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To outsource or not?

An interesting piece in WWD argues the benefits of moving a lot of things in-house when they might have been thought suitable for outsourcing. It’s true that this refers primarily to chemical development (in which the economies of scale and convenience are not always straightforward) but some of the issues carry over into IT, cloud, contact centre and the other areas Intelligent Sourcing follows.

One item in particular is worthy of attention: the notion that you can outsource so many of your core skills that your company ends up worthless.

This sounds extreme but we’ve come across companies realising this is indeed an issue. We won’t name them again as it’s a few years ago and there’s no reason to embarrass someone again but an insurer, over half a decade ago, had outsourced most of its processes to India and basically had a shell operation in London for admin. It realised eventually that if all of the transactions were happening in India and a lot of the intellectual property was located there, all the Indian operation had to do was relaunch itself with a new name and it could capture a lot of the business. Elements were reshored immediately.

Not that this need be a bad thing in every instance. Decades ago IBM was responsible for the creation of the personal computer (as in PC-compatible rather than a Mac; it was initially called “IBM-compatible”, old blokes like your editor will recall). Manufacturing was outsourced; meanwhile the profitability started to leak away from the PC market so IBM withdrew. Without any ill will, Lenovo simply stopped putting IBM badges onto the kit and instead marketed under its own name, offering customers an upgrade path they still enjoy.

There’s an issue about when to outsource and when not to, by all means. The trick is to ensure you evaluate on a case by case basis rather than apply some sort of policy that will cover all circumstances – there actually isn’t one.

 

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