Wonderer's Lust

In defence of Disney and HCL- What the article does not state?

This article on the NYTimes caught my eye. It highlighted the utter callousness by which 250 jobs were literally body-shopped overnight by employees from our own country. I was outrage by the injustice.

Pink Slips at Disney. But First, Training Foreign Replacements.

About 250 Disney employees were told in late October that they would be laid off. Many of their jobs were transferred to immigrants on temporary visas for highly skilled technical workers, who were brought in by an outsourcing firm based in India. Over the next three months, some Disney employees were required to train their replacements to do the jobs they had lost.

But , as I read between the lines I realized the article implied things that were not true. Infact after a time I could understand why the 250 people had lost their jobs. My own IT experience and the global delivery model made it abundantly clear that there is more to the story.

It seems prima-facia that the article is far below the journalistic standards set by the New York Times. The author Julia Preston seemed to me to be either incompetent (incomplete research) and naive or just vindictive. Let me tell you , why-

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Firstly , the idea is to save costs in using a global IT services company say Infosys or TCS. However, the savings accrual is not through replacing expensive local resources by cheaper foreign labour( That should be illegal) but rather by replacing say 6 jobs in say Orlando by one job in Orlando and 5-6 in India which is significant cost savings. Over a period of time with automation most of those jobs in India could be eliminated and the one person in Orlando could be free enough to take on 2-3 other tasks.
The savings from these cost cutting enable a company to spend more elsewhere. Bank Of America chairman in an interview where Warren Buffet was present talked about how savings from outsourcing allowed him to open a 100 new branches creating more jobs and more revenue

Secondly, when such transitions take place there are two options. One is to slowly outsource piece by piece leading to job losses over a piece of time. Say in this case 5-10 people would have come to US and would slowly understand jobs and move the outsorceable part to the offshore delivery center. This approach has its own risk of creating hostility from the client team whose jobs are being moved and there are issues such as risk of sabotage, low morale , client -delivery team concepts etc. The other option is to move them all at once, transitioning the entire set of jobs on first day of going live. This is more expensive as more people have to come to client location but Disney seemed to have preferred that.

Thirdly , but the biggest issue with the article is that 250 US citizens replaced by 250 IT outsourcer employees is never the long term status quo. That if happens as I said earlier should be illegal. This is just the initial launch phase of project execution where at many times the vendor is making losses employing all those people at the client location. His losses are recovered as over a period of time jobs get merged, tasks moved to offshore delivery location. Over a period of time these could be significant.
Let me play out the numbers.

  1. Assuming initially there were 300 jobs (for ease of calculation ) with each employee costing 150,000 dollars each year. The company’s expenses on employees is therefore 45 million dollars a year.
  2. The vendor bids at 40% cost that is 18 million dollars. That straightway represents 18 million dollars of savings for the client
  3. Initially the vendor employs 300 employees at 120,000 $ for 3 months. There is a lower cost per employee as it is a younger force. The vendor is spending 36 million dollars a year or 9 million dollars per quarter. The vendor is making a loss.
  4. Lets say after the first 3 months, 40 % jobs are shipped to India where the employee cost is 15,000 dollar year. Suddenly with this employee mix the employee costs go down to 23.4 million dollars. Not yet breakeven but close
  5. After say 6 months , 45% more of the remaining jobs are offshored. Thus 45 employees remain at the client location and 255 jobs are now at delivery center. I also assume that client side employee costs are 150,000$ as these would be senior employees. The funny thing is now the vendor costs are just a shade above 10 million dollars a year and it is churning out good profit. Win-win for both the client(Disney) and vendor(HCL).

What about the employees who got redundant? This is a tricky question for one day I might be in the same position. My answer would be that this is part of market forces. The only thing that an employee can do is find those niche positions and keep upgrading his skills. Be so good that the market cannot ignore you. If not Disney than someone else.

PS- I worked in the IT sector previously and the opinions here are totally personal and do not reflect my employers in any way.

2 thoughts on “In defence of Disney and HCL- What the article does not state?

  1. Rahul Mukherjee

    Totally echo your thoughts. The article was ridiculous and misleading. To share another perspective – Companies are using Six Sigma, Lean and other such methodologies to drive process improvements – something that took 6 employees can now be done by two. Now to realize these cost savings the extra 4 employees have to be moved out of the cost center. I’ve rarely seen these freed up resources being laid off. Generally they are assigned to a different cost center under new projects that are being launched or a business unit that is planning to grow. Why spend time and effort trying to onboard new manpower? My point being cutting costs is the harsh reality under which every company operates. If one is not flexible enough or willing to upskill him/herself… then you will always be under risk of losing your job.. Doesn’t matter who you are – H1B or non H1B, VP or a floor associate etc.

    1. Ashraf Post author

      True. I have spoken about the jobs becoming redundant due to automation in my first point. Each employee less is a support cost less.

      I was also surprised by the mass firings. If Disney had net job creation why were the employees not adjusted.

      Job losses are not nice but they are part of the new economy. Skills upgradation is critical

      How are you doing Gaurav

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