Develop Internal Capabilities or Outsource?

An article in the New York Times today, Groups Advocating for the Arts Feel the Pinch, addresses some fundamental issues for nonprofits. While the article focuses on advocacy alliances for small nonprofits, the questions it raises apply more broadly.

In a tough economy, donors may well cut support for umbrella organizations offering (sometimes essential) support services to other nonprofits in favor of giving directly to struggling organizations. How can the umbrellas and the dependent beneficiaries of their services make the best of the situation? Is there any way they can prepare for this possibility?

More broadly, what expertise does an organization need to have in-house to be able to make good strategic and business judgments, and what should it outsource in recognition that it can do more for its mission by focusing its attention and resources on what it does well?

When I was a corporate manager I worked for a company that virtually invented the corporate joint venture as a way of accessing the marketing and distribution expertise it needed in various industries to capitalize on materials developed in its research labs. While this approach allowed the company to build markets in disparate sectors that would have been much more difficult to enter on their own, there was a price to pay as well. By keeping product development, marketing and distribution at arm’s length, they never developed this expertise on their own. As new materials were developed in their labs over the years, the company lacked the market understanding required to identify and develop their full potential. By lowering the bar for developing each individual material into marketable products, the company had no learning curve for identifying and developing the next one.

Develop internal capabilities or outsource? There are short- and long-tem consequences to either option. A strategic discussion about the trade-offs may help to plot a sustainable course.