Mission-driven Business: Can Outsourcing Play a Role?

A few weeks ago, a neighbor walked in our local Constitution Day parade as part of the tongue-in-cheek contingent, "Billionaires-for-Bush." One of the signs carried by a marcher proclaimed, "Corporations are people too!"

That image kept coming back to me while reading, Getting to Scale: Growing Your Business Without Selling Out, by Jill Bamburg.

The book addresses the question: Can you truly run a business that thrives and makes profits for its owners/stakeholders while still maintaining a mission-driven culture and practices?

Of course, you might have another question: What does that have to do with outsourcing?

Bamburg is the dean of the MBA program at the Bainbridge Graduate Institute, a Washington state school that focuses on educating people about creating and growing sustainable businesses.

The book profiles a number of companies — Birkenstock, New Belgium Brewing Company, Great Harvest Bread Company, among many others — that you’ve probably read about before, because they’re poster kids for the sustainable business movement.

But what interested me enough to want to blog about the book was the role that outsourcing actually plays in the evolution of some of these firms.

Normally, I cringe a little when I tell people I cover outsourcing. After all, to many folks, outsourcing represents the elimination of middle-class jobs in America, exploitation of cheap labor in other countries, bad customer service and the rest of the rap.

Yes, outsourcing can be that at its extreme edges. But it also encompasses much more: the development of a middle class in developing countries; a means for new businesses to get their product offerings off the ground without huge fortunes; a mechanism by which organizations can transform themselves and their people to work in different ways.

And that’s where David Green comes in. The founder of a nonprofit called Project Impact, Green has helped create a business that makes cataract surgery available to people in India for fees that vary depending on what they can afford. The programs that Green has set up (and optimized) allow a surgeon to do 20 operations in a morning. He has also helped create a company called Aurolab to produce the low-cost intraocular lenses used in the surgery for $4-$5 apiece (vs. the $100-$150 charged by other companies). That keeps the pricing low.

As he says, "I make the cost structure transparent so that at least I can see if something can be made affordable. We do everything we can to sculpt each cost and each margin along the way– for any given supply chain — to fit our ultimate target price that ensures affordability for the end user.

"Then I see whether I can work with ethical people to deliver a product that’s going to meet quality standards and still be affordable — whether we can produce it with a start-up and operating cost that creates a price that is affordable to our target populations, which are basically poor to middle-class people in developing countries. My goal isn’t to maximize return on investment to shareholders, but to maximize number of people served. It’s a humanitarian goal."

In other words, he outsources — within strict parameters — to be able to afford to do more good work.

Wild Planet, a toy company, is also profiled. Its values: "No guns, no Barbies." According to the book, the firm, which outsources manufacturing to China, "pays ‘two to three times the provincial going rate’ and has its factories inspected weekly, but its real work on the labor issue has been through the Toy Industry Association (TIA). CEO Danny Grossman, who was a foreign diplomat and human rights observer before founding Wild Planet, has put his energy into the TIA board and an effort to shape international labor standards at the industry level — a high-leverage strategy for a relatively small player in an industry dominated by giants."

In these histories of mission-driven "brand builders," outsourcing becomes the mechanism by which the operation gets off the ground and makes the endeavor possible.

But outsourcing isn’t presented as a panacea. In fact, American Apparel, the company that has built its rep on staying here in the states and paying its workers a livable wage (among other humane practices) shares its story through the eyes of its VP of operations. According to Marty Bailey, who spent 15 years at Fruit of the Loom, opening (and closing) manufacturing facilities in the Southeast, "‘I had an opportunity there to see the bad side of offshore manufacturing. I don’t mean bad as in evil; I mean bad as in hidden costs and things that your labor dollars cannot compensate for.’ These hidden costs included rush charges, quality-control problems, missed market windows, and excessive freight charges based on partial container loads. Eventually he came to the conclusion that "if somebody had the right business model, they could be very successful [as a domestic manufacturer] — in some cases, just cleaning up what everybody else has screwed up."

The same could be said for the services business, where hidden costs can suck away any potential savings.

So what distinguishes these businesses from any company applying outsourcing to achieve its goals? As Bamburg writes:

In a financially driven firm, the answer is to choose the point that maximizes profit, recognizing that this point will vary from industry to industry and company to company. In theory, it can be calculated fairly precisely based on plant capacity, inventory carrying costs, and shipping costs for raw materials and finished goods. In practice, things are a little more complicated than that, but the basic idea is the same: locate manufacturing capacity close to either raw materials or final markets, and bring it on line in the smallest increments you can get away with, given your market forecast and expected economies of scale.

All those considerations come into play in a mission-driven firm as well, but there are a couple of additional wrinkles. In a mission-driven firm, the first question to address is the relationship between mission and manufacturing.

If the mission requires manufacturing…then you need to do manufacturing, and the challenge is to figure out how to build manufacturing capacity slowly, cheaply, or in modular units. You don’t want to jeopardize the mission by creating excess capacity, excess costs, or excessive requirements for outside capital. And you don’t want to jeopardize sales by being forced to charge higher prices just because you have higher costs. (You may choose to charge a higher price based on your positioning, but as far as possible this should be a marketing choice, not a manufacturing requirement.)

If the mission does not require you to own your own manufacturing facilities, outsourcing may offer significant advantages without jeopardizing your social and/or environmental commitments. You simply need to make sure that those commitments are reflected in your outsourcing requirements. If you can’t find (or create) vendors that can meet your standards, then perhaps your mission does require you to do manufacturing — and you just hadn’t realized it! In that case, you want to be sure the business side of the equation will support your environmental and social goals at a scale on which you can afford to build and operate.

You can buy the book here. It’s a fast, affordable read and will show you other ways to operate. Maybe corporations can be people.