Transaction costs (The Endeavour)
I totally agree with John’s observations. Transaction costs are a good reason not to outsource certain tasks. However, it isn’t the only reason not to outsource. Even if outsourcing is cheaper (including transaction costs), it is not always a good idea. For example, a lot of software companies after the dot-com bust started to outsource software projects to India (and other countries). The software design and specs were handled in-house and the “implementation” was then outsourced to India. In the short-run, it paid to outsource. However, as time elapsed, Developers left the software company. Normally, this wouldn’t be an issue because a younger programmer would transition into the position and only a limited amount of knowledge would be lost. But if you outsourced all your junior positions, your company will develope a huge knowledge leak. Your software company will start to know less and less about the actual software it sells. I don’t think that I need to convince you that this is a bad thing.