Outsourcing Fear and Loathing

Back in September, Boston media gave extensive coverage to the decision of Boston area Hyatts to layoff their housecleaning employees and engage an outside cleaning service.  You might think this would be Hyatt’s internal business, but in this area at least, you’d be wrong.  Even the governor got into the act, championing the cause of the laid off employees and demanding that Hyatt hire them back.

The whole controversy caught me a bit off guard.  One of my earliest jobs was working for an outsourcing company – ADP – where a crew of mostly women keypunched in car parts inventories every weekend. ADP is better known today for its biggest outsourcing service, providing payroll and benefits administration.  The logical extension of this controversy, for me, was to wonder when the governor would insist that local businesses start doing their own payrolls, so as to keep more payroll clerks employed.  Ahem.  Clearly, from the news coverage, this is not the way most people around here viewed this situation.

What we all saw is that long-term employees, with (relatively) great salaries and benefits were being laid off, while the employees of the housekeeping service engaged by Hyatt received much lower wages and benefits.  This was certainly a personal tragedy for all the affected employees, and my heart goes out to the affected families.  What’s also really clear is that Hyatt badly mis-handled the situation, didn’t fairly or adequately prepare long-term employees for losing their jobs, and completely missed the PR and political risks of their business decision, especially those associated with “outsourcing.”

The Hyatt got tons of the wrong kind of media attention, with government, corporations and individuals all promising to yank events and planned stays away from the Hyatt hotels here, and elsewhere.  And now, months later, Cambridge councilors expressed their continuing  anger with an order that hotels in Cambridge who outsource cleaning services will not be able to renew their license to operate here!  The order says nothing about fair labor practices, pay rates, benefits, termination benefits – all of which are addressed by a multitude of state and federal laws – it only forbids outsourcing.  Personally, I am dismayed at the shortsightedness and hypocrisy of this move.  Rather than keeping relatively high-paying jobs in Cambridge, it seems much more likely that this order will make hotel owners decide not to locate hotels in Cambridge at all, and reduce local employment (and related business and tax income).  And the hypocrisy: I have to wonder how many of these councilors outsource their own housecleaning?

My personal views aside, the controversy is an object lesson in the importance of understanding local sensitivities and political risks in business.  When Hyatt made the decision to outsource cleaning, did they consider the potential fallout from engaging in the dreaded “o” word and develop a mitigation plan?  When the cleaning services provider pitched to them, did they use the term “outsourcing” or did they simply offer housekeeping services, at a lower cost? Was either party clued in to the unique political environment in Cambridge (sometimes called the People’s Republic of Cambridge)?  I suspect that the anticipated savings in housecleaning costs have long been overshadowed by the costs of managing the public relations fiasco and addressing the new regulation in its wake.  For all of us in the selling and marketing function, this incident should serve as a reminder of the incredible importance of understanding the local environment and mores.

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