‘Right-sourcing’ requires patience, skill, says AA’s Hernandez
Human resources managers face tough decisions on when to hire staff directly or when to use outside contractors. Getting it right can mean big savings and more efficient use of workers. But getting it wrong can mean lawsuits, hefty payouts and a tarnished brand image.
Carlos Hernandez, managing director for international human resources for American Airlines’ Latin America, Caribbean and Mexico region, discussed the challenges at WorldCity’s HR Connections on July 15, drawing on his experiences in varied countries in the Americas.
Hernandez called the decisions “right-sourcing,” that is, getting it right on when to hire inside or not. He said the term “out-sourcing,” used for contracting outside, has too many bad connotations to be useful.
Some HR lessons that Hernandez learned:
If you opt for an outside contractor, it’s better they don’t hire the same employees that used to work for your own company. Let the contractor hire new staff.
Keep arms-length from outside contractors, so that employees there won’t complain to government or sue to claim your company is using contractors as a way to cut their salaries or benefits, he said.
Don’t mix company workers and outside contractors’ staff in the same lunch room or other facilities. Contract out full groups to avoid complaints about differing pay or benefits for similar jobs.
Also, be careful who you choose as an outside contractor. If that company fails, you could be liable in some countries to pay that company’s workers money that they are owed, Hernandez said.
“You have to be careful with right-sourcing,” Hernandez said. “We have had failures where customer service and cost savings are not that great.”
Participants raised varied questions. How does contracting from other companies affect unions?, asked Lazaro Acosta, the newly appointed HR manager for Latin America for Teva Pharmaceuticals.
That depends on the country, Hernandez said. In the United States, American Airlines has strong unions with one contract for members for the entire nation. That makes it hard to switch to outside contractors for U.S. labor. But other countries may not have unions for all functions or all workplaces, he said.
Are there limits to what American Airlines might contract out? For example, would it try to keep customer service agents that have direct contact with clients as its own employees?, asked Deborah Hernandez, an HR director at LAN Airlines.
Generally, American employs its own customer service agents. But it in some cities in Brazil, where it has just one morning flight and one evening flight, it doesn’t make sense to hire someone who would have no work most of the day. So, in those Brazilian cities, American uses an outside contractor who assigns the same employee to work for more than one airline during the course of the day, he said.
How does American deal with training people who work for outside contractors, so that the airline can ensure quality service?, asked Marjorie Kean, a director at executive search firm Diversified Search.
American works with the outside contractor to make sure it trains its staff. That means developing a strong management-to-management relationship with the contractors, Hernandez said.
“You need to make sure the outside company has a good HR division,” said Hernandez. And you need to keep tabs on outside contractors and their operations, he added. “You can’t just walk away.”
The discussion came as American grapples with losses. Hernandez said the company has lost about $10 billion in the past decade. It is the only one of the big U.S. legacy carriers never to sought protection in U.S. Bankruptcy Court, where other airlines restructured their pension programs. Labor now ranks as American’s second biggest cost after fuel, making decisions on hiring of vital importance, he said.
HR Connections is one of seven event series organized by WorldCIty to bring together executives on international business topics. The HR series is sponsored by the University of Miami School of Business Administration and Diversified Search. The next HR meeting is set for Sept. 13.