Why is outsourcing of banking services just not right?

Companies from Victoria to Halifax have been outsourcing services to Asia and South Asia for years. Why the sudden furor against RBC, the banking giant? Canadians have passively, and sometimes approvingly accepted promises of lower costs from corporations whether they were large retailers, banks, or telecommunications businesses.

News regarding outsourcing by RBC surfaces, requiring Canada’s largest financial institution to issue the very ‘corporate’ and sterile response, “External suppliers with the right skills allow us to introduce new efficiencies, continually improve our service at reduced cost and reinvest in initiatives that enhance the client experience.” The reaction? Something akin to mutiny instinctively stirred across the Canadian landscape. How could the largest bank, which last year posted profits of $7.5 billion on revenues of $29.8 billion, dare to outsource services? Any services? There is not a company on this continent which in its wildest fantasies would dare forecast such ebulliently hyperbolized rate of profitability. So why does it seem so wrong? Why such response to the loss of 45 jobs? 

Canada long ago transformed away from a manufacturing economy, and toward a knowledge and service based economy with the service sector now representing three quarters of the nation’s GDP. Outsourcing by companies in the services sector has a directly degraded Canada’s economic health and will severely impair the country’s future well-being. This damage will be more severe than the impact from transplanted Canadian ‘manufacturing’ to cheap labour regions of the world. The country’s ‘value added’ manufacturing represents less and less of the economy, currently accounting for Ten per cent (10%) of all jobs now when in 2000 is was 15 per cent (15%). Still, whether outsourcing services or offshoring jobs, the harm has been relentless and severe. 

Outsourcing of any sort harms the long term economic health of the country which succumbs to its allure, and it particularly harms the development and education of its own labour force. When one considers this in the context of a country which has, for two decades, been saddled with an out of control and often fraudulent immigration system, the consequence is devastating to the Canadian taxpayer, and to all those seeking satisfactory employment. This situation is particularly worrisome to the many Canadians saddled with overwhelming monthly interest payments, only two weeks of financial cushion, subdued by fear of being just steps from insolvency. 

Unfortunately there are some functions related to our very personal affairs which should never see foreign shores. Banking is one such commission which we entrust to institutions we believe should maintain principles and ethics in direct symmetry with our own. We in effect trust the Boards of Directors and the senior executives to do the right thing on our behalf with respect to our private property, our security and our privacy. Depositors are justifiably upset and their concerns of potential for security breaches are well-founded. Private information located on servers which are being accessed by employees on the other side of the world opens up the potential for mistakes, and worse, it increases the odds of serious breaches in security. 

The CEO of a bank cannot pretend to be incapable of influence on the contractor’s management, its employees and its methodologies. An outsourcing company is in effect the ‘employee’ of the outsourcer. A CEO also cannot disassociate from those foreign employees as if they are ‘out-of-sight-out-of-mind’, and they should not be dismissed for PR purposes with “we cannot be blamed.” Such disavowal is disingenuous and unprincipled. 

The outsourcing bank’s CEO should not only take full responsibility for any actions taken by any part of its ‘outsourcing service,’ but should also be and should feel responsible for such actions. A competent and diligent CEO would ‘know’ and would be intimately familiar of such service providers, just as he would be expected to be intimately acquainted with any department within his company’s structure. 

The current dustup over the banks outsourcing to iGate (the services provider from Bangalore), revolves around IT functions. A prominent excuse served up with some regularity is that there is a dearth of IT talent in Canada. That refrain, used by proponents of loose immigration laws and lax visa rules, as well as firms cutting costs by outsourcing, is old and without merit. 

Ask the graduates of Waterloo Engineering, or of BCIT in Vancouver, of the past 5 years how difficult it has been for them to find gainful employment in their chosen fields with incomes commensurate with their deliverables. Of course if you believe Canada’s mainstream media, you’d be convinced that high tech jobs existed in abundance and were readily available for the picking. You would believe that companies absolutely have to go to India, China, Russia etc., to find IT talent. What you don’t get much of is the ‘intent’ behind the reduction of ‘labour’ costs of Canadian IT personnel, or the lack of willingness to pay talented graduates their worth and commensurate compensation rewarding their risk of conquering absurdly expensive scholarships. 

Let’s admit we do not wish to pay our graduates what they’re worth, instead of pretending there aren’t enough of them, or that they don’t have the qualifications. 

Ask the baristas in any Starbucks how the job hunt is going with their masters degrees. Ask yourself why unemployment among Canadians of ages between 15 and 24 is at over 15%. Actually, ask the young adults in front of the counter surfing the net at your nearest Starbucks, how the job hunt is going. To those who have found jobs, ask if those are full-time jobs making use of their skills, providing all usual benefits. The underemployed college and university graduates are in fact taking up any ‘unskilled’ jobs which might be available, thereby further shoving the ‘unskilled’ individuals further down into the ‘never-employed’ ranks. 

The RBC and other Canadian companies are not contracting iGate because they cannot find skilled employees. As we know, the iGate employees are being trained BY existing employees who will be punted from their jobs. Does that suggest to you that outsourcing is a result of talent scarcity? Not much. A reality facing CEOs, which rarely if ever levitates through the MSM and into our consciousness is the fact that Canada has for some years felt constricting real economic growth and uncertainty. This particular reality has pushed many business leaders to tighten all expenses (use outsourcing where ever possible), and delay capital expenditures. Results have been positive for the bottom line, but not for healthy income increases of the rank and file. 

These moves to improve that ‘bottom line’ are now agitating the ire of depositors whose responses and actions will be felt across the country, and may have long term repercussions on hiring practices of large companies.