Description: Two years after winning a contract to provide IT services to Hertz, IBM has moved much of that work from the debt-laden car rental giant’s technology center in Oklahoma City to India.
Source: Informationweek
Date: Jan 24 , 2011
About 50 former IBM employees who worked on the Hertz contract in Oklahoma are now seeking assistance under the federal government’s Trade Adjustment Assistance program, according to documents obtained by InformationWeek.
“All production support/technical support for IBM on the Hertz account has been moved to India,” states an application for TAA assistance filed with the Department of Labor on behalf of IBM’s Hertz contract workers on Nov. 12, 2010. The application specifies the total number of workers affected as 50. Read rest of story
Questions for discussion:
- Do you feel IS outsourcing is a good policy for Hertz? Why? or Why not?
- Do companies need to make theses offshoring decisons with shareholders as the number one stakeholder in mind?
- Does this decison to offshore satisfy the shareholders?
Hugh F
As much as I would like to think shareholders are concerned with the ethical side of a company’s operations (they’re some, but few and far between) sadly, most are in the position of being a shareholder to gain their own profit. The only time the operations are worrisome to the shareholders is when it might result in a reason for other shareholders to sell, thus lowering the stock price. Given the enormous cost labour is to a company, when Hertz could slash this cost by 10%-50%, for most bottom line driven investors this looks like a good thing (especially considering their current debt position). The odd time this will backfire if there has been a lot of publicity about the off shoring but for decades now moving production out east has slowly become a norm.
Brett
Business is business, if it were a charity then it wouldn’t be a business. Many shareholders donate to charities, but when they invest in a company they expect it to make money. Why should the company pay more for services when the customers who rent their cars could care less where there IT support is based? If a company can get services for less they are going to do it, it leads to a lower price for consumers, which is all the consumer cares about. Outsourcing is happening because people are not willing to take a pay cut, and it will continue to happen until they are willing to work for less. The company is saving somewhere between 10-50%, if the employees were willing to take a 10% pay cut, the jobs could have stayed. It is a global economy now and we all need to realize that we are not worth as much as we thought we were 10 years ago.
Oloff Dreyer
I believe that IS outsourcing is a good thing for Hertz because this will cut down their labour between 10-50%. I understand that this may be bad for American employees, having gotten rid of 50 employees, but for Hertz it is all about the bottom line. Unfortunately for bigger companies that’s all that matters at the end of the day. I think companies make these decisions with shareholders in mind and realize that shareholders also mainly care about profit. If anyone were to put themselves in this position they would probably do that same thing if it meant reducing costs and improving profits. Therefore I think this would probably satisfy they shareholders at the end of the day.
Rob C
The outsourcing of IBM’s Hertz contract does not strike me as much of a surprise. Many of the large corporations today have turned to outsourcing primarily in Asia, where IT knowledge and assistance has been their forte. Unfortunately, cutting expenses by downsizing is a part of corporation norms and procedures nowadays wherein job security is not what it once was in the twentieth century.
Especially with the high percentages of unemployment in the US, this will eventually just result in another group of to be unemployed citizens to the statistics, as the “offshoring” becomes entirely implemented for Hertz’ IT section.
With this reoccurring trend of large corporations outsourcing, the question of actual working conditions and salary come into play as many of these corporations have and are currently exploiting foreign laborers. I think that they need to start creating international laws in regards to outsourcing and foreign labor rights, especially with the world becoming more and more of a global community.
katelynne.swenson
Looking at it from Hertz’s point of view, it would seem that outsourcing is a good policy for them. Outsourcing reduces employee costs from 10 – 15%, plus other additional costs. It will be cheaper for them in the long run, which is what they need since they are in debt. Hertz is a big company, and to them, fifty employees probably isn’t that much, but their wages do affect their bottom line. The bottom line to a company is one the most important parts to keep them afloat. Outsourcing is a trend that many companies are going with. If it cuts their cost, then of course a company will do it. If the company has that much debt, then I don’t think they really have any choice but to cut their costs by any way they can. Looking at it from the employees perspective, no it isn’t fair. But this is the way business is run.
Kuda
I would think that outsourcing would be the best decision from the vantage point of Hertz. A reduction in the wage bill for a company which has a huge debt burden would be welcome in reducing costs, thereby allowing them to channel those funds to debt repayment. One could argue that there should keep the jobs within the US. But realistically if there is to be a viable company there would need to make decisions that facilitate their long term existence. Well such off shoring decisions can be made with shareholders as the main stakeholders because they have ownership of the company and so they are entitled to make decisions that are in the best interests of the company. The problem with other stakeholders is that there is a tendency to resonate around decisions that are not economically feasible for the very existence of the company in question. Input however should be encouraged that offers alternatives that are feasible and beneficial to all parties. It is now a competitive global market so there is need to take options that enhance long term competitiveness. And on the part of Governments that want to avoid the practise of off shoring; there would need to offer meaningful alternatives to aid in avoiding losing jobs.
Kevin Beauchamp
For Hertz, outsourcing is probably the best decision to help resolve their debt at the moment. It has become commonplace for many North American corporations to outsource their labour due to the tough economic climate. It is a form of resolution that can cut labour costs by 10-50% while allowing Hertz to maintain a level of performance that would help increase/maintain productivity. The only way to maintain the company at this point is to gain every inch that it can, which is what Hertz has to do.
Some shareholders may be unhappy with the decision to offshore labour from an ethical standpoint, but as members of the company, their interests are focused on the business perspective. If they don’t execute the decision to cut costs, it would only worsen their monetary investments into the company. In this global climate, many individuals are unwilling to compromise their growth for someone else’s
N.P
I do believe that the decision to offshore is being supported by the Shareholders. Hertz is in debt right now, and the only way for them to slowly minimize their debt it to move from Oklahoma to India. Shareholders want to be increasing the value of the company not decreasing it. By moving to India, they are cutting costs. They really have no other choice. Yes it is unfortunate that their outsourced employees have to suffer the consequences but the US is in a recession and it really gives them no other choice but to go to this foreign country. Some shareholders may care about these employees, however, in the end it is about keeping this company afloat and to do so they need to minimize their costs. If this means moving their company across the world than so be it.
Abiola Ogunyemi
The driving force of offshoring is to reduce cost whether its labour or production cost. Though identifying the stakeholder effect on such decision can prove to be a very difficult task. It’s a well know fact the in most organizations; the people are the greatest asset. However, Human capital comes at a cost that affects any organization bottom line. In terms of offshoring the two major stakeholders affected are the employees that are relieved of their duties and the shareholders. In as much as the employee can pledge their loyalty to the organization growth, (growth that comes with a cost that affect the bottom line). The shareholders focus in most organization is basically reducing cost and providing better services. Which in turn improves the bottomline, thus putting the shareholders interest as number 1. This might not sound right but it’s the reality of the case.
Tara
In my opinion, it is optimal for IBM to outsource their Hertz contract to India. They are decreasing there labour expense by a notable amount and congruently are increasing their shareholders wealth. Outsourcing has become a very common trend within the business world due to rapid globalization. Although it is taking away from jobs in the United States it is providing jobs in India where standard of living is far below that of the U.S. Therefore from a social view point it can be looked at in a positive light.
Shareholders in terms of today, are most likely to approve of outsourcing because it increases their own wealth. However, as fast as globalization is occuring, so is the change of perspective in the younger generations. A higher emphasis on corporate social responsibility from younger generations will dramatically effect how outsourcing is perceived in the future when they themselves become the shareholders of large companies such as Hertz and IBM.
Dylan B
I am a former rental car employee and I have quite a bit of industry knowledge. I have seen the hardships of these companies first hand and I know what they’re up against. For years these companies have been buying domestic vehicles from fleet-purchase programs, which has cut down the resale values of the vehicles so harshly that when it comes time to sell off old fleet, they’re nearly worthless. The fact is that this industry is in a rut, and the choice to cut its domestic call center is probably wise. The shareholders have no real interest in what happens on a 50-employee scale, they’re more concerned with profitability and the reduction of debt. Does it adversely affect 50 people? yes. Would the failure of Hertz be a far worse? Absolutely. This is a corner that can be cut, and I support it.
Chris
It is a good policy for the CEO’s and the people at the top because the business is in debt. Helping the company will not help the US economy. This will be losing money for the individuals directly who are losing their jobs. This will be indirectly not helping the economy for the United States when The united states have many employees who need jobs. If the company figures out a way by creating more jobs in the united States but outsourcing is not helping the United states economy. This does need to be discussed with the stakeholders because this is their own money they are using. The stakeholders money is in debt but they should be listened too. The shareholders should not just be the only one kept in mid because they need to look at what other stakeholders are in the company like how the community will be affected by this decision. Looking at even a more global way how the united States will be affected. This decision of offshoring will most likely make them happy because they are saving money. Then the shareholders money would most likely be made back by the cut in costs of moving.
m.lee
Although I believe that this is a good strategic move for many companies, we should really consider the impact that affects the states. I understand that companies use this to cut cost but I believe we should look at this as a form of exploiting revenue from the government. First the government is faced with an increase to unemployment and then a decrease from personal tax. I believe that companies that offshore but provide services for local business should be required to pay larger taxes to compensate the government in the increase to unemployment. Companies should not look at fair wages as an avoidable cost. By outsourcing your business to countries that pay employees starvation wages we are stating that it’s okay to exploit people. Exceptions should be made if a company decides to move to a foreign country to help develop the country and pays the employees’ wages that would be paid equivalent to that of the states. I am aware that many people are eager to have the cost of their products decrease, but we must also understand that this method does not increase the efficiency or effectiveness of the business.
Trevor.T
I think that the bottom line is increased when you cut costs by outsourcing, but I also believe that the customer satisfaction is decreased. I don’t think they have given themselves much of a choice though. They have to unload some of their debt if they want to have a chance at competing and staying afloat. Cheaper bottom line means greater profit margins and hopefully more competitive prices.
anniehononimous
What is a CIO supposed to do, when the corporate mandate is to cut costs. What a better way to do that, than to hand over the keys to the most notorious labor sell out in the country, IBM. That said, when a company is sinking like Hertz, the panic reaction is to bail ship.