When should a business contract for work rather than building it in-house? The common wisdom is to contract when it’s not a core competency, and build in-house when it’s the core competency. For example, a shoe store should use square and stripe for payments rather than building its own payments technology. This is good wisdom, but we can do even better.
In addition to building core-competencies in-house, the best companies also keep accountability for the entire product experience in-house. Accountability means that the company both feels responsible for fixing bad experiences and has the agency to actually fix them.
A classic example of doing this well is Patagonia’s ironclad guarantee. Bring a torn or worn piece of Patagonia gear into any store and they will repair or replace it as needed. Contrast this with most electronics companies who contract out with authorized repair centers and 3rd party warranty plans. While warranties may seem distinct from the core product, the warranty is the product because when things go wrong, they don’t go wrong with the warranty, they go wrong with the product.
Wait, you might say, what about so many iPhone users who have a warranty from their carrier, not from Apple? Isn’t that an example of contracting out a warranty that works well in practice? Yes, and this is an interesting wrinkle. Your phone manufacturer and your carrier both have a vested interest in you having a wonderful experience with your warranty claim because having a working phone is a part of providing a great phone experience. And so in this case, the carrier will have both accountability and agency.
Where this breaks down is contracting out with a company whose only job is insurance. Example in point: Assurant & Google Pixel. When something goes wrong, Assurant doesn’t have much of an incentive to make things right, and even though Google might want to make things right, they don’t have the agency to do so because it’s been contracted out.