Insourcing and Building Internal Capability

Insourcing, the practice of returning previously externally contracted operations, processes, or other business functions back to internal management and control has been in the news quite a bit recently. The Atlantic has a great piece titled 'The Insourcing Boom' that describes several examples of what might be the start of an insourcing trend by US manufacturers. As the Atlantic piece describes, the manufacturing of products of all kinds, from dishwashers to elevators and even frisbees are being returned to US facilities for a number of reasons, primarily that the absolute cost advantage of offshore manufacturing has been eroding over the last several years.

In the manufacturing context the trend towards increased insourcing is certainly driven by costs as well as concerns about product quality and enhanced customer service. But these are not the only reasons and the only kinds of industries that have to think about the mix of what capabilities they need to maintain internally and what kinds of things they outsource. Even in the digital age, organizations that trade in information and data also have these kinds of decisions to make, and often, as we see in a recent example from the USA Today, the drivers are not cost or availability of resources, but rather an assessment of what kinds of capabilities are true differentiators for the organization.

For many years USA Today has run a popular Super Bowl related program called the Ad Meter, where members of the general public weigh in and rate the commercial advertising that runs during the game. The Ad Meter has grown since its inception in 1989 to become a really influential measure of relative success or failure of the high stakes/high cost world of Super Bowl ads. Last year USA Today partnered with Facebook to expand the reach and participation of the Ad Meter program, but for this year's game has elected to go it alone. USA Today's reasons to end this partnership, and essentially 'insource' this social element to the program are explained below:

USA Today decided not to repeat the Facebook partnership partly because it plans to expand the Ad Meter and related elements beyond the Super Bowl, Mr. Kramer said. "We want to do this ourselves because we're going to do a lot of these," he said. "We need to build the apparatus ourselves so we'd own it."

"Look, Facebook is great and we like working with them, but if you look at this organization today top to bottom vs. a year ago, we're a lot more digital," he said. "And we need to build that internally."

Not that complex, right?  If the capability, (in this case enhanced social engagement and expansion to more digital platforms), is considered core, essential, or otherwise what the future of the organization really rests on, then that capability must exist internally. It probably doesn't matter to USA Today if in 2013 that Facebook could exercise the program better, if USA Today can't eventually execute on their own, then well, there probably won't be much of a USA Today left in a few years.

I think in 2013 and the years after that we will see in organizations increasing tension and discussion about the relative balance of outsourcing vs. keeping capability (and talent) in-house. While it has become much easier to simply enter into external relationships with companies and individuals for the provision of services and functions, many organizations will have to ask themselves if they have moved too far to the outsourcing side of the pendulum.

What do you think? Has cost-cutting and the less risky decision to outsource capability in the last several years left organizations with a kind of self-created talent gap?