1. introduction
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Corporate Social and Environmental Responsibility in Global Outsourcing
Ron BabinRyerson University 350 Victoria StreetToronto, Canada
M5B 2K3
and Manchester Business School, [email protected]
Dr. Brian NicholsonManchester Business School
Booth Street WestManchester, UK
M15 6PB
Corporate Social and Environmental Responsibility in Global Outsourcing
Abstract
The focus of this paper is on the intersection of Corporate Social and Environmental
Responsibility (CSER) and global IT outsourcing. Offshore outsourcing of IT and IT enabled
services is well established as a business practice towards reducing costs and improving
performance. CSER is equally well recognized as a business strategy to define and defend an
organization’s position in the marketplace. CSER is becoming increasingly important in global
outsourcing in relation to environmental issues for example. The cost of energy has already
increased dramatically and further increases appear likely. Sustainability issues related to carbon
footprint and greenhouse gases are also becoming increasingly important. Thus responsible and
economic energy management has become a critical business capability and an important social
responsibility. Offshoring IT operations to a less energy efficient, less environmentally
responsible organization may provide increased returns to shareholders, but may also become a
CSER liability. The key question this paper seeks to answer is how do social and environmental
responsibilities affect decisions to globally outsource IT? Drawing on preliminary fieldwork and
an extensive literature search, we conclude that CSER issues will become important capabilities
for outsourcers to demonstrate, as buyers are increasingly sensitive to their stakeholders’ social
and environmental concerns.
Key words: Outsourcing, Offshoring, Corporate Social Environmental Responsibility
1. INTRODUCTION
This paper presents preliminary findings from research that seeks to improve our understanding
of the impact of Corporate Social and Environmental Responsibility (CSER) in global IT
outsourcing (GITO) decisions.
Lacity and Willcocks [1, p. 1] define outsourcing as “the handing over of assets, resources,
activities and /or people to third party management to achieve agreed performance outcomes”.
Sahay, Nicholson and Krishna [2, p. 1] describe global software and related IT services as “work
undertaken at geographically separated locations across national boundaries in a coordinated
fashion involving real time or asynchronous interaction”. For the purpose if this paper, global IT
outsourcing refers to a third party management of IT assets and services, including people and
knowledge content, which are delivered on a coordinated fashion across multiple national
locations.
In contrast to GITO, corporate social and environmental responsibility is less clearly defined. As
suggested by Crane, Matten and Spence [3, p. 5], “definitions of CSR abound, and there are as
many definitions of CSR as there are disagreements over the appropriate role of the corporation
in society.” Matten and Moon [3, p. 5] have provided the most current and comprehensive
definition of CSR, including environmental issues: “CSR is a cluster concept which overlaps with
such concepts as business ethics, corporate philosophy, corporate citizenship, sustainability and
environmental responsibility.”
GITO is an accepted practice in many business organizations and even regarded by some, such as
Thomas Friedman [4], as a fundamental business capability. A significant academic and
practitioner literature has emerged over the last few years which has improved our understanding
of the management of GITO outsourcing relationships. (Lacity and Willcocks [1,5], Sahay et al.
[2], Lacity and Hirschheim [6], Feeney et al. [27]).
However, a gap in the current literature is related to how CSER affects ITO decisions. CSER is
well recognized as a business strategy to define and defend an organization’s position in the
marketplace. [3, 4] As many organizations and their stakeholders increase their expectations
regarding social and environmental issues we posit that CSER expectations will be applied to
outsourcing provider. For example, Walmart’s Green Goods [7] environmental campaign has
had a significant impact on its supply partners. Similarly, IT outsourcer providers should expect
to be held to the same level of CSER performance to which their customers aspire.
A CESR lens on global outsourcing reveals how outsourcing affects a broader set of stakeholders
than just shareholders. The costs of outsourcing to both local and global society, and to the
environment are weighed against the benefits to the corporations and their shareholders. A rising
wave of CSER concerns has encouraged corporations to examine all implications of their
outsourcing business decisions. The Economist [8] reports that the priority that executives give
to CSER issues has approximately doubled in the last three years. The percentage of executives
who give CSER high or very high priority has risen from 30% three years ago to 55% today and
is expected to rise to 65% in three years. The Economist reports that CSER initiatives are
expected to provide improved brand reputation, attract potential and existing employees, help
meet ethical standards required by customers and create better relations with regulators and law
makers. The rising importance of CESR, and consumer expectations, suggests that GITO service
providers will position themselves as socially and environmentally responsible.
The research question guiding this inquiry is this: how do social and environmental
responsibilities affect decisions to globally outsource IT?
The paper is organized as follows: the next section reviews current literature on social
responsibility issues, environmental issues and emerging social responsibility standards. We then
describe a qualitative and quantitative assessment of current CSER practices and directions in
outsourcing. We conclude the paper with a discussion of the implications of CSER for
outsourcing providers, buyers and advisors.
2. LITERATURE REVIEW
The relevant literature can be divided into social responsibility, environmental issues and
standards. In the sections to follow we consider each of these areas in relation to global IT
outsourcing.
2.1 Social responsibility issues
The topic of corporate social responsibility and global IT outsourcing has attracted considerable
academic interest [15, 16, 17, 18, 19, 20, 21, 32]. The range of research and opinion is wide,
from pessimists who suggest that outsourcing is yet further evidence of unfettered, irresponsible
corporate profit maximization to optimists who suggest that outsourcing is an attractive economic
mechanism for sharing wealth globally.
Carroll provides a “definition that is arguably the most commonly cited” [3, p.5], in his
description of the Pyramid of Corporate Social Responsibility [14]. Carroll suggests that CSR
should embrace the entire range of business responsibilities, and should include four kinds of
social responsibility: economic, legal, ethical and philanthropic. The Pyramid, depicted in Figure
1 below, rests on the foundation of economic responsibility, which requires the organization to
“be profitable”. Legal responsibility is next, where organizations must “obey the law” and “play
by the rules of the game”. The third Pyramid level addresses Ethical responsibilities, where
organizations have an “obligation to do what is right, just and fair.” The top level of the Pyramid
concerns Philanthropic responsibilities, where organizations should “contribute resources to the
community [and] improve the quality of life.” Carroll suggests that organizations must address
the lower levels of the Pyramid first before they can consider the upper levels. Carroll’s
framework sets the foundation for a review of CSR discussions related to outsourcing.
Insert Figure 1.
Payaril [15] supports the perspective of global outsourcing representing profit maximization for
the rich and offering limited benefits for other groups. Parayil emphasizes the growing gap
between rich and poor in developing countries. This gap appears to be exacerbated by what he
calls “informational capitalism”. In his research Paravil focuses on the uneven and sharply
skewed distribution of wealth as corporations export electronic information and processes to
countries around the world. Parayil reviews economic data such as GDP growth, Purchasing
Power Parity (PPP) and Gini index changes to conclude that rising per capita income from global
IT outsourcing has not reduced wealth disparities. For Payaril, the rich simply get richer as a
result of global IT outsourcing. He explores “deepening income inequalities in the developing
world and deepening income inequalities in the developed world after the onset of the so-called
information economy” [15, p. 41] Citing the global information revolution, he suggests that
“Unskilled labor members get trapped in the traditional (‘ghettoized’) economy, suffering both a
digital divide and diminishing marginal returns on their ‘outdated’ skills” [15, p. 49] . He
concludes that we need a global strategy to employ ICT in a meaningful way for economic
developmental purposes. In terms of Carroll’s Pyramid, Payaril sees organizations maximizing
their economic responsibility, while diminishing the quality of life (philanthropic responsibility)
for those in the less developed economies throughout the world.
Other pessimistic authors posit that ongoing and increasing global outsourcing will have
extremely disruptive effects. Blinder [16] presents the thesis of a third Industrial Revolution,
which he tags as the information outsourcing age. He suggests that this revolution will be vast
and unsettling, with significant changes in the way that we work, live and educate our children.
Blinder suggests that North America and Europe will see significant displacement of a broad
range of workers, many from upper educational reaches, who will be neither passive nor
politically quiet. For Blinder, the most significant threat will come from India, where 300 million
more skilled workers will be produced in a few decades, which is about twice the size of the
entire US workforce. Clearly this will be disruptive to North American society and a social
responsibility model will be needed to manage this displacement. Jones [17] concurs with
Payaril [15] in the belief that transnational corporations (TNCs) are “designed, constructed and
maintained to make money for the interests that own them”. Similar to Blinder, Jones wonders if
“the seeds of a future social and political crisis may be being sown” as millions of white collar,
post-industrial, knowledge workers face structural unemployment. He concludes that IT
outsourcing in the context of stateless, placeless and heartless TNCs is dangerous for society, and
requires an expanded vision to “generate socially positive outcomes”. [17, p. 97] Similarly
Levy [18, p. 692] states that “reducing wages through offshoring leads to wealth creation for
shareholders but not necessarily for countries or employers, and that many displaced workers
have difficulty ‘trading up’ to higher skilled jobs.” Levy suggests that TNCs create global labour
pools, where they take advantage of those with fewer employment opportunities, little regulatory
protection and weak social safety nets, which reduces the bargaining power of all employees. He
suggests that the interests of the TNCs are “increasingly dislocated from the welfare of countries
or workers” [18, p. 692] which echoes the national economic issues identified by Parayil.
Knights and Jones [19] argue that offshore outsourcing of business processes (BPO) is both a
blessing and a curse for workers and society. The authors point out that call centres in “far away
cultures” such as India, will struggle to simulate the thing that it displaces, i.e. the UK or US call
centre. The authors contrast the dystopian view of outsourcing, with long night hours in crowded
call centres mimicking US and UK dialogue with the utopian view that poverty stricken Indian
workers finally may realize the economic benefits of a global economy. They conclude that
although the social benefits of BPO may be small, “any country suffering as many problems as
India can hardly kick a gift horse in the mouth.” [19, p.444]
Sahay, Nicholson and Krishna [2] identify similar concerns, where software houses with
“precarious employment contracts, Taylorized work processes in software factories without
support of union organization and poor attention to health and safety” do not offset the improved
income and economic status of global software work (GSW) performed primarily in India”. [2, p.
254] The authors suggest a potential “ ‘race to the bottom’ in which companies try to cut each
others’ throat on prices in order to gain international contracts [creating] declining labour
standards, poor wages and social conditions”. [2, p.255] The authors suggest a potential GSW
code of ethics that would be coordinated by private, public and societal groups.
Several authors provide a more balanced assessment, suggesting that outsourcing is inevitable but
can be conducted fairly and perhaps with benefits to many global stakeholders. Stainer and Grey
[32] argue that organizations should expect to manage outsourcing risk issues by embracing
CSER. Outsourcing, when used properly, can provide long term operational and business
improvements. However, Stainer and Grey point out that outsourcing also creates both economic
and reputational risks. Further, they point out that human resources are fundamentally important
to the success of any organization, and by externalizing these resources through outsourcing, an
organization takes on a higher risk, with an expectation of improved capability. A key
outsourcing, and offshoring, ethical issue for Stainer and Grey is: “exploitation, because expected
low prices often reflect firstly low wages and poor working conditions and secondly fierce
competition between providers from national and developing countries.” [32, p. 463] Similar to
Sahay, Nicholson and Krishna [2] the authors conclude with a suggestion that ethical outsourcing
requires an agreement between corporations, their shareholders, employees, governments, and
civil society, “to achieve betterment for all stakeholders”. In terms of Carroll’s Pyramid of Social
Responsibility, Stainer and Grey encourage outsource providers to consider the top end of the
Pyramid, ie. Philanthropic and Ethical responsibilities.
Optimistic authors such as Knorringa and Pegler [20] see outsourcing as a potential mechanism
for sharing wealth on a global basis. The authors examine whether expanding global value chains
(GVCs) can improve labour conditions in developing countries. They conclude that “while
economic globalization pushes firms to upgrade, such firm upgrading does not, as a rule seem to
also lead to improvements in labour conditions in developing country suppliers in GVCs”. [20, p.
476] They propose that CSER and ethical trading, especially for global consumer branded
products and services, as well as collective action towards an International Labour Organization
fair-work agenda, can improve labour conditions in developing country GVC participants.
De George [21] also presents a positive view of global outsourcing. He sees transnational
outsourcing as beneficial and “clearly ethically justified”. He suggests that “Outsourcing
promotes efficiency; helps developing countries by providing jobs where unemployment is very
high, involves transfer of information technology and knowledge and encourages the educational
process in less developed countries so that people are trained for new types of work provided by
information technology and helps cut the costs of goods and services”. [21, p. 40] However, he
brings very little evidence, either quantitative economic data as advanced by Parayil [15], or
examples such as Binder [16] and Jones [17]. De George largely stands alone as one of the few
with broad support for global outsourcing, where societal impacts are all beneficial.
2.2 Environmental issues
Two issues have driven environmental concerns related to IT outsourcing and both are related to
increasing power consumption by IT. First, the increasing cost of energy is having an economic
impact on IT operations. Second, the production of electrical power often involves the bi-
production of green house gases (GHGs) which have been strongly linked to global warming.
GHGs and global warming belong to a discussion which is beyond the scope of this paper.
However, the role of outsource providers in electrical power consumption is an environmental
responsibility issue within scope. Both of these environmental concerns affect IT Outsourcing.
The cost of power to run data centres will grow considerably. Although the recent global
economic turmoil has resulted in short-term reductions in oil prices (e.g. the price of oil has
dropped by 40% from September to November 2008), several researchers have identified a long-
term trend of rising energy costs. With the price of oil dramatically increasing (a “quadruple”
increase forecast by The Economist May 31, 2008), the cost of energy is now a major concern for
all organizations. Thomas Homer-Dixon [22, p. 94] describes the significant changes that will
come from “increasingly serious energy constraints, and the era of cheap oil [having] come to an
end.” And as Jeremy Rifkin [12] pointed out at a recent Global Sourcing Conference, the
declining access to low cost energy will require a new energy model. Rifkin argues for a global
re-structuring of energy collection and distribution, which will have a significant impact on
global outsource providers.
With rising energy costs, Simon Forge [23] describes the increasing appetite for energy in data
centres. Forge suggests that from 1996 to 2006 the number of computer servers in operation
globally has increased by 400% and at the same time the power consumption per server has also
increased by 400%, resulting in a situation where “(t)oday, from 15 percent to 35 percent of the
operating budget of data centers goes on power supplies, including cooling energy.” [23, p. 10]
The rise in computer processing capability, outlined by Moore’s Law, suggests that in a ten year
period the processing power of a chip will increase by about 32 times, approximately doubling
every18 months. So in a decade we should see four times as many computers, each being about
32 times more powerful, each consuming four times as much power. The dramatic increase in
global computer capacity has contributed substantially to demand for electrical energy, resulting
in increased GHG production. With a 16 fold increase (four times as many computers, with four
times the power demands) in the computer power demand in one decade, and increasing energy
costs, many organizations are very concerned about this rising and somewhat uncontrollable cost.
Forge suggests that the power costs of running one server can equal half of its hardware costs
over four years. To put this in context, Forge suggests that UK data centres consume five percent
of the country’s maximum generation capacity and by 2010 the data centre growth is forecast to
be 45 percent. It is conceivable that when office and home computers are added to data centre
computing the demand for power will equal about 10 percent of overall energy production
capacity.
The European Commission Institute for Energy has recognized the problem of growing data
centre energy consumption. The “Code of Conduct on Data Centres Energy Efficiency” [11]
recognizes that “(t)he projected energy consumption rise poses a problem for EU energy and
environmental policies. It is important that the energy efficiency of data centres is maximized to
ensure the carbon emissions and other impacts such as strain on infrastructure associated with
increases in energy consumption are mitigated.” The Code, which was released in October 2008,
is voluntary and sets out a plan to define best practices and commitments for industry and
governments. This document suggests an important and rising concern for environmental issues
related to IT. Rutrell Yasin [24] identifies that the United States Department of Energy (DOE) is
“leading the charge towards reducing power consumption and moving toward energy efficient
computing.” The DOE established an industry goal of reducing data centre energy use by 10
percent by 2011. As Yasin points out, outsourcing does not solve the energy consumption
problem, as it simply moves the problem from an in-house data centre to an outsourced facility.
Recognizing this, Yasin quotes an unnamed Accenture representative who suggests that the data
centre outsourcing will shift from a square footage pricing to power consumption pricing, which
would be a significant change in the data centre outsourcing economic model.
Regarding the impact of environmental responsibility on outsourcing, Douglas Brown [13] goes
further. He suggests that “the influence of consumer and investor opinions for green corporate
accountability and the creation of new government regulations in favor of protecting the
environment have pushed green issues onto the boardroom agenda and onto the outsourcing
vendors’ growing plate of priorities”. [13, p. 87] Brown suggests that over 94 percent of US and
UK publicly traded companies that outsource functions plan on adding “green” clauses to their
outsourcing renegotiation process. For organizations that outsourced for the first time in 2007,
43 percent included green factors in the selection process. Overall, environmental issues related
to GITO are beginning to become very important, reflecting both economic concerns and the
social responsibility concerns of many stakeholders.
2.3 Social Responsibility Standards
Crane et al. [3, p.4] refer to the recent “rise in prominence of CSR” as well as “a burgeoning
number of CSR standards, watchdogs, auditors and certifiers aiming at institutionalizing and
harmonizing CSR practices globally.” Several industries such as apparel manufacturers, mining
and forestry have created CSER standards and codes of conduct for their industries. Often these
standards were developed in response to pressures from unions, non governmental organizations
(NGOs) and multi-stakeholder organizations. For example, in the 1990s Nike was forced to
respond to pressure from activists regarding its low-paid offshore workers who manufactured
high-price athletic goods for the very profitable company. Nike, with others in the industry,
responded with a robust internal management and external industry approach to create and
comply with acceptable international labour standards [25, 26]. IT Outsourcing seemingly has
some similar characteristics: low-paid offshore workers delivering high-price services for
profitable global companies. Although the IT outsource operations are not apparel sweat-shops,
the dystopian view of the 7x24 call centre is equally unappealing [19]. To date there are no
industry standards defined for or applied to the GITO industry. However, at least four potentially
relevant CSER standards may be appropriate to the IT outsourcing industry. The first is the
Global Reporting Initiative (GRI) which provides a consistent standard for reporting CSER
activities. The second is the SA8000 standard from Social Accountability International (SAI)
which defines global standards for decent working conditions. Third, the ISO organization has
drafted ISO 26000 which defines a set of standard practices across all industries for CSER
activities. The fourth standard is the United Nations (UN) Global Compact, which defines ten
universal CSER principles that its members support.
GRI provides a “trusted and credible framework for sustainability reporting that can be used by
organizations of any size, sector or location.”[10] GRI was developed over the last ten years and
is now broadly recognized by many organizations as a standard for corporate responsibility and
sustainability reporting. GRI provides a public record of organizations which have voluntarily
provided their sustainability reports. Interestingly, for the 2007-2008 year, with only one
exception (Accenture Spain) no IT outsourcing organizations had recorded their GRI compliance.
Over 200 organizations, including many large global organizations, had registered with GSI at
mid-year 2008. However, since the reporting is voluntary, perhaps GITO vendor organizations
have yet to officially recognize GRI and to provide their sustainability report, as evidenced by
their absence from the online public GRI record.
SAI’s SA8000 standard has been widely adopted by almost 1700 facilities around the world.
Much of the raison d’etre for SAI came from the 1990s realization that ‘sweat-shop labour’ and
child-labour were frequently used to produce global branded products that were both fashionable
and expensive. Klein [25, p. 372] comprehensively critiques the practice of global branded
products made by “workers in Indonesia who earned $2 a day… [which] cost Nike only $5 to
make the shoes, [which sold] for between $100 and $180”. SAI certification provides some
assurance that products and services are delivered from facilities with fair working conditions for
employees. However, a review of the online report (as of June 2008) of the SA8000 certified
facilities suggests that none of the large GITO providers are currently certified. Five or six local
or regional IT outsource providers are listed. The Tata Corporation, which also manufactures
cars and provides a wide range of services including global IT outsourcing, is the only GITO
provider listed as SA8000 compliant.
ISO 26000 is a working draft that has not yet been ratified by ISO members and therefore has not
been implemented. This standard provides a guide for organizations to voluntarily adopt CSER
practices. With participation from about 80 countries and many stakeholder groups, ISO 26000
will likely be recognized as a universal standard, across most industries, when it is completed.
The ISO 26000 standard addresses core CSER subjects including governance, human rights,
labour practices, the environment, fair operating practices, consumer issues and community
involvement and development.
The fourth standard, the UN Global Compact is a set of ten universally accepted principles in the
areas of human rights (two principles), labour (four principles), environment (three principles)
and anti-corruption (one principle). The Compact is focused on businesses, requiring CEO
endorsement and annual reporting. The Compact’s overarching mission is to help build a more
sustainable and inclusive global economy. To date, over 4700 corporate members have signed
the Global Compact.
In summary, three major themes are evident in the literature review. First, in the last three years
the topic of social responsibility in outsourcing has gained increased attention from researchers.
Second, environmental impacts and costs of IT related energy consumption are rapidly becoming
an important issue for outsourced IT operations. Third, government and non-government
organizations have begun to define and monitor standards for corporate social and environmental
activities, which are applicable in varying degrees to global IT outsourcer providers. To conclude
the literature review, the topic of CSER in GITO appears to be relevant and timely for further
research.
3. METHODOLOGY
Fieldwork was conducted in April, May and June 2008. The fieldwork consists of a qualitative
and quantitative component. The qualitative component consisted of structured interviews.
In total, 12 interviews were conducted, each lasting approximately 45 minutes. Notes were taken,
and were compiled after the interview. All interviews were conducted in the interviewee offices.
The interviewees were senior executives in their representative organizations, who were initially
contacted to confirm their interest in this research topic. Interviewees included representatives
from two major banks, two consumer product companies, three global outsourcing providers and
three legal and accounting advisors. In addition, two subject matter experts, one from industry
and one from academia, were interviewed to understand CSER concepts in this industry. A panel
discussion was conducted in October, with four of the 12 interviewees as panel members.
Bryman and Bell [28] define structured interviews as a standardized interview where interviewees
are given exactly the same context of questioning, so that each respondent receives exactly the
same interview stimulus as any other. The key benefit of structured interviews is that the answers
can be aggregated when the replies are in response to identical cues. Interviews allow for person-
to-person interaction, and the ability to alter the line of questioning depending on the answers and
discussion. This is particularly useful in preliminary interviews where the research questions are
still being developed. The person-to-person interaction allows trust and confidence to be
established, which is important when confidential or sensitive information is being collected. For
example, the issue of ‘green-wash’ in CSER profiling is important to discuss, and would not be
honestly captured in a survey or in a telephone interview.
For this research, the format of the interview consisted of asking a number defined questions,
based on topics from the literature review and based on the interviewee role. For example, each
interviewee was asked to explain their role in outsourcing (buyer, manager, provider, advisor,
etc.). Interviewees were asked to describe their past experience and future expectations regarding
CSER in outsourcing, and how that would be relevant to their business operations. After each
interview, the notes were reviewed and the interviewee comments were analysed. Comments that
were not repeated by more than one interviewee were not analysed further. Comments or themes
that were mentioned in multiple interviews were clustered into common themes. Appendix 1
provides an outline of the structured interview format.
In addition to the interviews, the first author organized and chaired a focus group of global
outsourcing industry experts (providers, buyers and advisors) to discuss the CSER issues, in
October 2008. The focus group consisted of representatives from global outsourcing providers
IBM and TCS, two outsourcing advisors and an invited audience of approximately 50 people.
The panel was sponsored by the Centre for Outsourcing Research and Education (CORE). The
ensuing discussion was transcribed in summary form. [29] Comments from the panelists
augmented the interview results. Panel comments or discussion on a theme identified from the
individual interviews were used to expand on the theme.
The quantitative phase followed and consisted of a survey of outsourcing providers, buyers and
intermediaries (lawyers, consultants, advisors) in Toronto, Canada. Bryman and Bell [28]
suggest that survey questionnaires allow for quantifiable data to be collected and analysed with
statistical methods. Further, the use of an electronic survey allows distant respondents to be
contacted fast and at low cost. An additional important benefit of the questionnaire is that is
cheaper and quicker to administer. The disadvantage of the survey in this research project is the
inability to fully explain questions, and the possibility that some respondents may not interpret
the questions correctly. As well, the number of respondents required to be statistically significant
requires access to a large number of potential qualified email addresses.
The survey questionnaire was prepared using the SurveyMonkey electronic instrument. Survey
questions were based on three sources:
1) ISO 26000 Social Responsibility Working Draft 4.2, [9]
2) Carroll’s Pyramid of Corporate Social Responsibility [14] which was extended to include
environmental issues,
3) Key themes from the preliminary interviews.
For the survey, the Centre for Outsourcing Research and Education (CORE) identified students
who had attended recent public Outsourcing Practitioner courses. These courses cover four
topics: Outsourcing Essentials, Outsourcing Strategy, Governance and Relationship Management
and Contracting and Performance Management. Students who attend the courses are generally
executives and managers responsible for outsourcing within their organizations. The
organizations are typically large corporations and governments, such as banks, insurance
companies, telecommunications companies and manufacturers. A total of 33 potential
respondents, all outsource buyers, were identified from the list of student attendees and invited to
participate. Mangione [30] suggests that response rates of 50 to 60% are barely acceptable, and
below 50% as not acceptable. Of the 33 invitations, 22 surveys were fully or partially completed
during June and October 2008, for a response rate of 67%, which is acceptable.
The respondent profile is as follows:
Respondents are from large corporations: 56% of the respondents’ firms had annual
revenue of over $10 billion, 78% were over $2 billion.
Financial service companies dominated the sample, with 53% of the population, followed
by manufacturing at 21%.
The respondents are experienced outsource buyers. 47% of the respondents had
participated in more than three outsourcing contracts, with 21% participating in more
than 20. 42% had participated in one or two contracts.
Outsourcing contracts are reasonably large, with 22% having a total value over $100
million, 22% with values between $50 to $100 million, and 33% with a value from $10 to
$50 million.
Further respondent profile data are presented in the appendix 2.
4. ANALYSIS
4.1 Qualitative Phase
Five key themes were derived from interviews with outsourcing buyers, providers and advisors,
as well as the CSER focus group.
.1 CSER in outsourcing is relevant and environmental concerns will be the most
important issues. Several interviewees suggested that the CSER factor in outsourcing
decisions was new, they had not seen any of these issues previously, but they expected CSER
to be an important issue in the near future. One advisor commented on a recent client request
for explicit CSER capabilities in an request for proposal (RFP) for outsourcing services. The
Centre for Outsourcing Research and Education (CORE) has just included a Social
Responsibility component in their education program. A recurring theme across all interviews
was that environmental concerns such as carbon footprint, will be an important social issue ‘in
the very near future’. The recent EU Code of Conduct for Data Centre Efficiency is an
example of increasing concern for environmental issues in IT. One advisor mentioned that
“carbon credits [as an environmental issue] have received more attention than CSR.” For
some outsource providers, attention to environmental sustainability will be both an economic
advantage and potentially a reputation advantage, as mentioned by two large global
outsourcing firms.
.2 CSER will be driven by consumer and employee stakeholder concerns. A recurrent
theme from interviewees and at the focus group was a responsiveness to consumer pressures
regarding CSER issues, in a similar manner to the Nike example discussed in section 2.3
above. Consumer product organizations have established CSER frameworks to manage
products that may be tainted by CSER issues such as child labour or worker safety. Consumer
oriented organizations such as retailers may be better equipped to deal with CSER issues, and
may expect more from their outsource providers. Financial service representatives suggested
that reputational risk is an important issue in any outsourcing activity. Equally important for
many organizations is the perception of their employees. A concern expressed by several
panelists at the focus group is that young employees have higher expectations of their
employer’s CSER, especially as young workers replace the retiring baby boom generation.
The implication is that employers, especially in IT outsourcing firms which rely heavily on
‘bright young talent’, need a strong positive CSER profile to attract and retain employees.
One large outsource firm interviewee suggested that employee concerns regarding CSER are
not too critical in ITO, because “it is unlikely that harsh working conditions will appear in an
ITO environment.” However, the BPO environment may be more sensitive to CSER, because
“BPO jobs are more commoditized; BPO functions do not require the same level of
knowledge and skill that ITO requires.”
.3 An organization’s brand reputation is an important CSER protection. A theme in
several interviews was a belief that major outsourcing providers would protect their reputation
and “do the right thing” with respect to CSR. Several mentioned how the offshore data centres
look identical to North American corporate campuses. One outsource vendor suggested that
CSER capabilities are a competitive advantage compared to other competitors, and especially
when compared to second tier, or start-up, outsourcing providers. For example, IBM recently
began an advertising campaign advocating their environmental and Green-IT capabilities,
building on and evolving their strong brand reputation, and IBM recently published a white
paper on CSR [31].
.4 Due diligence is a required component in CSER; beware of CSER cynicism. Several
intermediaries (consultants, advisors) suggested that a thorough walk-through of CSER
capability, in the due diligence phase of contracting, is the best way to ensure that the provider
‘can live up to the CSER requirements of the buyer’. However, as will be described later in
this paper, most buyers rarely or never validate an outsource providers’ CSER claims.
Although several global CSER standards are defined (as explained above) no one in the
interviews or focus group was able to quickly identify CSER outsourcing standards or norms
other than the buyer’s own expectations for CSR. Further, one advisor mentioned that
acceptable CSER norms from North America may not be relevant in other economies and
societies, so a buyer should not hold its provider to the same CSER standards. Several
interviewees cautioned that CSER may become a marketing message, lacking substance, for
some organizations. Organizations may quickly respond to consumer concerns with slick
marketing messages rather than substantive CSER programs. One interviewee expressed
caution against “green-washing” on environmental issues. At the focus group, panel members
cautioned against CSER hypocrisy “being good at home, but bad abroad”, and the need to
demonstrate CSER “walk the talk”. With corporate transparency enabled through global
access to information on the Internet, “organizations can no longer say one thing and do
another”.
.5 Government and non-government standards and regulations will encourage CSER
capabilities
As part of the interview phase, CSER subject matter experts provided a perspective on the
emerging global standards. These standards include ISO26000, SA8000, Global Reporting
Initiative, and the UN Global Compact. Various CSER industry related standards are starting
to emerge. For example, CSER related topics are embedded in standards for the extraction
(mining) industry, the apparel industry, the marine industry, the forest industry and others.
One executive at a large GITO provider pointed to the British Columbia (BC) government’s
environment policies, and how the BC Ministry of Finance now “requires an outsourcer to
comply with government goals of 30% reduction in carbon [GHG] output by 2020.” The BC
government requires outsourcers to provide ‘green data centres’, which can be challenging for
providers who “built data centres when power was cheap.” These concerns were echoed by an
executive at another GITO who mentioned “CSR environmental issues will be driven by
increasing costs of power and potential government carbon tax issues”.
As part of the Sustainability Reporting Guidelines, GRI has defined standards for industry
sectors, such as financial institutions, automotive manufacturing metals and mining, etc.
Various jurisdictions have defined CSER standards for financial services, such as the Public
Accountability Report required for all large Canadian banks. Some authors [2] have
suggested an industry CSER code of conduct for global outsourcing.
Environmental standards and regulations may be included in broader CSER initiatives, such as
the UN Global Compact and ISO26000, or may be directly defined and encouraged such as
the EU Code of Conduct for Data Centre Efficiency.
The most compelling environmental regulation is the concept of a carbon tax. Several
jurisdictions have implemented some form of a carbon tax, which typically encourages re-
usable energy sources such as hydro and bio-mass, while discouraging non-renewable sources
such as oil and coal or sources that contribute to green house gasses and climate change.
Finland and Sweden implemented carbon based taxes in the 1990s. In North America, two
Canadian jurisdictions, Quebec and British Columbia, implemented carbon based taxes in the
last two years. With the US election of a Democratic party there is a strong voice for
consideration of a carbon tax.
For IT infrastructure outsource providers this suggests that an efficient carbon management
model will be important. For example, outsourcing a data centre from North America to India
may result in lower costs, but may result in higher carbon emissions because of the dirtier
power sources such as diesel and coal. A government tax on the global emissions would force
the buyer and provider to reconsider how and where outsourced infrastructure services are
delivered. As organizations begin to report their environmental profile to stakeholders,
which includes customers and employees, that profile will likely include direct providers such
as IT outsource providers who will need to be as efficient or better than their customers.
4.2 Quantitative Phase
The preliminary survey provides some interesting results. We found buyers do assess current
provider CSER capabilities in outsourcing decisions, but they are ambivalent in their commitment
to CSER in outsourcing contracts. Approximately 45% of respondents either agreed or strongly
agreed that in past decisions, CSER has been a consideration when evaluating outsource
providers. 28% disagree that CSER capability is considered in the decision, and a further 28%
are not certain. However, 39% of buyers do not evaluate outsource provider CSER capability as
part of the formal outsourcing criteria, and another 39% are uncertain if CSER is a formal
outsourcing criterion. Only 22% of buyers surveyed have CSER as a formal outsourcing
evaluation criterion. An overwhelming 88% of buyers never, or rarely, validate the outsource
provider’s CSER capabilities and claims. Clearly, buyers have only recognized CSER marginally
in outsourcing decisions to date.
In stark contrast to current outsourcing decisions 94% of buyers responded that CSER
considerations will become more important or much more important in future outsourcing
contracts. Of those that responded, 100% identified environmental issues as a component in
evaluation of a CSER profile for an outsource provider. Environmental issues include pollution,
sustainable resource usage, protection of natural environment, etc. After environmental issues,
respondents identified Labour and Fair Operating Practices both at 86%, followed by Human
Rights at 71%, Consumer Issues at 57% and Community Involvement at 29%. This finding
corroborates comments from the preliminary interviews which suggested that environmental
topics are key CSER issues. See appendix 3 for further details.
5. DISCUSSION AND CONCLUSION
The research question guiding this inquiry is ‘how do social and environmental responsibilities
affect decisions to globally outsource IT’.
The interview and survey findings begin to offer answers to this question, which will be relevant
for outsourcing buyers, providers and advisors. For example, buyers may consider increased
formalization of their CSER expectations for their providers, with a likely emphasis on
environmental issues that are relevant for the buyer. Given some of the cynicism that was
mentioned in the interviews, providers may anticipate that buyers will expect to validate CSER
claims from their outsource providers. Buyers in a consumer oriented service may hold their
outsource providers to the same level of CSER capability that consumers expect of the buyer,
because the consumer does not distinguish where or how the product or service will be provided.
Buyers may begin to apply relevant industry standards when assessing CSER capability, for
example buyers may consider the ISO 26000 standard as it becomes finalized, as well as GRI
reporting requirements when reviewing provider competencies and capabilities.
Outsourcing providers may anticipate CSER expectations from the market. Providers who are
able to demonstrate leadership in these issues may be able to carve out a niche or defend a
competitive advantage. The findings from this preliminary research suggest that providers may
anticipate the need to demonstrate their CSER capabilities, especially with respect to
environmental sustainability requirements.
The preliminary findings described above establish the foundation for future research. The
research will specifically seek to focus on the concerns of organizations regarding CSER and
environmental issues in global outsourcing. Specifically, will corporations have reservations
about social responsibility issues when outsourcing on a global basis? Could global IT
outsourcing be used to distribute wealth in developing countries? How will environmental
concerns impact outsourcing decisions? The next stage of research will rely on more extensive
interviews to develop in depth case studies coupled with larger scale survey data to understand
the importance of CSER in making global outsourcing decisions. The intention is to extend this
limited local survey to a broader set of outsourcing buyers, expanding beyond the initial set of
Canadian respondents. At the same time, a similar set of survey questionnaires will be prepared
for outsource providers and advisors to compare their understanding of these issues. Again, the
base of participation should represent global stakeholders. One component of the research will
be to compare and contrast the responses from the three stakeholder groups, providers, buyers
and advisors, to understand the gaps in their perceptions to CSR.
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Figure 1. Carroll’s Pyramid of Corporate Social Responsibility [14]
PhilanthropicResponsibilities
EthicalResponsibilities
LegalResponsibilities
EconomicResponsibilities
Be a good corporate citizen.Contribute resources to the community; improve the quality of life.
Be ethical.Obligation to do what is right, just, and fair. Avoid harm.
Obey the law.Law is society’s codification of right and wrong. Play by the rules of the game.
Be profitable.The foundation on which all others rest.
Social Responsibility to Stakeholders
Table 1. 12 Provider Capabilities, adapted from Feeney et al. [27]
Supplier Capability Included in Competency
Included in Competency
Included in Competency
1. Domain Expertise Delivery2. Business Management Delivery3. Behavior Management Delivery Transformation4. Sourcing Delivery Transformation5. Technology Exploitation Transformation6. Process Re-engineering Transformation7. Customer Development Transformation Relationship8. Planning and Contracting Relationship9. Organization Design Relationship10. Governance Delivery Relationship11. Program Management Delivery Transformation Relationship12. Leadership Delivery Transformation Relationship
Appendix 1 – Structured Interview Format
Questions for Buyers Questions for Providers Questions for Advisors
1
How many outsourcing decisions have you participated in, at your current organization, in the last three years?
How many outsourcing contracts has your firm won in the last three years?
How many outsourcing contracts has your firm provided advise on in the last three years?
2
Approximately how many outsourcing contracts are active at this point in time?
Approximately how many outsourcing contracts are active at this point in time? not applicable
3
What is the approximate overall annual value of your current outsourcing contracts?
What is the approximate overall annual value of your current outsourcing contracts? not applicable
4
When your organization makes outsourcing decisions, have you considered the corporate social responsibility (CSR) profile of the outsource provider?
When your organization proposes an outsourcing arrangement does your firm promote its corporate social responsibility (CSR) profile?
When your organization advises a client regarding an outsourcing arrangement does your firm focus on the supplier's corporate social responsibility (CSR) profile?
5Is the provider CSR capability part of your evaluation criteria?
Do buyers include your CSR capability part of the evaluation criteria?
Do buyers include CSR capability part of the evaluation criteria?
6
Have you validated the outsourcers' CSR capabilities and claims?
Have you been required to provide evidence of your CSR capabilities and claims?
Do your clients required confirming evidence of a supplier's CSR capabilities and claims?
7
Does your organization communicate its CSR capabilities?
Does your organization communicate its CSR capabilities?
Does your organization communicate its CSR capabilities?
Which of the following components would you include in a CSR profile?
Which of the following components would you include in a CSR profile?
Which of the following components would you include in a CSR profile?
8 - improved health of the workers - improved health of the workers - improved health of the workers
9 - improved family care for workers
- improved family care for workers
- improved family care for workers
10 - improved education for workers - improved education for workers - improved education for workers11 - safe working conditions - safe working conditions - safe working conditions
12
Do you give preference to suppliers who have demonstrated CSR?
As a supplier, do buyers give preference if you have demonstrated CSR?
From your experience, do buyers give preference to suppliers that have demonstrated CSR?
13
Have you altered an outsourcing decision based on a supplier's CSR track-record?
Has a supplier altered an outsourcing decision based on your CSR track-record?
Are you aware of situations where a supplier has altered an outsourcing decision based on the supplier's CSR track-record?
14
Do you expect that CSR considerations will become more important, stay the same, or be less importance in future outsourcing contracts?
Do you expect that CSR considerations will become more important, stay the same, or be less importance in future outsourcing contracts?
Do you expect that CSR considerations will become more important, stay the same, or be less importance in future outsourcing contracts?
Appendix 2 - Respondent Profile
Organization operates in…Canada 100%USA 80%UK 80%Europe (other than UK) 60%India 20%China 60%Africa 30%Central America 30%South America 20%Australia / New Zealand 30%
Respondent role within organization…Senior Executive 40%Manager 30%Professional, non managerial 30%
Outsourcing responsibility… Direct responsibility 60%Indirect responsibility 40%
Approximate number of active outsourcing contracts…One or two 10%Three to five 40%Six to ten 10%Eleven to Twenty 10%More than Twenty 30%
Number of outsource suppliers …One 10%Two to five 20%Six to ten 40%Eleven to Twenty 10%More than Twenty 20%
From where does outsource provider deliver service…Canada 100%USA 78%UK 22%Europe (other than UK) 22%India 67%Asia (other than India and China) 22%China 11%
Approximate total annual value of current outsourcing contracts…From $1million to $5m 11%From $5 million to $10m 0%From $10 million to $50m 33%From $50 million to $100m 22%From $100 million to $500m 22% Not sure 11%
Appendix 3 – Detailed response information
Respondents were asked to rate a series of CSER related capabilities on a five point Lickert scale
from Strongly Disagree to Strongly Agree. The CSER capabilities were based on Carroll’s
Pyramid of Corporate Social Responsibility, with additional environmental capabilities. The
survey used ISO 2600 standard to create the environmental capability questions. The survey
asked for a response to twenty-five statements related to economic, legal, ethical, philanthropic
and environmental CSER capabilities.
Carroll’s CSR Pyramid [14] identifies the priority of capabilities as Economic (most important),
Legal, Ethical, Philanthropic (least important). Carroll’s model does not identify environmental
capabilities.
Respondents to the survey provided the following CSER capability priorities:
1. Legal – Strongly agree (average score = 4.7)
2. Environmental – Strongly agree (average score = 4.5)
3. Economic – Agree (average score = 4.3)
4. Ethical – Agree (average score = 4.1)
5. Philanthropic - Uncertain (average score = 3.2)