Evan Davis on... virtual companies

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Companies have always bought some things in rather than done them themselves. Companies buy paperclips from paperclip manufacturers rather than making themselves, it would make no sense to do that at all. But that principle of buying services in has gone much further in recent decades. A good example is facilities management.

A company with a long lease or owning a building hires another company to look after the building for it. When the toilet breaks down or the light bulb needs changing, you call the external contractors into sort it out rather than calling Joe down the end of the corridor who looks after the light bulbs for you.

Now it’s a principle that can go a very long way, you can imagine the virtual company hiring everything from outside, hire staff from agencies, the accountants come from outside, the company itself is left with nothing at all apart from a core board of managers sitting in a headquarters maintained by somebody else.

Here’s the question: when does that principle go too far? And this is the answer I would give to that. In order to buy stuff in you have to have a certain amount of knowledge of what you’re buying.

Take facilities management; if you want to hire somebody to look after your building you’d better have somebody on the payroll who knows a thing or two about buildings, otherwise you just don’t know what you’re doing.

How can you sign that contract efficiently? How can you be all the things a good company wants to be, a minimum cost provider, an efficient provider, if you don’t know what you’re doing, you’re just leaving it to the company from whom you’re buying the services. So the principle of the virtual company, the company that just buys everything in goes too far when the company has no core skills of its own and can’t even buy stuff in a very talented or effective way.

That’s my opinion, you can join the debate with the Open University.