Outsource or Insource – where to draw the line
I was invited to speak at a conference in the US last weekend which looked at, among other things, whether some publishers’ internal business services should be left alone, outsourced or in-sourced within a new, shared services centre. As I spent most of my time taking for granted that our outsourced service offerings are the best way to go, it’s may be time to step back and look at my claim.
To my mind it’s about where to draw the line. When I started in the graphics business, most major magazine publishers did their own printing. It clearly seemed to them at the time that what we now call vertical integration is the best, most effective use of their focus and resources. For a long time, it evidently worked well. Interestingly I don’t know of any who also had their own paper mills, built their own distribution trucks, or even refined their own crude oil to power them. They must have drawn a line where they thought it was appropriate to do it themselves and where it wasn’t. Printing was in, and paper manufacturing out.
Things have changed of course and at some point it was decided that printing was out, while editorial and advertising production and design were all still in. Since then, many publishers have further moved the line to editorial content creation and ad sales with yet more functions now handled by outside specialists.
So why is this? What happened that made firms fight against their institutionalised inertia and carve out bits of their business and hand them to others? You might think that Adam Smith’s ideas of division of labor and specialisation are the answer, but that cannot be the case, as although (say) print was managed by the same company, it was a separate division of that business that focussed their attention on getting things right.
I think it’s about accountability. No matter how you try, it’s really hard to hold colleagues to account in the way that you can do with external vendors. It’s emotionally easier to ask difficult questions, and, backed by the fact that they need to prove themselves every day to ensure that their competitors don’t get a look in, they have more to gain through success. It’s also about cost, as outsourcers can make choices about the way (and where) they do their work most effectively.
So, outsourcing partners are incentivised to be transparent, trustworthy and efficient. This is not to say that this cannot come from within a business, but really, if the work they do isn’t core, then is it worth the effort and risk insourcing brings?
Chief Executive Officer