This is part 1 of 2. Get part 2 here.
With the advent of the internet and all kinds of real-time global communication technologies, the world, as they say, is flat. This flattening has led to a meteoric rise in outsourcing, or using third parties to produce part of your business offering.
Companies in Bangladesh, India, the Philippines, (pretty much anywhere the population speaks English marginally well) are offering their services to American businesses. Proponents of outsourcing, such as Tim Ferris of The 4-Hour Workweek, suggest you outsource everything in your life that you don’t personally want to do: cooking, blog posting, even writing make-up notes to a scorned lover.
But is there any danger to outsourcing your life? This blog post (and the next) will offer four factors to consider when deciding between doing it yourself or outsourcing to your pal Manesh in India. The first is what the academics call “resource-based analysis” and the second, which consists of three parts, is called “transaction cost analysis”.
As always, don’t worry about the fancy names, the concepts themselves are easy to grasp. It’s just academicians impressing themselves with their erudition.
When deciding whether to do it yourself or outsource, the simplest rule is this:
Engage in activities in which you have competitively valuable resources or capabilities.
So, keep doing the things that set you apart from your competitors, and outsource the rest. Here’s an example: Oprah Winfrey is the most popular talk-show host ever. In fact, her show, Oprah, is all about her. Imagine if she were to outsource the hosting of her show.
She decides to let Thongchai Viyada (random Thai name) interview her guests. Viewership would plummet! Soccer Moms would picket in the streets! “We want Oprah back!” Using resource-based analysis, Oprah should continue hosting her show and outsource other aspects of it (such as writing articles for O Magazine) to third parties.
One more example: Apple computers. Apple is known for their innovative and sleek (even sexy) design. Now, I’m not an Apple fanboy, not even a Mac user, but I do appreciate the look of their laptops. Apple knows this, and so they design the laptops themselves.
They are the creativity generators. Apple knows that others, such as Intel, are better at making the actual hardware. So Apple sticks to what they are known for, what they are competitive at, and outsources the rest.
There you have it, the simple rule of thumb for determining whether outsourcing will kill or supercharge your brand. Next time we will examine transaction cost analysis, which the academics consider to be a more nuanced and sophisticated approach.