<p>
</p>
<p>Look, nobody - least of all I - is denying that cost/benefit financial calculations obviously have some impact on business decisions, outsourcing included. Generally speaking, the more ‘tautly run’ a firm is - that is, how dependent the firm’s management is to financial markets and dispassionate investors - the more important that cost/benefit calculations tend to be.</p>
<p>But let’s face it, numerous firms are not tautly run. Nor would we necessarily want them to be. Steve Jobs launched the original Ipod in defiance of initial skepticism from the markets. Indeed, the Ipod sales were mediocre for several years after launch, with some market prognosticators even calling for Apple to abandon the product. Jobs passionately - arguably even irrationally - believed in the Ipod, and it’s fortunate for Apple that he did. </p>
<p>Another example, albeit far-removed from engineering, are the Disney ‘Imagineers’ who design Disney theme parks. They’re charged with maintaining the aesthetic spirit of the Disney theme parks as they imagine Walt Disney himself would have wanted those parks to be (and Walt himself was famously far more interested in aesthetic appeal than in profits). Hence, many of the ‘antique’ props that decorate Disneyland’s Frontierland and Main Street are actual authentic antiques. For example, the hearst in the Haunted Mansion ride is an actual antique hearse and the stretching paintings are actual paintings. But they are not advertised as such, and hence, practically no Disneyland visitors will ever know. The notion that “nobody will ever know” is not an acceptable excuse and to skimp on aesthetics to squeeze more profits from the theme parks would be simply anathema to the Imagineers. </p>
<p>And besides, even those firms that are ‘tautly run’ by markets are themselves deeply swayed by the psycho-social waves that grip those markets. This is particularly prominent in the tech markets, where tech valuations often times have more to do with investor psychology and social sentiment rather than dispassionate profit calculations. Let’s not forget the dotcom bubble when Webvan and eToys attained peak valuations of nearly $10 billion and AOL at one time was actually considered to be a more valuable company than Walmart is today (no exaggeration - that actually happened). {And this was before the fateful merger with TimeWarner. Even after the merger, the stock price held at that high level for more than a year and a half.} At that time, one popular joke was that any company could multiply its market cap overnight by simply adding the suffix “.com” to its name. Firms were investing billions in Internet infrastructure not because they thought they would be profitable under a dispassionate cost-benefit calculation, but simply because they knew that they would be (irrationally) rewarded by the markets with higher valuations if they did and (irrationally) punished if they refused. Unless you’re as self-assured as Steve Jobs, you may feel compelled to do what the markets tell you to do, even if the markets are irrational. </p>
<p>Heck, we may be seeing such irrational valuations right now. For example, is Groupon really worth as much as Whole Foods, Staples, or Nordstrom?</p>