or wealth of a business is not an indicator of whether or not it will be brand attacked for daring to outsource. Internationally, Nike has long weathered the brand attacks mounted against it for daring to manufacturing in developing countries. Telstra is constantly chastised for even thinking about using overseas call centres. The Australian media monitoring company Rehame has been subjected to attack for using people who work from home undertaking media monitoring work.
Often these brand name attacks involve the use of competitors who may benefit from their rival's misfortune. There is some evidence that the internationally coordinated campaign against Nike was, at least in part, generated by corporate affairs persons associated with one of its competitors. Telstra is chastised for outsourcing call centres, yet Optus has been doing this for years. Earlier this year, when Rehame was subjected to extensive, negative media exposure over outsourcing, one of Rehame's competitors mass marketed to clients seeking business on the basis that it did not engage in Rehame-type outsourcing.
In this brand attack process, however, most competitors tend to breed off any brand mailing, rather than run it themselves. For the most part, the attacks are driven from a single and familiar source, have clear and understandable motives and, thanks to our research on the clothing industry, we can now understand the end game.
The union movement, domestically and internationally, is in trouble. Their business is dying. Declining membership is the symptom not the cause. Outsourcing is the principle problem.
Put simply, the union movement came into existence as a consequence of the Taylorist model of the firm. Unions exist because they empower those at the bottom of a command-and-control pyramid against those at the top of the pyramid. As firms deconstruct the pyramid, the outsourcing model places limits on the power of those at the centre of the firm and instead empowers those who are the outsourced suppliers. When outsourcing comes down to the level of the individual, empowerment becomes individual. Through outsourcing, power becomes constrained, diversified, spread and balanced within free-market regulation through commercial contracts.
Lack of time prevents me expanding on this explanatory thesis. Instead, I need to look at the implications.
Mostly, unions are not consciously aware that the outsourcing power shift is the cause of their decline but are intuitively reacting to events. Their reasoning goes something like this: unions protect the weak, unions are moral, anything that damages unions must be immoral, consequently outsourcing is immoral and the people undertaking outsourcing must also be immoral. Labour regulators and academics are generally caught up in the same psychology.
How do we know this? Our research into the domestic clothing industry on the outworker issue turned out to be an outstanding case study, spread over two years, into the psychology, background, reasons and approaches of the anti-outsourcing networks. We now know the campaign techniques, the networking of the players and the end game being targeted.
The domestic clothing industry has used home outworkers for more than one hundred years. They supported the large clothing manufacturing sector during most of last century until the collapse of textile trade barriers in the 1980s caused the clothing manufacturing industry to enter a period of sharp decline. By the late1990s, factory sweatshops had almost disappeared and industry union membership had near-vanished. About 12,000 outworkers could be identified by the ATO who continued to work as before -- supporting a small industry focused on high quality product. The textiles union set on a campaign of legislatively capturing the outworkers as the first step in garnering renewed membership.
The union movement undertook a decade-long campaign of demonizing outworking through direct brand attacks against the clothing labels and retail stores. This involved numerous media raids and stunts, including some where activists stripped off in retail stores. School children were heavily targeted. The campaign was well co-ordinated with several church and other non government organizations, it involved activists trained by Greenpeace, it received funding from benevolent trusts, and millions of dollars from state and federal governments. All the details are on our web site.
The end result was the outworker legislation now operating in NSW and Victoria. This legislation effectively destroys outsourcing in the clothing manufacturing sector. It controls the manufacturing price of goods to be paid by every business in the contract manufacturing chain. It imposes price controls over all commercial transactions in the manufacturing chain, something that would otherwise be illegal under the Trade Practices Act. The legislation layers industrial relations-type legislation directly on top of commercial transactions. The legislation destroys free-market activity in the domestic clothing manufacturing sector right through to the retailer. It sounds the death knell of the domestic clothing manufacturing sector and will reduce the industry to cottage industry status. This process is well advanced.
The oddity is that this decline also signals the death knell of the textile union. But the union does not comprehend the rationale of cause and effect, because it is blinded by an obsession with a singular view of its own high moral positioning: They are good. You must be evil if you outsource.
And this sort of campaign is coming your way if you outsource.
And forget about truth. The campaigns are all about leveraging for a media story. Channel Seven's Today Tonight programme ran a story with the textile union in 2002, in which the reporter and union were caught, on tape, lying about the pay rates paid to clothing workers being filmed. Don't expect the truth.
The campaigns have as their objective the rolling out of industry-specific price and process controlling legislation modelled on the clothing industry legislation.
For example, after subjecting the Rehame group to brand name attack, there is now concerted behind-the-scenes lobbying of State governments to introduce media monitoring industry-specific legislation modelled on the clothing outworker legislation. The call centre industry is being targeted. The labour hire industry has been subjected to a sustained assault for about five years. The IT sector is experiencing the early stages of leverage. The end game in all these cases is the same.
The reason for relaying this story is to make the point that, when you turn to outsourcing, you are now operating in an environment of risk.
Outsourcing is legal and it is moral. It makes for good commonsense business. It drives productivity.
But be aware. If you contemplate outsourcing, you are operating in a new environment in which your participation will be seen as part of a structural assault on the business models upon which the union movement depends for its survival. Even if you do not have a union presence in your business or your industry, you are at risk. The union movement has created new campaign techniques, new allies, new moral positioning and are leveraging substantial government support and clout in some sectors.
You can choose to ignore the risk and calculate that your chances of being targeted are remote. But remember the food packaging industry, where just a small number of blackmail-motivated product-tampering instances forced the entire industry to develop tamper-proof and tamper-identifying packaging. They were forced to address the risk.
Outsourcing is now a risk environment subject to brandmail campaigns which are designed to convince others that your legal activity is immoral and that the outsourcing you undertake must be made illegal through legislation.
There are many other levels to the campaigns. Outsourcing is under threat through enterprise bargaining strategies, payroll tax changes, realignment of workers' compensation approaches, development of joint employer concepts, and many others.
You cannot do much about these bigger picture public policy items, but you can look to protect your brand.
In response to brand name attack, the approach to date has been to bring those on the outside of the tent, inside, based on the old proposition of better pissing out than in. In other words, succumb to the brandmail and pay off the attackers.
The clothing industry study and the experiences of many corporations and industries over the last few years, however, have demonstrated that acquiescence doesn't work. Those brought inside continue to piss in, only once they are in, they have accumulated your resources to continue their efforts.
To protect brand names, the first step is to eliminate managerial naivety. Brand name attacks scare the heck out of every executive in a business, particularly the marketing and sales people who hold most sway. With foreknowledge and planning, however, the traps that are set for you can be avoided.
Quite recently I was called in by a company that has a high profile national and international brand name. There had been an alert that they were about to be subjected to a brand name attack media stunt. The company is involved in critical outsourcing activity, which they claim has caused a turnaround in their business over the last three years. They were worried. Within an hour, a crisis meeting was called of all the senior decision-makers. An analysis of the situation was undertaken. The intent of the likely media stunt was identified as an attempt to secure leverage against their outsourcing activity. What on the surface was a media and public relations problem, was really an old style industrial relations issue which had to be managed as a media issue. Identification of risk occurred. Plans were formulated and put in place. The counter-strategy put in place has thus far foiled the attack and, aware of the true game being played, the company is now prepared, is focused on courses of action it needs to take, and feels under control.
The message is clear.
Outsourcing has direct industrial relations implications. I've only looked at a tiny sample of the forms this now takes. But the industrial relations game has taken a new and sophisticated leap forward -- thanks to the union movement -- which has at its core the attack of brand names and the reputations of businesses and industries.
You can stop outsourcing, but I suspect that competitive pressures will, in the end, deny you that option. If you continue to explore partnerships through outsourcing, brand name risk assessments and management strategies in this new environment are going to be forced upon you.
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