Global strategy we can’t ignore

It’s not new to newspapers, or banks, government, insurance institutions, telecommunications companies, software developers, research firms and many other enterprises across the economy.

The decision by Fairfax Media to outsource editorial production at The Age and Sydney Morning Herald has put renewed focus outsourcing.

There are countless reasons why companies choose this path.

Over the years, the most popular reasons have been a mix of some of the following:

  • Ability to scale up or down, depending on demand
  • Labour arbitrage
  • Unavailable in-house skills;
  • Swapping out an internal cost for an external cost on the balance sheet; and
  • Moving internal staff from low-value to higher-value work for clients

In my experience when in IT consulting, very few companies ever had a single reason to outsource. There was always a mix of issues to be resolved.

Those who did it in the singular belief that they would save money got a bloody nose, more often than not.

Outsourcing became popular in the mid-90s and was primarily used for repeatable processes, such as data entry, billing and basic customer service and, of course the TV and weather details that go in the paper.

Today, it is far more sophisticated, achieving complex tasks and giving greater real-time transparency to the quality of work for the client.

So, editorial production has been ripe for outsourcing for a few years. (And I say this having spent more years than I can remember as a down-table sub).

The decision of Fairfax Media to outsource its sub-editing of The Age and Sydney Morning Herald might be a shock to the cultures of those titles, but it is in step with modern-management thinking and actions.

Every management of a public company is obliged to consistently create greater efficiency and profitability for its shareholders. That’s not a choice. That’s a reality of business.

An article by Crispin Hull in the Canberra Times – a Fairfax publication – recently stated 40 per cent of editorial cost was invested in production.

If true, I’m shocked. Sub-editing is a vital part of newspaper production but in an era where creativity of exclusive and compelling content is pre-eminent, sinking such a percentage into headlines, captions and basic fact-checking is too much.

One of the reasons many companies outside this industry looked to outsource was the realisation that they were not investing sufficiently in value creation but in processes. And that’s a death sentence in modern business.

Complaining that outsourcing automatically reduces quality is not an argument that stands up.

There are many companies who would argue the opposite. And before a union official might say, “but this is different”, every business thinks it’s different.

Other Australian publishers, such as News Ltd and APN News & Media, have gone through determined processes to move editorial production to so-called sub-hubs.

While these companies have kept their operations in-house, the principle is the same. Fairfax’s decision to move production to AAP’s Pagemasters – a business in which it is a key stakeholder – is not so different.

In fact, one might argue Pagemasters is a proven international specialist in this field and it is a better option. But that depends on a range of internal and external issues.

In my experience, the key to a successful outsourcing relationship is how it is managed by the customer.

This is not a set-and-forget exercise. The person responsible has to be skilled and experienced, not just in the dynamics and personalities within their own company but within those of outsource firms.

The bottom line is that publishers have a society and a marketplace that is changing faster than we even imagined just a few years ago.

We have to respond. We have to change. We have to learn from other industries. And we have to question all our age-old beliefs about how we operate.

There is a world of pain in this.

So many industries have already been there and done that. Surely, we could not seriously imagine we would not one day confront the challenges of business transformation.

Value creation must be the priority. And for us, that means finding the funds to continually invest in journalism that is exclusive and relevant to our readers.

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