Do you know what is common between Fred smith, Steve jobs, Oprahwinfrey, Steven Spielberg ,Henry Ford and Tim Ferris??
They all failed in their first startup. A significant reason of business failures is lack of ability to scale business globally. Close to 50% of the start up to midsize companies tend to fail in early to mid stages. A significant reason is inability to address a global market audience and alter the segmentation dynamically.
Reference: NASSCOMM start up report analyzing a 1000 companies
Companies tend to cluster core business and non- core business functions while they plan a business strategy and operating models. A non core business function could potentially drain your cash and time and drag you away from your core focus operations. Typically, technology companies focusing on Logistics, Deployment and Staffing have tendencies to lose out or break even at a much later stage, resulting in stagnation. This happens as these essential but non core functions consume time and need lots of manpower support for execution resulting in increasing cost overheads.
While the logic behind getting these functions going internally stems from a business need for confidentiality, the truth is outsourcing these functions to respective core focus firms is the best way forward in terms of building efficiency and cutting costs. While a myopic view is sometimes taken over a quote or service charges, if one were to do the cost of running payroll for running a team allocate to do these functions, the benefits accrued over time will far outweigh the incidental transaction cost.
In terms of organizational confidentiality often touted as the cornerstone of such decisions, in today’s extremely professional and networked world, all transactions are governed by suitable agreements. Also, when firms work together, they become partners and the success of one is very important for the success of the other. With this being the case, the rationale of outsourcing non core functions due to the confidentiality reason becomes redundant.
Companies which tend to succeed are ones which have used aggregation and partnership models to great success. Non core functions that are typically your support and logistics has to be partnered with an aggregator on shared service model to treat with the best processes and cost parameters in the first instance. Tech companies need this bandwidth to become more successful.