Outsourcing Costs Companies More Money, Say Nobel Laureates

According to the recipients of this year's Nobel Prize in economics, Boeing’s costly, overdue production of its 787 Dreamliner could have been predicted. It is due to outsourcing.

Research conducted over the years by Oliver Williamson and Elinor Ostrom is now accepted by economists as proof that employees can't be viewed as just a financial transaction. Seriously? Yes, this how Williamson and Ostrom earned the Nobel, by showing why outsourcing is not only bad for American jobs it is bad for American business.

So how do you make a decision to outsource work? According to one professor at UC Berkeley “I need to be very sure I can specify what I need in advance and wouldn’t have to ask for changes later” to make outsourcing contracts cost-effective. As anyone who has ever had to manage a project of any duration or complexity knows, that's the $100,000 question for which no one can ever be sure to have an answer. And if that's the central question on whether work should be outsourced well, American business is going to be in a world of hurt. (And you've probably already experienced it if you've ever had a complex question you've tried to ask of an overseas call center.)

BTW, it seems that Boeing's answer to the question is that it needs more control over the complex production process. So it has reversed course canceling contracts and even acquiring some of the companies that were making the jet parts.