Don't throw the know-how off the plane

The scene is Logan airport in Boston. People are boarding one of the three British Airways flights to London. The strike is over and the airline schedules are back to normal. But when they board, instead of the usual blue and grey colour scheme, they notice a different decor. The cabin crew has changed too: they are cheerful Americans. So has the plane: BA, struggling to get back to normal after the strike 10 days earlier, has "outsourced" the flight to a US charter firm.

Part of the row that BA has had with its staff has been over outsourcing. Quite aside from the dispute with its cabin crew, it wants to outsource the remaining bit of its catering for, unlike most airlines, it still prepares about a fifth of the meals it serves. But in this instance it had outsourced the whole flight. All it had provided was the computer reservation, the brand name and the billing service. Meanwhile, it has been spending money repainting its tailplanes with symbols supposed to emphasise its global nature instead of the truncated version of the Union flag. To say this is not to get at BA, for what has been happening is simply a good example of a worldwide trend. Everywhere large companies are cutting back to what they suppose to be their core businesses, while at the same time trying to establish their brand globally.

The twin trends of outsourcing all but core activities and trying to build global brands are both so powerful that people are wondering where it will all end. Will companies get to the stage already reached in Hollywood where studios are mere bankers and distribution agents, buying in everything from the stars to the stories, hiring sub-contractors to make each movie, but then selling the product worldwide?

When a trend is so strongly established, almost invariably there are economic forces at play. Companies are not putting themselves through wrenching change because they like it. They are doing it because economics requires it. Understanding these forces gives a clue as to how far the trends will go. The first force - outsourcing - is a result of the increasing specialisation of economic activity. The knowledge required to do something well has become much more specialised than it was, say, 20 years ago.

Take the example of meals on an aircraft. The quality expected now is higher than it would have been a generation ago and the price of air fares has tumbled. The result is a squeeze on costs. There is no reason why an airline should be good at running a catering business; after all, no one expects an airline executive to be good at running a restaurant. So a few specialist caterers have developed the knowledge of how to create appropriate meals at a reasonable cost, and since they work with several airlines which set different criteria, know more about the business than any individual airline could ever know. Outsourcing is driven by the need to buy specialist knowledge, not just to cut costs. That is one example. Multiply that thousands of times for there are thousands of competencies that no firm can have in-house.

Now take the force of globalisation. Here there are several drivers. One is the global growth of the middle-class. The fastest-growing markets for many products are in east Asia, where there has been an explosion of people with enough spending power to be attractive customers. There are enormous benefits to any company which is able to build a brand that can reach these people, partly because brand image enables it to charge a premium but also because the image becomes self-reinforcing the more global it becomes. You can see this best in McDonald's, where an unremarkable product can charge a premium in foreign markets even though it is discounting in its home one.

Another driver is the added value of running a network. An air route become more valuable if it connects to others, hence the popularity of Heathrow over Stansted or Manchester over Liverpool, and of course the explosion of code-sharing. In the case of BA, painting tailplanes differently is designed to make it more international. Presumably the aim of that is to make a more natural link for other airlines. Combine the need for specialised knowledge and the value of global brands and you can begin to see the limits to outsourcing.

In the case of BA, it can get other people to service its planes, provide its meals and so on. But it keeps the brand image, suitably modified, the routes, and its own customer knowledge.

It is astounding how much information people are prepared to give about themselves if they are offered incentives. People on frequent-flyer programmes give an enormous amount of information, with the result that airlines can not only deliver a special quality of personal service, but can also cross-sell other products like health insurance. Of course, BA knows how to run an airline, but even if it didn't it could hire people who do. But it could not easily buy in slots at Heathrow, and there is no way it could buy its network of customers, details of whom sit on its computers. This gives a clue as to the limits of outsourcing. Strip away everything else and there will be at least three things left.

First there is a core of knowledge in a company which is not easily replicated. It could be to design better mobile phones, discover new oil fields or provide cheaper and better meals. The knowledge is probably in the heads of a few people, and woe betide the firm that fails to reward them. The wise company will keep them by providing an environment where they can excel.

Second, companies will retain a brand. Brands become more important, particularly when they are part of a network. But there will not be just a few global consumer brands, there will be rapid growth of specialised brands, known all over the world by people interested in the product or service. As information becomes almost infinitely available via electronic communications it will become possible for any company with real excellence to sell itself globally. Of course, most will not succeed. But I think we will see more mini-brands achieving global reach. Indeed, you can see this in the entertainment world. With the possible exception of Disney, people do not identify with the studio which produces a film. That is the big brand. Instead they identify with the mini-brands associated with the movie, the stars.

Third, companies will keep customers. A mailing list, a loyalty club, a databank of people's preferences, a billing system - all these become important. You can have a virtual company, but you must have real customers. So firms which have a continuing relationship with customers, even if it is just through a quarterly telephone bill, will endure.

Over the past generation, the world economy has been transformed by specialisation and globalisation: the first force is behind BA's outsourcing of meals, the second behind repainting its planes. The next big force is the infinite availability of information, in particular information which reinforces the loyalty of customers. If it were wise, BA would worry about the extent to which it has damaged that loyalty by sticking people on other people's planes at, among many other places, Logan airport.

News
news

Emergency call 'started off dumb, but got pretty serious'

News
people

Britain First criticised for using actress's memory to draw attention to their 'hate-filled home page'

News
Russell Brand was in typically combative form during his promotional interview with Newsnight's Evan Davis
people

Thought you'd seen it all after the Jeremy Paxman interview?

Arts and Entertainment
On The Apprentice, “serious” left the room many moons ago and yet still we watch
tv

Greatest mystery about the hit BBC1 show is how it continues to be made at all, writes Grace Dent

PROMOTED VIDEO
Voices
Funds raised from the sale of poppies help the members of the armed forces with financial difficulties
voicesLindsey German: The best way of protecting soldiers is to stop sending them into conflicts
Arts and Entertainment
A scene from David Ayer's 'Fury'
film

"History is violent," says the US Army tank commander Don "Wardaddy" Collier

Arts and Entertainment
Liam and Zayn of One Direction play with a chimpanzee on the set of their new video for 'Steal My Girl'
music

Animal welfare charities have urged the boy band to cut the scenes

News
The Edge and his wife, Morleigh Steinberg, at the Academy Awards in 2014
peopleGuitarist faces protests over plan to build mansions in Malibu
News
peopleFox presenter gives her less than favourable view of women in politics
News
George Clooney and Amal Alamuddin married in Venice yesterday
peopleAmal and George Clooney 'planning third celebration in England'
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Keira Knightley at the premiere of Laggie at Toronto Film Festival 2014
theatreActress 'to make Broadway debut'
Property
One bedroom terraced house for sale, Richmond Avenue, Islington, London N1. On with Winkworths for £275,000.
property
Sport
Erik Lamela celebrates his goal
football

Argentinian scored 'rabona' wonder goal for Tottenham in Europa League – see it here

Voices
Nigel Farage has backed DJ Mike Read's new Ukip song
voicesNigel Farage: Where is the Left’s outrage over the sexual abuse of girls in the North of England?
News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

CTO / Chief Technology Officer

£100 - 125k: Guru Careers: A CTO / Chief Technology Officer is needed to join ...

COO / Chief Operating Officer

Competitive (DOE): Guru Careers: A COO / Chief Operating Officer is needed to ...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker