Will outsourcing be the hot topic of 2008?

Newspapers certainly are playing both sides of the fence. While a growing number of publishers are outsourcing certain administrative and operational functions (see related story, page 1), other newspapers count outsourcing as a strategic revenue source.

It would appear that no aspect of our industry is immune from the concept. Look hard enough and you will find examples of editorial, advertising, production, distribution, technology and finance being packed off to an outside supplier, which is seemingly capable of providing a better service at a lower price while still earning a profit.

 

I say “seemingly” because while there are plenty of compelling reasons for outsourcing, there are also a number of cases where it can go horribly wrong.

Traditionally, we in the newspaper business have viewed the extremes of the value chain — content and customer management — as the in-house preserve. Creation and customer relationships were regarded as too important and critical to risk outsourcing to a third party. The bits in the middle — printing, distribution — were the areas where work could be shared.

More than you’d think

I was once laughed at for suggesting to a newspaper that it outsource advertising sales. The publisher told me I was crazy. (OK, that’s a separate issue.) Yet it is an established and very successful practice in many countries where newspapers have particularly high shares of advertising expenditures.

Many editors freak out at the idea of outsourcing any aspect of the newsroom. Yet news agencies are an enormous, valuable element of our industry. Many agencies are now offering excellent outsourcing services for editorial production. Fewer and fewer newspapers are employing full-time photographers. I was staggered to notice that one of the world’s most famous editors was outsourcing all of his news content except opinion, until I realized that he was maybe right, and I was maybe wrong.

At the other extreme, companies are seeing the advantage of being the service supplier.

Any number of companies are now offering India- and Philippines-based specialist prepress services to European and U.S. newspapers.

In Italy, suppliers of editorial system software are now hosting content management and archive services at their own offices instead of installing expensive servers at their newspaper client’s offices.

A newspaper in Ireland, meantime, has outsourced its editorial production to a company in France.

And let’s not forget the U.S. trend in which papers are now establishing joint-venture print and distribution initiatives. Case in point: Chicago, where the Tribune distributes the rival Chicago Sun-Times. Or Denver, where the local plant prints not only The Post and Rocky Mountain News, but the Daily Camera in Boulder, Colo., as well.

Gaining traction

In fact, when it comes to newspaper industry outsourcing, using an outside supplier for printing and distribution is gaining traction worldwide.

I predict that by 2018, more than 50 percent of the industry’s current capacity will be differently sourced (either in or out).

Indeed, more and more functions within the newspaper are going to find themselves outsourced. A growing number of newspapers are offering buy-outs to existing employees and then farming out those staffers’ former functions to a separate company.

Centralization is another trend. Major companies are abandoning local operations in telephone sales and finance and setting up central units that are more flexible and efficient.

While the primary reason for outsourcing is to seek improvements in the operational or financial performance of the company, competitive advantage is another key consideration.

So, if it’s a hot topic, where do you start? The key lies in recognizing where core competence and competitive advantage can best be applied.

Centralized control

In some areas of a newspaper’s operation, it is essential that the newspaper maintains control of the every aspect of the process. In others it may be beneficial to outsource. In some areas, such as distribution or printing, the operational advantages may be so strong that it is advantageous to outsource or partner with a competitor.

At the point of product creation — the collection and choice of stories — the editor must clearly control all aspects of his newspaper product.

At the other end of the value chain, newspapers have much more in common with other goods and services. As such, they see relationships with their consumers as a key to loyalty and purchasing frequency.

As one moves through the value chain, the potential benefits and opportunities for outsourcing or partnership increase. In areas such as printing and distribution, the question is not whether services could or should be outsourced but whether the value of a partnership outweighs the issues of competition.

Where resource capability in a particular function is low the logical step is to outsource. If the competitive element is also low, then one may for example outsource printing to a competitor. If the competitive issues are stronger, the company may have to expand its resources to maintain competitive advantage.

Where the resource capability is high, the company should consider taking on projects from other newspapers.

By allocating each function into this framework, publishers can identify those operations that would benefit from outsourcing, those that should be retained in house and those where the company can generate revenue by insourcing functions from other newspapers.

You may feel uncomfortable about the notion of outsourcing, but don’t be complacent. A friend of mine makes a good living acting as a temporary CEO. When the boss’ job can be outsourced, anything can happen.