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Business Processes and Business Functions Business Processes and Business Functions Business Processes and Business Functions: a new way of looking at employment A new BLS classification system used in conjunction with the Agency’s Mass Layoff Statistics program yields fresh information on business processes and functions affected by mass layoff events Sharon P. Brown hen employers decide to add or including the current employment structure eliminate jobs, they are sometimes of a firm, organizational expansions and job guided by larger choices to add or growth, and the geographic location of out- Weliminate entire classes of activity—business sourced work. Called Business Processes and functions—within the company. What may Business Functions, the system is based on an appear to be incremental hiring may in fact approach that is a synthesis derived from exist- be the gradual buildup of a new business ing literature, models of firms’ activities, current function, such as an in-house information research on outsourcing and offshoring, the re- technology development department. Or, in- sults of a feasibility study of business functions stead, a mass layoff may stem from a decision conducted by the BLS MLS program, and the to outsource a specific business function, such ongoing collection of the relevant information as human resources management, logistics, throughout the Nation by the program. janitorial maintenance, or even manufactur- ing. Deciding which business functions to Movement of work statistics source to outside vendors and which to per- form in-house is a critical part of corporate Restructuring and outsourcing of business strategy, as companies seek to become more functions has long been part of the U.S. efficient and competitive or address changes economic landscape. Companies continually in demand for outputs or supply of inputs. identify strategies to cut costs, become more In an attempt to shed more light on how efficient, expand, and gain access to new workplaces and industries are changing, a markets, among other motivations. As the classification system has been developed that horizons for moving work have expanded, describes basic business processes of the firm the offshoring of jobs has become an op- and the business functions that are associated tion that is available to a growing number with them. This system is now being used in of employers. Offshoring is often thought to Sharon P. Brown is the Mass Layoff Statistics MLS( ) program to affect only, or at least mainly, manufacturing Chief, Division of Local identify the functions and processes involved Area Unemployment jobs and production functions. In the early Statistics, Office of in job losses from extended mass layoffs. The 2000s, however, job losses in information Employment and system, which is now providing new informa- technology and related areas emerged as an Unemployment Statistics, Bureau of tion on the nature of this type of change in important indicator of ongoing change in Labor Statistics. E-mail: establishments and industries, can be applied industries. By 2004, stories on the offshoring [email protected] equally to other measures of employment, of these business functions and the resultant Monthly Labor Review • December 2008 51 Business Processes and Busiiness Functions job losses in the United States had become a regular topic MLS statistics on offshoring job losses was that the action of debate in the popular media.1 involved an activity or function not directly associated with As greater attention was placed on a firm’s decision to out- the industry designation of the firm. That is, information source activities, stories also continued about corporate reor- technology jobs were being moved out of the country, but ganizations and restructurings. These actions were occurring from firms with other industry designations. An addition- essentially for the same reasons that firms outsource and al impetus for studying business functions came from the also involved processes and functions within the company. high level of activity in domestic relocations. The single Companies were consolidating activities, eliminating layers most reported reason for these relocations was reorgani- of management, outsourcing some functions, and expanding zation within the company. Despite the details collected others internally, to become more efficient and competitive on the layoff, the employer interview questions did not and thereby improve the corporate bottom line. reveal what was behind these actions and what, in fact, In order to quantify the anecdotal information on was the affected part of the company. offshoring and outsourcing, the BLS focused on the MLS The traditional classification schemes for identifying -in program, in which monthly and quarterly statistics are dustries (the North American Industrial Classification Sys- collected on plant closings and mass layoffs involving at tem, or NAICS) and for defining occupations (the Standard least 50 workers from businesses employing 50 or more.2 Occupational Classification system) are not reflective of the A set of questions on the movement of work was added to full range of activities of the firm. The industry classification the MLS employer interview to obtain the following data: approach is based on the primary activity of the establish- ment, as measured by the largest number of jobs performing • Job loss associated with outsourcing. The movement of that activity; other important direct and support activities work to a different company when that work was that operate within the firm are not explicitly recognized. formerly conducted in-house by employees paid Hence, any change in employment is associated with the directly by the outsourcing company. The different industry code determined by the main activity, even if the company can be located inside or outside of the change in activity has nothing to do with it. Looking at the United States. The work may occur at a geographic occupational classification reveals that the problem is that location different from that of the outsourcing com- the system defines the firm’s workers, but lacks a direct tie to pany, or it may remain on-site. the firm’s internal organization and decisionmaking. Thus, • both industry and occupation provide a limited picture of Job loss associated with offshoring. The movement of the dynamic nature of industrial organization and economic work from within the United States to a location change. outside of the Nation. Offshoring can occur either As it became clear that companies were using internal within the same company, when it involves the move- organizational schemes in analyzing and implementing ment of work to a different location of that company employment change that could—and did—involve any outside of the United States, or to a different com- part of the corporate structure, a new classification system pany altogether (called offshoring/outsourcing). reflecting these components was needed in order to better understand the nature of changes in employment. Statistics on outsourcing and offshoring have been col- Describing a firm’s activities lected by the MLS program since 2004. Job losses associ- ated with the movement of work outside of the United States and that took place for reasons other than seasonal Although Federal statistical programs have not collected or vacation-related reasons averaged about 2.3 percent of statistics on business processes or functions, such data have all private nonfarm separations identified by theMLS pro- been used in economic studies and, in recent years, have been gram over the period 2004–07. Contrary to expectations, mentioned in the popular press in stories on globalization, job losses associated with the movement of work were not offshoring, and firm restructuring. Academic economists concentrated in industries directly connected to computer have described a firm’s activities theoretically and used the and electronic products or information. Also, the majority concept of business organization in firm and industry stud- of this layoff activity was associated with domestic reloca- ies. Among such approaches is Michael Porter’s value chain, tion of work, mostly within the company. which divides a company’s technologically and economi- If media reporting on offshoring correctly identified an cally distinct activities that it performs to do business into 3 emerging economic phenomenon, one implication of the primary activities and support activities. Similarly, George 52 Monthly Labor Review • December 2008 Yip has described the impact of global competition and and storing and transporting finished products to technological improvements on the organization of firm customers. activities and industries, and Timothy Sturgeon and Gary • Gereffi, coorganizers of the Global Value Chains Initiative, Operations. Those activities which transform inputs have contributed to the discussion by identifying and dis- into final outputs, either goods or services. tinguishing between core business processes and support • activities, using an approach based on the classification Product or service development. Activities associated scheme developed for the MLS program.4 with bringing a new, improved, or redesigned product Many offshoring studies and news accounts focused or service to market. Among these activities are re- on activities such as software development and data search, marketing analysis, design, and engineering. processing, and relocations of call centers and customer • services. One such report, prepared by Ursula Huws
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