“Some executives in American companies believe that this is their most crucial power, deciding whether work will be done inside their country or without.-Hedrick Smith

 

Northwest Airlines is one of United States biggest ESOCPs (employee stock ownership plans). Although this title sets Northwest Airlines apart from others, what makes them more interestingly competitive and independently unique, is their experience with a farm-out committee.

Instead of outsourcing machinists jobs to Singapore, Northwest first farm-out committee was able to save these jobs by keeping them in house. The committee assessed the cost figures with outsourcing compared to in-house functions and convinced management to utilize the cost effectiveness of their own employees.

Lower operational and labor costs are among the primary reasons why companies choose to outsource. Companies also choose to outsource or offshore so that they may continue focusing on their core business processes while delegating mundane time consuming processes to external agencies (Flatworld, 2014).

"A total of 80% of the value of Boeing's new 787 Dreamliner is provided by outside suppliers" (Ping, 2014). "Many automakers such as Ford and GM, historically were involved in steel making...Ford and GM no longer make glass, seats, tires, steel they are outsourced" (Ping, 2014).

In the Labor Northwest Airlines clip, Northwest Vice President, Richard Anderson says, if you outsource: "Making the call to outsource without taking into consideration what all of your options are, seems like your limiting your ability to make decisions as a manager". Another disadvantage of outsourcing is the lack of job security for employees. In the Northwest Airlines case involving water pumps, they felt that the outsourcing quality of work was poor.

Giving workers a chance to bid out jobs that would otherwise be outsourced can be a great idea for many firms to adopt. Even though outsourcing means when you outsource the task can be done faster, this may not always be the case. Analyzing and benchmarking the cost effectiveness of out sourcing to in-house can serve as a great solution like Northwest Airlines discovered.



References:

Films on Demand. (2011). MBAA 604 Labor Northwest Airlines. Retrieved from: http://digital.films.com/play/9CXGLN

Flatworld Solutions Pvt Ltd. (2014). The Top 10 Reasons To Outsource. Retrieved from: http://www.flatworldsolutions.com/articles/top-ten-reasons-to-outsource.php

Google Images. (2014). NWA. Retrieved from:northwest airlines

Peng, M. W. (2014).  Global Business (3rd ed.).  Mason, OH: South Western Cengage Learning.