The basic idea is that if a company aggressively subcontracts all of their value proposition, then they hollow out their core and become “zombie companies” that eventually implode. The rule of thumb Hart-Smith (and Hubert) give is 10%.
I’ve heard this idea before, that large companies often go through a change of stopping innovation and basically becoming financial companies, but Hubert and Hart-Smith fill in some details on how that process happens (incremental profit motivations to subcontract, disincentivizing in-house expertise from staying, encouragement from share-holders because ‘on-paper’ profits are still good, etc.).
I found this talk very good, thanks for the link.
For the lazy, there’s a video link of the talk. There’s also a reference referenced by the talk called “Out-Sourced Profits - The Cornerstone of Successful Subcontracting” by Hart-Smith, a Boeing employee (written in 2001).
The basic idea is that if a company aggressively subcontracts all of their value proposition, then they hollow out their core and become “zombie companies” that eventually implode. The rule of thumb Hart-Smith (and Hubert) give is 10%.
I’ve heard this idea before, that large companies often go through a change of stopping innovation and basically becoming financial companies, but Hubert and Hart-Smith fill in some details on how that process happens (incremental profit motivations to subcontract, disincentivizing in-house expertise from staying, encouragement from share-holders because ‘on-paper’ profits are still good, etc.).
Worth a watch.