An English-translated excerpt of “Outsourcing – Its strategy and its

practice”; from ‘Rousei Jiho’ (Labor Policies Journal).

Written by Takeshi Matsuki.

Chapter 4:

A study on an ideal way of human resource

administration in the context of strategic

outsourcing

I
n the outsourcing projects we have mentioned here, we realize
that the relocation, transfer, or even a resignation would be
required, in accordance to an executive policy change. Generally
speaking, these human resource (HR) administration related
procedures require specific consideration which is beyond those of
typical one. It also has to be separated from those HR-related
procedures aiming for a simple downsizing. In this essay, we will
discuss an ideal scenario of personnel administration amid the
strategic outsourcing.

1. A viewpoint of Personnel administration during a strategic

outsourcing

The Personnel administration, especially if it is a part of the

executive policy in a positive light, it is very important to make it to
be open. With closed-door executive policies, any strategic executive
operation would not be successful. It is the first step for the Personnel
administration to share the proper executive information with the
employees, in an environment where the executive challenges are
well shared between the management and the employees.

[1] A correlation between improved satisfaction of stakeholders and successful

projects
 The main goal in the management here is to be successful to
outsource. In this context, we should focus on those two things:
1) Make sure that both risks and human resources are well managed.
2) Ensure that the morale level of the current employees keeps the
same even after the outsourcing is carried out. Try keeping up and
raising the stakeholders satisfaction rate.

Outsourcing the administration process causes significant impacts

to the employees who are in scope. This also means, some
employee’s titles, status, environments, benefits, and compensational
schemes would be changed accordingly. To minimize the impact, very
careful preparation and measures must be carried out beforehand. In
the companies that have the unions, the outsourcing initiative
requires a series of procedures stipulated in the Labor Agreement. It
is a significant key factor to have a friendly relationship with the
union.

Suppose we are carrying out a new HR policy, which requires a

transfer, relocation, demotion or promotion. Needless to mention
about those who are appointed (s/he would have to go through
physical or mental hardships), the other employees might overreact
to such a policy. This signifies that, these HR operations should not be
regarded as usual hire & fire and/or transfer process to people who
are designated. We must design the HR policies to be applied
company-widely, not a section-widely.
Implementation of those policies shall be regarded as a big project,
with a careful coordination between the stakeholders, such as our
suppliers, our banks, and most importantly, our customers.

[2] A measure to the company-wide impacts

- Disclose information to the out-of-scope employees as well

Not only in-scope employees are anticipating to the strategic

outsourcing initiative, but also all stakeholders are doing so. We may
easily come up with an idea to get an approval from the shareholders
through a board of directors, but we should always remember that our
customers, suppliers, banks and the rest of the employees would get
impacts by such an initiative. Let us firstly look into an impact to the
out-of-scope employees. Even if we describe the nature of the
initiative and what we are looking to, at the corporate meetings or to
the union, poor attempt of doing so would cause rumors to affect
morale. Thus, it is advisable to disclose information of a new HR
appraisal and compensational system, followed by an outsourcing
initiative. Note that discussing any individual or specific case would
come with a privacy issue.
- Amendment of the labor agreement and its annexes

If we have a union, it is desirable to let them understand and share

the strategic concept of the initiative, so that we can get their
cooperation. There are some obvious prerequisites in treating union
members: one thing is to respect the labor agreement; the other thing
is to respect and try fitting for her/his wish.
We can save time if the labor agreement has the clauses stipulating
certain outsourcing cases; if we have none of them, we would face a
possible issue where we have to explore the possibility of amending
the labor agreement or its annexes. We can imagine that, even
within the union members’ minds, they may have an idea to have it
stipulated in the labor agreement.
We believe that, the key clue [to deal with the union] is that we have
all the possible HR-related policies which is capable for outsourcing
initiatives stipulated in the labor agreement, while we intentionally
keep some rooms of flexibility in the clauses to allow us act agile.

2. HR-related procedures, which typically come with

outsourcing initiatives

In this section, we will organize the procedures we will follow

when we carry out an outsourcing project. Keep in mind about the
keynotes that we showed in the section 1, that are:
 Make sure that both risks and human resources are well
managed.
 Ensure that the morale level of the current employees keeps the
same even after the outsourcing is taken place; Try keeping up
the stakeholders’ satisfaction rate.

[1] Negotiation with middle management

Aside from those senior executives who understand the
purpose of outsourcing and managerial challenges they are facing, it
is important to let the middle management know how it will change
the way we work, through a series of strategic outsourcing.
 Either well-experienced, well-educated HR people, or those
managers who does not have such expertise can do human resource
management. If it is done by non-HR-savvy managers, we need to pay
attention to avoid possible careless implementation. One of the
typical mistakes by such people is that they cannot stay focused on
its true purpose, thinking that they should just slash people. We
assume this kind of mistakes is based on the lack of managerial
‘sense’. In short, we should always be aware of the true purpose of
the initiative, using strategic outsourcing as a tool. Outsourcing itself
is neither the goal, nor a rephrasing of layoff.
While it is inevitable for the appointed employees to adapt
herself to the change of the surrounding management situations, they
are protected by the labor-related laws. Make sure that the middle
management has a proper understanding of the HR-related
procedures and labor laws before we actually start the outsourcing.
Any careful preparation might find the need of individual orientations
to the middle management, or even, some individual interviews.
Driving the outsourcing initiative without sharing proper
information and conceptual understandings to the middle
management can ruin what you have carefully built in minutes.

[2] Applying New Human-Resource Policies

- Consider the HR reshuffle [re-assignment and transfer] of the subjects
Many companies are well prepared to handling re-assignment
cases due to its managerial policy change. Some even have those re-
assignment procedures stipulated in the labor agreement. However,
from a viewpoint of personnel administration, it still has very intricate
and sensitive nature.
Obviously, decision-making of the re-assignment of employees is
solely done by management. Yet, the re-assignment caused as the
result of outsourcing must be treated different than a typical one,
since the nature of outsourcing is to externalize the business
functionalities that were carried out by internal employees. That
means an elimination of employment opportunities. This will be
treated as a topic between unions if your company has them. Even
without a union, it is inevitable that we have to elucidate why HR
reshuffle is needed and how it will be implemented, to all employees.
Without doing so, the management and the employed will never have
the same standing, which will lead an incomplete delivery of the
projected strategy.

- Pay respect to a principle’s wish- Re-assigning people

Together with a disclosure of the reason why we are shifting to the
outsourcing initiative, it is desirable to disclose a basic guideline, if
not very detailed, of re-assigning people with the initiative. The board
of directors and/or managerial body must sign off how we should
disclose them.
Most importantly, we should respect the principle’s wish and
consider the most efficient re-assignment plan to maximize her/his
motivation and potentials. Let us discuss further by two examples:
Example 1: Outsourcing the sales, services and manufacturing
departments:
Potentials and flexibility of the employees working for the
departments are generally high. The transition to new assignments is
relatively easy.
Example 2: Professional service departments, such as HR or
Accounting:
The people of employability is high, so their would get highly
interested to find opportunities outside of the company.

Keeping these two examples in mind, we could also imagine

that there are two kinds of people who:
1) Wants to continue working in the same company, even if their job
scope is changed.
2) Wants to continue working within the current work scope.
It boils down to the question that if the principle wants to continue
working to strengthen her/his expertise and raise a value in the
market, or if she or he just wants to stay within the same company.
Of course, we do not know what course of thoughts they
followed, when they have to choose to be re-assigned. However,
this cannot be an indulgence to carry out a mechanical or automatic
 re-assignment. We should not forget to make the procedure have a
human touch, since failing to do so will let the employees label our
strategic outsourcing yet-another downsizing.
Strategy is not a tool to make pressures to the individuals. A
matter of an utmost importance is a careful coordination to find the
mutual interests of individuals and the company within the frame of
strategy. If any problem were to be incurred during the re-
assignment, it is worth the effort to make a great concession from
the corporate side to get an amiable result.

Discussion in detail:
Weighing the appointed employee’s wish in the re-assignment
A) For those who are willing to continue working in the same
company even if their job scope is changed:
A basic approach is to hear the appointed employee’s wish. If she
or he is competent enough, it is easy to find her or him a
department that has some headcounts to be filled. For younger
people, we may consider assigning a completely new job,
exploring her/his potentials. For middle-aged or senior people,
some care is required to assign her/him a similar job. If the
number of hiring departments/available headcount is small and
we cannot re-assign the subject according to her/his wish, then
we must consider placing a transition period where the subject
can go through training programs.
In the next performance review that comes after such a re-
assignment, since the subject’s job has been changed, reviewers
are advised to consider it. Any person needs to take some time
raising their learning curve.
B) For those who are professional-service-oriented, willing to
continue the same job:
The more universal their skill sets are, the more they are
motivated to look to job opportunities outside of the company.
While we hear from a subject about their wish, there are options
such as sending her/him to the outsourcer subject to its consent,
or consulting an external outplacement agency.
 In the end, we come to consider the re-assignment, transfer, or
outplacement of the existing workforce. However, from a viewpoint
to facilitation of the outsourcing project, it is always necessary to
get the employee’s support.
To ensure the company gets such support from the employees, it
is very important to locate a leader who has a strong leadership to
drive the actual project members. Subject to her/his consent, we
must keep such a leader staying in her/his current position, without
exposing her/him in fear of re-assignment, at least for a certain
period.

[3] Personnel administration on the subjected

department
A key to success: Locate the leader and treat them fair.
Any outsourcing project will fail without a help from employees
who knows the targeted [to be outsourced] operations very well.
While those employees are subjected to the re-assignment,
relocation and early retirement, they are vital part of the project as
well. In a workplace where the outsourcing will be carried out, every
people can be subject to such personnel reshuffle. To an
outsourcing project team formed by a project leader and some
project workers, it must be very tough to stay business as usual
while working as members of the project.
Since it is a vital point of the project to choose the right person
to a project leader, it is not advisable to hire her/him from outside.
Instead, we should make use of the existing manager who once
worked as a staff and is well experienced in her/his specific field.
Pinning her/him down to a stable position in the project in a very
early phase can maximize her/his capability to organize and
facilitate the project.
In the outside of Japan, an achievement of those projects as a
leader is highly appraised in their next stage of work; however, in
Japan, people might not appraise it well. To offset these negative
market characteristics, we may consider offering some incentives to
those appointed leaders. We may consider other project member’s
personnel reshuffle can be done on case-by-case basis.

[4] Confronting the union: some tips

- Rule #1: Let them trust the management through timely disclosures
In the context of successful outsourcing, proper disclosures
from a very beginning phase of the ground plan, is crucial. After
completing the first brainstorming to come up with the keynote, we
should start drafting the ground plan immediately to get it approved
by a board of directors. Keeping in mind that any suspicion among
the people can ruin productivity, we should inform all employees
about the ground plan and its summary as soon as it is drafted and
approved.
If we have a union, present the plan to them informally, right
after the keynote was completed. We then follow the stipulated
procedures. All the actual HR-related procedures must be followed
and closed at the time that the keynote and the ground plan are
presented. Announcing a new initiative itself is a big work; it is very
important to close all the less-important HR-related works to
minimize the impact to the employees. In short, we must act
proactively.
- Rule #2: Make every people in the loop.
Generally, these three things are believed to spoil the employee’s
morale:
A. Give her/him unfair treatment.
B. Show her/him little-to-no interest to her/his grievance.
C. Give her/him little-to-no clear vision or direction of where we
are going.
We cannot emphasize enough of the importance of
communication between the management and the employees, for
the fact that those three things we mentioned are the result of poor
communication. We must be aware that all the employees are
paying considerable attention to the move of the company, from
the beginning of the new initiative. Informing the union is not a
substitute of an official statement to the all employees. In the
statement, we should pay attention to the phrases used, to avoid
them from taking our initiative as a negative downsizing.
Keep all concepts, purposes and its strategic goal opened. It is
also advisable to announce the basic corporate views towards the
personnel reshuffle. If we do not mention something in the
announcement, assuming that people would not care, it would turn
out to be a pain point later, causing lots of baseless assumptions
and rumors among them. This can be a risk to a smooth transition
to the next step. Again, it is very important to let them feel the
management shares all the information with them.

[5] Individual process for a reshuffle

After a company-wide meeting, we should immediately set up
one-on-one sessions to discuss with the appointed employees. This
facilitates the project start-up and avoids confusion. To meet with
the affected employees we must reiterate the company’s decision
plainly, emphasizing the company respects the employee’s wish.
We must, then, confront them stating that the official decision on
the ground plan has already been made.
The purpose of one-on-one session is to negotiate with the
appointed employee on her/his new treatment. Win/Win relationship
is necessary, so a careful consideration to the individual situation is
important. However, for the project leaders, they must be dedicated
to the new initiative for a certain period. Try getting their
agreements in the session as well.
 Empirically, the more s/he is competent, the less her/his wish
is not going to be taken into consideration [, because s/he is
believed to handle a new assignment well]. To ease the grievance
raised by them, let them recall that the projects have certain
timeframes. We may then say to her/him that, after the projects are
concluded, there would be a chance for them to negotiate for
her/his further assignment.

[6] Wrapping-up HR procedures

We have come this far to go through the board of director’s
meeting and management meeting, to get the project approved.
Now it is the time to immediately team up the project members by
selecting the right people. Issue a relocation/transfer/re-
assignment/retirement order no later than the forming of the project
team.

Projects typically have their own goals, which are different

from the original goal shared by the subject business unit. With
regard of the performance measurement, we should specify and
implement new performance criteria and a clear goal to share with
people. Even with an outsourcer, it is necessary to fairly assess the
people’s performance, based on both the degree of contribution to
the project, and company-specific goals.

[7] Stay focused on our strategy: points to

remember
As we have discussed, a scope of work for changing the HR
system in response to the outsourcing is so vast. It is recommended
that we work with the unions, or the representative person of the
employees to re-organize a set of procedures in accordance with an
outsourcing initiative.
Decisions on HR-related system reformation can be broken
down into two parts. One thing is to maximize the satisfaction of the
subject. Another thing is to cope up with the market, having a
flexible set of strategies. Maximizing the satisfaction of the subject
has a very close relationship to the quality of our lives, since an
early-retirement or outplacement, which significantly change the
lifestyle of the subject, is often required. A fair HR system, together
with a management policy in which they believe all employees are
valuable, is valid all time; they are the important constraints and
should always be followed, in non-contradictory forms to the
strategic part of the decisions. Failing to achieve those two
decisions will not yield an expected successful result.
We have also reviewed that all of the HR-related system
restructuring initiatives cannot be carried out in a mechanical way.
As we are going through the dynamic business circumstances, it is
always required to design, verify, review, and renew the HR system
carefully to allow the management to act agile.
The writer hopes this small essay can contribute toward a
solution of readers’ intricate HR issues at present, and they can
achieve the goal by the mean of strategic outsourcing. 