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Politics of Outsourcing

Rosalind Helderman

The Prince George's County Council unanimously adopted a resolution on Tuesday condemning Washington Gas for outsourcing local jobs overseas.

In June, Washington Gas Light Company announced it was contracting with a company called Accenture Ltd., outsourcing about 250 jobs from the region. The company said it would save $170 million over its 10-year contract with the company. The jobs include customer service call center receptionists and, according to the council, the folks who answer the phone when people call to report possible gas leaks. This is particularly sensitive in Prince George's, where there have been several home explosions due to gas leaks in recent years.

In the resolution, sponsored by Councilman Eric Olson (D-College Park), the council noted the company has no plans to lower rates dues to the savings it will accrue from the deal. The council declared itself "deeply troubled by this proposed outsourcing of good jobs" and called on the Maryland Public Service Commission, which regulates the company, to "demand Washington Gas Light to maintain the customer services that we have already paid for in rates and that the Commission demand WGL to live up to its mandate to protect the health and safety of its customers."

What can such a resolution accomplish? That's unclear. In public comments, Olson said he hoped it would be taken as a "signal...that this kind of outsourcing we should stand up against."

Lou Wolf, who works with the union that represents 150 of the local employees who are slated to lose their jobs due to the deal, said he hopes the Prince George's resolution becomes a model adopted by other local governments. Their displeasure, he said, may pressure state officials to block rate increases which, in turn, could pressure the company to change its business plans.

Responding to the Prince George's resolution, Washington Gas spokesman Eric C. Grant said "Washington Gas business process outsorucing is a very carefully planned initiative that helps us to provide safe and reliable service to our customers and to keep costs under control. This is especially important now, given all the concern about high industry bills."

In the June statement, Washington Gas said it would offer "outplacement assistance" and counseling to employees losing their jobs.


By Rosalind Helderman  |  October 24, 2007; 10:38 AM ET
Categories:  Rosalind Helderman  
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Comments

This outsourcing SHOULD be fought and it is an often busted myth that contracting and subcontracting these functions out saves money. These deals are all made by connections or "networking" as it used to be called. The issue here is that Washington Gas is unregulated and can generally do what they want...community be damned! BTW, for those who don't know...Accenture is none other than Arthur Andersen - that's right...of ENRON fame. They changed the name of the company right after the ENRON prosecutions. Another victory for energy deregulation!

Posted by: Donny | October 24, 2007 2:31 PM | Report abuse

What is the true root of the council's concern? In this age of global digital communications, it really doesn't matter where they take the initial call - what matters is that the call is handled professionally and appropriately, and that proper procedures are in place to address customer concerns and emergencies. A call center in Largo, Landover or Laurel is going to hand off an emergency in the same way as a call center in Baltimore, Boston, or Bangalore.

The job of any utility is to provide the resource (in this case gas) in an effective and efficient manner to meet consumer needs. It isn't a jobs program.

The roll of the PSC is only to ensure quality service, provided in accordance with the utility's tarriff - it isn't to protect local union jobs.

Outsourcing is not a cure all, nor is it the root of all evil. It is simply a different approach for an enterprise to take.

If Washington Gas maintains (or improves) the quality of service at its call centers, then there's really no basis for complaint. The PSC should monitor to ensure there is no significant degredation in service, but otherwise they have no business in this matter. If Washington Gas does realize a substantial cost savings, I'm sure that the PSC will take that into account when they review any subsequent tarriff (rate) filings, and the consumers will benefit.

Posted by: MoCo Voter | October 24, 2007 11:36 PM | Report abuse

The Prince
Georges Council needs to vote to "outsource" the 20% increase in the state sales tax proposed by Governor O'Malley. Every person in Prince Georges will pay it every day. O'Malley is putting it to you as a test of party loyaty. He won't even be here anymore if this sales tax increases passes. The council will and will have to explain their lack of activism against this hike.

Posted by: Robin Ficker of Robin Realty | October 25, 2007 1:01 AM | Report abuse

I think the concern should be that this outsourcing move will drive costs up and eventually, the consumer will be stuck to pick up the tab. Most outsourced functions prove more costly...and proposed cost savings prove to be just more false advertising. Again, there is zero risk to the company making the outsourcing decision, if the cost of the service doubles...they just add it to customer gas bills. This is how that process has worked in industry and government...in the government case, it results in tax increases. I cannot believe they chose accenture after the Arthur Anderson/Enron affair. I bet this turned out to be a "good deal" or a "career maker" for someone. We'll all pay for it.

Posted by: Donny | October 25, 2007 9:22 AM | Report abuse

Donny - pretty broad generality about outsourcing. Can you cite any academic study to support your claim? If it truly is more expensive, why do so many companies continue to do it and thrive? Take a glance at "the World is Flat" and its discussion of outsourcing. Friedman understands, and no radical conservative he (he's quite critical of the Bush administration).

As for using Accenture for a call center (not accounting), the question is do they provide good service now? As for your shock, I suppose you're also shocked that folks buy BMWs, Volkswagons, Hondas and Toyotas after that World War II thing too, right? Or should all of the thousands of folks who worked at Arthur Anderson be branded forever and barred from working again?

Posted by: MoCo Voter | October 25, 2007 10:36 AM | Report abuse

Again, the comment by Robin Ficker of Robin Realty about the PG Council is not mine. I really wish they would enforce identities here so people must use their real names. I am so tired of people masquerading behind false personas - or worse yet mine.

Stop it right now!

Posted by: Robin Ficker of Robin Realty | October 25, 2007 11:35 AM | Report abuse

The focus should be on Accenture. As an attorney, I wonder if Washington Gas counsel did its due diligence when contracting with Accenture. For it is Accenture that has multiple DOJ lawsuits pending and failures accorss the nation and internationally. Not Arthur Andersen, but Accenture. Here are the facts and a quick search reveals troubling past: I hope the contract is not a case of closing barn door after the horse has escaped.

Accenture terminates contract:
http://www.rockymountainnews.com/drmn/local/article/0,1299,DRMN_15_4364513,00.html


Summary of Accenture Failures:
http://www.cga.ct.gov/2007/rpt/2007-R-0572.htm

Posted by: BB | October 25, 2007 11:55 AM | Report abuse

Wow, I did not mean to ruffle the feathers of any Accenture employees or business partners...but lets not forget recent events. Even if someone is getting a slice of the pie with this deal or other outsourcing deals...even you can do the math. Aside from all the anecdotal evidence against outsourcing, adding more layers of profit, stock options, and oversight, always adds up to higher costs.

I don't expect any Bushies or members of the K street lobbyist community to agree, but consumers and taxpayers don't need to hide from the facts. This is just a part of the process and businesses are in businuss to grab as much of that green as they can...otherwise they would not enter the field.

Posted by: Donny | October 25, 2007 12:02 PM | Report abuse

So Donny, I take your response to my question to be, "No, I don't have anything but anecdotal evidence against outsourcing." Is it your assertion that all outsourcing is simply the result of corporate corruption and some form of insider self-dealing? Does that mean that Thomas Friedman (the World is Flat) is just an idiot? Your assertion that outsourcing is always more expensive seems to fly in the face of basic free market economics.

I am not a "Bushie", lobbyist, nor an Accenture apologist (although I'm sure it's easier to dismiss my comments by hanging such a label on me).

BB cited some interesting information that I am sure should be (and hopefully was) considered in choosing Accenture. (I would note, however, that the matters in question that BB cited deal with large computer systems, not call centers.) And as I stated previously, the PSC does have a legitimate interest in monitoring the quality of service.

However, I suspect that the objections would have been raised regardless of which company was chosen. The sponsoring councilman's was "deeply troubled by this proposed outsourcing of good jobs", and the blurb goes on to cite the union's concerns. But the job of Washington Gas isn't to ensure jobs for union workers, it's to ensure that its customers receive gas service in an efficient and effective fashion.

Many of us "outsource" every day. We hire painters to paint our homes and mechanics to fix our cars. We buy salad in a bag, rather than purchasing the separate ingredients and preparing them ourselves. (And we've completely outsourced our own food production - how many of us have gardens that meet all of our food needs?) We've all become more specialized, and recognized that it's no longer efficient for us to do all of the things that we used to do 100 years ago.

Operating a call center can be an expensive, highly technical undertaking. Washington Gas has recognized that operating a call center isn't part of its core mission - providing gas services to customers - and that this function could be handled more efficiently by an outside entity. If Washington Gas had outsourced the repair and maintenance of its truck fleet, would we hear the same objections?

Posted by: MoCo Voter | October 26, 2007 12:29 AM | Report abuse

MoCo Voter, I did not aim my last comments towards you - please review them. No need to be defensive...if you or any Accenture employees or stockholders were insulted - it was not my intention. However, yes - you restated my views on outsourcing correctly: "outsourcing is always more expensive". This view may fly in the face of certain economic theories - perhaps those that drove the slave trade and colonialism. I'm not the only one that has witnessed this outsourcing disaster. Not only is this greed driven and the cause of much mission failure, the anecdotal evidence is readily available - (Blackwater, Haliburton, etc)...the real question is CAN anyone supply even one case proving the benefits of outsourcing? Please refrain from dredging up any cases where short-term cost savings were placed on the books while the mission was severly compromised. For the sake of argument, we'll ignore any catestrophic impact on any communities caused by outsourcing.

Posted by: Donny | October 26, 2007 8:01 AM | Report abuse

BTW: Any outsourcing success stories or fables will do.

Posted by: Donny | October 26, 2007 12:35 PM | Report abuse

The first posting under my name is mine, the second is not. I do know, however, that imitation is the most sincere form of flattery.

Posted by: Robin Ficker of Robin Realty | October 26, 2007 12:36 PM | Report abuse

Hmmm...still-no-outsourcing-success-stories?

We-are-waiting.

Posted by: Donny | October 27, 2007 8:56 PM | Report abuse

Jeez, I honestly did not intend to abruptly end the discourse like that.

Posted by: Donny | October 29, 2007 8:08 AM | Report abuse

There was significant outsourcing of code revisions and updates for the Y2K switch over. Given that we didn't see widespread stories of computer failures at Y2K, that seemed to be pretty successful. (World is Flat (WIF) pp. 129-133)

Toshiba outsourced the repair of its laptops to UPS, improving customer service by significantly reducing the turn-around time on repairs. Customer complaints decreased dramatically. (WIF p. 168)

Papa John's Pizza outsourced management of its supply chain (ensuring local stores get ingredients from outlets/producers in a timely manner). UPS doesn't just deliver, they decide when and what to ship where, so Papa John's can concentrate on its core mission - making and delivering pizza. Has this hurt Papa John's? (WIF pp. 168-169)

Friedman refers to these last two examples as "in-sourcing", due to the close relationship between UPS and their clients, but most folks would still consider this out-sourcing, and they both appear good analogies for the Washington Gas call center operation.

BTW, the State of Maryland has also out-sourced many of its call center operations (they are now in Cumberland, Maryland), saving costs and improving service. The state was able to set up a call center to respond to the energy rate increase in matter a couple of days w/o significant cost.

So now that I've responded, I'm sure that Donny will be providing well documented evidence to support his claim that *all* outsourcing is inevitably more costly and bad business. (As Donny said, "you restated my views on outsourcing correctly: 'outsourcing is always more expensive'.")

Posted by: MoCo Voter | October 29, 2007 10:49 AM | Report abuse

Pizza scenarios? World-is-flat.com? Come on, now - I am not ungrateful. I appreciate the info, but is that the best source we have?

Posted by: Donny | October 29, 2007 10:58 AM | Report abuse

Nice try Donny. Lacking the ability to support his claim, Donny instead attacks my examples and the underlying source, trying to change the standard of his question. Remember Donny's challenge - "the real question is CAN anyone supply even one case proving the benefits of outsourcing? . . . BTW: Any outsourcing success stories or fables will do."

"The World Is Flat" by Thomas L. Friedman was a best-selling examination of the global economy in the 21st century. Friedman has won the Pulitzer Prize three times for his work at the New York Times (you know, that bastion of the right). "One mark of a great book is that it makes you see things in a new way, and Mr. Friedman certainly succeeds in that goal," the Nobel laureate Joseph E. Stiglitz wrote in the New York Times reviewing the book in 2005.

And the sources supporting Donny's assertions? Oh, that's right - he hasn't provided any. (And lest we forget, his assertion was that *all* outsourcing is *always* more expensive, as well as a less-than-veiled suggestion that outsourcing only occurs due to corporate corruption and fraud).

I notice Donny ignored the Y2K outsourcing example, as well as the Toshiba/UPS example. Pizza, which Donny so casually dismisses, is a multi-million dollar business. While Papa John's is no McDonalds, it is still a significant national chain that seems to be benefiting from outsourcing. Donny wishes to dismiss that he can not refute.

Now it's Donny's turn - cites for the assertion that outsourcing is *always* more expensive?

Posted by: MoCo Voter | October 29, 2007 1:43 PM | Report abuse

MoCoVoter,-been-busy-but-have-been-meaning-to-respond.

While-I-could-bore-everyone-by-listing-the-hundreds-of-outsourcing-disasters-we've-already-aware-of..i.e.Haliburton,KBR,andParsons-not-to-mention-Blackwater-in-Iraq-alone...neither-of-us-has-time-todiscuss-all-the-failures...we-could-not-keep-up.

My-main-point-is-that-even-claimed-outsourcing-successes-are-actually-failures...even-those-you-researched-on-worldisflat.com.

The-basic-outsourcing-premise-is-doomed-to-failure.

Posted by: Donny | October 30, 2007 1:42 PM | Report abuse

Donny - Agree to disagree. Of course, your argument would have been strengthened in my eyes (and I'm guessing others as well) had you been able back up your vague general broad claims of the absolute failure of *all* outsourcing with (any) more specific facts. I appreciate your opinion, even if I strongly disagree.

I maintain that *sometimes* outsourcing is a good move for an enterprise, and can lead to cheaper and/or more efficient service/production by the enterprise. I never claimed that out-sourcing is *always* good business, that it is a cure all, or that outsourcing actions didn't sometimes have negative impacts upon some communities. Free markets and capitalism aren't perfect systems, and there is pain associated with this "creative destruction." But I'll stack the long-run overall performance (citizen productivity and quality of life) of reasonably-regulated free-market capitalism over government-central-controlled economies any day of the week.

And getting back to the original topic of this thread, I will re-iterate my view the PSC may have a role in ensuring that Washington Gas maintains its service quality, but it has absolutely no place in interceding for the purpose of protecting any particular set of jobs in a particular location.

Posted by: MoCo Voter | October 30, 2007 11:43 PM | Report abuse

Accenture has a trail of failed contracts. Why would any company choose a corporation that has continuously been a problem? Are the consumers being well served by this contract?

Check out the sites below and come to your own conclusions.

http://www.ejfi.org/Voting/Voting-93.htm

http://www.computerworld.com/action/article.do?

http://blog.wired.com/27bstroke6/2007/04/gov_sues_accent.html

Posted by: Don't you get it! | November 13, 2007 10:11 PM | Report abuse

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