Why Outsource?

When you throw away the books and the theory and look behind the curtain to see public and business strategy being implemented something becomes clear: most people have no idea what they are doing.  They may speak the language and look the part, but deep down most decision makers do what they think a person in their situation should do. Why outsource production? Because that’s what the book says to do.

Last month Esther Kaplan published a phenomenal article in VQR titled Losing Sparta. In it, Kaplan reviews a recent decision by Philips to close an award winning light fixture manufacturing plant in Sparta, Tennessee. What’s fascinating and important about this story is that there was no business case to outsource the plant’s production. It had it all. It was a days ride from most U.S. markets. It had a brand new production line that could be switched and retooled in minutes. It was named one of the best factories in America by Industry Week. Yet by 2010 the plant was closed and all of the production was shipped to Monterrey, Mexico.  Now manufacturing lead times at the plant have ballooned from ten days to eight weeks. Phillips lost nearly a third of their market share  in the products previously produced in Sparta.

Why did Philips decide to outsource? The answer is quite simply a lack of critical thought at the executive level. Kaplan explains:

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