Thanks for this! Most of what you wrote here matches my experience and what I've seen grantees experience. It often feels weird and frustrating (and counter to econ 101 intuitions) to be like "idk, you just can't exchange money for good and services the obvious way, sorry, no, you can't just pay more money to get out of having to manage that person and have them still do their work well" and I appreciate this explanation of why.
 

This post, written by somebody at Wave, argues that you should outsource even less than this post argues for in many cases. I found it interesting so wanted to link it here.

I get that outsourcing doesn't work for core competencies but why does outsourcing not work for operationally unimportant activities? Basically I'm confused by the bottom-left quadrant.

I saw this title and assumed someone was making a public criticism of CEA.

Then I saw it was written by a present CEA staff member. 

And I thought "Wow, creative way to get changes made at your organization." :D

Thanks for writing this Ben.

I find these kind of post with structured line of your reasoning very impactful and I would recommend people here to share it with other people in management roles that may skip this post.

I encountered a lot of examples of organizations doing optimally for themselves when not internalizing this concept. This is especially tricky when outsourcing can give you benefit in the short-term, but is negative in the long-term. I often found this to be case in groups that outsource some legal counseling, people operations, marketing or fundraising.

Two more points.

1. On trading money for work

There is similar point made by Holden Karnofsky in 2013 for GiveWell - We can’t (simply) buy capacity.

It's more about just spending money to hire people, but not only and lists things that can be outsourced:

Generally, we’d say that it’s easier to “trade money for capacity” when:

• The work we need done – and the expectations around what constitutes good work – is clearly and explicitly defined.

• The work we need done is similar enough to work that is done elsewhere that we can, relatively easily, look at someone’s resume and credentials and assess their likelihood of being able to do it.

People who found this post useful may found the link helpful.

2. On core competencies

You write:

If we are able to outsource everything which is not a core competency, this raises the obvious question of what our core competencies are.

In particular: I think there’s a temptation to say something like “CEA’s core competency is in understanding EA’s, not writing code, therefore we can outsource the code writing bits.”

I think this temptation to declare something not one's core competency comes from some kind of bias that groups have. It makes people not want to do things that are not natural for organization's ethos. It reminds me a bit of points made by Paul Graham in Do things that don't scale that engineers want to code not to run their sales which he thinks is a wrong approach:

you can't avoid doing sales by hiring someone to do it for you. You have to do sales yourself initially. Later you can hire a real salesperson to replace you.

So IT companies want to code, advocacy groups want to campaign and effective altruism would probably want to reason how to do the most good. In my group we he had this when we started as investigative group, but fortunately realized quickly it wasn't working as intended.

I generally think it's dangerous to go path of outsourcing / buying capacity if an organization wants to be successful, so I think it would be good to have a heuristic that you should not outsource anything by default and then understand properly the cases where it's fine to outsource. Yet, I think the reverse is the default when I talk to some groups (although usually not from the EA space).

Perhaps a dumb question, but do companies tend to have an accurate picture of what their core competencies are?

I'm wondering if trying to outsource X and seeing that go negatively/positively might help update towards X being/not being a core competency. Or is there too much noise to update significantly in practice?

Just following the example from the post: did CEA ever try to outsource some product-related tasks? Are there any circumstances in which it would it make sense for you to do so even if it's a core competency?

Outsourcing a function is usually not binary.  For example, Red Bull's brand was actually originally developed by an outside agency https://kastner.agency/work/red-bull-brand and they still use a mix of internal and external marketing teams today.  Often internal teams at a company function serve as a bridge between the company and contractors.

With that said, I wonder if the people asking about outsourcing are thinking of it in the literal "employe vs contractor" sense that you covered.  When I have heard these debates I believe that people meant "If we have money now, why not hire non-EAs for these positions?".

I am not aware of any successful companies which largely outsource labor on their core competencies.

On the whole I think you are correct. However, things like restaurant franchising seem to push against this specific point a little. If McDonalds, Coca-Cola etc. had never thought of using franchises, they probably would have thought of running restaurants and making soft drinks as being core competencies. 

Very interesting, I like this idea! 

There are only two things that concern me:

- It seems that the cost of outsourced services is sometimes unduly inflated. Take, for example, legal services. Besides drafting contracts, the lawyer also informs the client about the risks associated with a particular activity and how to mitigate them. Unfortunately, this area is prone to lawyer abuse in the form of artificially generating problems which translates into higher costs. For this reason, I guess small organisations tend to leave this kind of work to administrative or management personnel, and larger organisations tend to hire in-house lawyers.

- Second thing is that generalists and junior staff sometimes tend to switch within an organisation into other positions, so for EA orgs, it could be an opportunity for spotting talent who has a good fit for working in, as you said, core competencies, which probably would not be possible otherwise.

I also quite appreciate the organization/management posts, as someone else commented above.

I'll also add that cultivating and retaining institutional knowledge with a regular team is already quite a task in itself, and sustaining sufficient ontological and practical coherence with contractors can lead to a lot of inheritance type issues. This kind of overhead cost can often be overlooked or trivialized, in my experience.

However, I can imagine a scenario where there could be the deliberate training of certain contractors to fulfill a particular ecosystem's common needs. For example, most EA organizations would benefit from legal work (amongst other things like accounting) supported by specialists that are at least sympathetic to the philosophy of the community. In which case the overhead cost of one organization taking on outsourcing might reduce the cost of another organization in the same community taking on the same contractor. This could make sense for the contractor too, because they can develop their own niche and get more clients. To coordinate this though would require exceptional sharing of learning/intel across the community, which warrants more writing than this comment can serve.

Accounting for "overhead", or higher order costs/gains that a lower order action may create, is really interesting to me. I hope there'll be more discussions in the future.

Just curious, has CEA ever hired/talked to a management consultant about all of this? I think it would be more persuasive to some people if you said “we hired/contracted a management consultant to discuss the situation and they largely concurred, saying that we can’t contract out our core competencies even with a funding overhang” rather than the “proof” (which TBH I thought was a bit silly) and the appeal to common practices in business (although this would be a good supplemental explanation).

Ben_West  thanks for this text. I have some examples of outsourcing work in our organisations. And even when sometimes they are for free, for me as a Project Manager it is an additional cost, mostly time which is precious in NGO. Communication and trying to explain what is matter for us is sometimes very complicated, especially if someone wants to contact by mail. From last cooperation we did many improvements, like for example adding people to our slack and explaining the way we work in IT (even about code to not have broken windows after cooperation like that). But I still think that outsourcing should be rethought twice to not have more work than less. So thank you for your view for this topic.

An activity is a core competency if it provides substantial value to the customer and is difficult for competitors to copy

I have trouble understanding this notion in practice, especially (as you've noted) from the outside it is often hard to tell what core competencies of companies actually are. For example, what is the core competency of Uber/Lyft if not the network effects of having lots of drivers and customers in one place? Other plausible contenders like "brand" or "UI" or "scalable software" don't seem quite right to me.

Upvoted! I find your posts on management very beneficial for our organisation. Thank you!

Yes! This. Thank you for writing.

I often get asked why LessWrong doesn't hire contractors in the meantime while we're hiring, and this is the answer. In particular the fact that getting contractors to do good work would require all of the onboarding that getting a team member to do good work would require.

“In order for an organization to successfully outsource work on its core competencies, those outsourced contractors need to be well integrated with the team: they need to attend all the meetings and retreats, be in the same slack channels, give and receive feedback on their work, etc. This means that successfully outsourcing work requires a lot of the same management capacity which having in-sourced labor requires.”

It seemed to me like the key variable you’re trying to highlight is management costs or something similar (while “core competency” is just an indirect/less-explicit way of referring to that), but perhaps I’m misunderstanding? Is there a reason you can’t just make the Y-axis “Demand on management” (or some other cost/resource)?

After all, it seems quite plausible that a company’s “core competency” could be something like “ability to effectively outsource work and manage contractors,” in which case the diagram doesn’t seem to make as much sense: much of the work is through outsourcing.

“Say that an activity is a core competency if it provides substantial value to the customer and is difficult for competitors to copy.” “I am not aware of any successful companies which largely outsource labor on their core competencies.[3] All companies outsource secondary priorities (e.g. use outsourced lawyers), and some will occasionally pull in consultants to help with specific initiatives, but I don’t know of any successful company whose labor force on their core competencies primarily consists of contractors.”

I think that appeals to successful business/management models make some sense at least to give some contextual perspective. However, CEA is not a “business” with “competitors” in the sense that 1) CEA’s primary mission involves producing large amounts of positive externalities, and 2) CEA is funded by grant makers and is thus less dependent on “customers’” (grant/service recipients’) funding.

Additionally, the situation seems to be a major funding overhang relative to talent, and one of CEA’s primary purposes is to improve the talent pipeline (e.g., by supporting community building).

Ultimately, in a competitive market, shoveling money at a “core competency” to attempt to scale up may indeed be unsustainable, especially if your primary value is money and if you have a competitor that will continue to profit and may use those funds to outcompete you later. A firm will not choose to indefinitely produce 200 widgets at a profit of $0 per widget vs. indefinitely produce 100 widgets at a profit of $6 per widget if it cares about profits instead of net widget production/sales. But in this context it seems that even if outsourcing some core competencies produces inefficiencies on a per-dollar basis (e.g., it requires hiring more managerial support such as secretaries even if their work is not as “efficient” as the average secretary), it might still make sense.

Of course, it might be the case that no (tolerable) amount of throwing money at the problem produces efficiency gains, I’m just trying to say that the appeal to standard market practices might not be justified if the reasoning is “they need to do this to compete/profit.”

TLDR: Outsource tasks that do not require critical thinking or lead to growth within EA to EA group-vetted contractors in emerging economies and encourage others to do so too. Require some understanding of EA ideas (e. g. intro program) for non-leadership tasks with opportunities for growth in EA-related work independence. Only highly engaged community members should develop strategies and lead thoughts and narratives.

1) Would you consider outsourcing to specialists with strong discipline-specific skills who are vetted by EA groups in emerging economies (Pakistan, India, ...)? This can reduce costs, increase efficiencies, and even enable people to run a part-time project alongside a full-time job, if the wage differential is 5x. 

The vetting may be key to prevent reputational loss risk related to the nature of EA work, for example if a graphic designer wants their suffering neighbors to be assisted first, regardless of the cost-effectiveness, or knows that a family celebration has to have meat (so reducing meat consumption is against families) (these are illustrative claims).

2) Why would you not employ EA community members (rather than non-EA freelancers), if there are those interested in such work? There may be persons in high purchasing power nations with low nominal wage alternatives looking for employment. Also, depending on the definition of an EA community member, this can be relatively facile (or affordable) to achieve (for example, if you pay someone (upon application to check if they are there for impact) to participate for 20 hours in the Intro to EA fellowship, also to increase their productivity).

Would you seek to employ persons looking for growth within EA, including within their specialization, or rather those who would have limited ability or willingness to further upskill? If this depends on the role, how would you ensure that persons who seek to advance EA are supported in such, those seeking to increase their employment compensation and security can do that while prioritizing EA work but being independent on it, and those seeking or able to just keep an entry-level position (e. g. data entry, online search) can do that?

3) How will you assess position core-competencyness requirements? I judge that this relates to the person's internalization of EA objectives (e. g. actually altruistic and seeking effectiveness) - but, perhaps the central meta-question is: what if someone can exhibit this internalization at work but all they care about is to have a good job to pursue their goals (such as happy family, buying a nice car, ...), what is their position within or around the community?

Relatedly, is there a list of some tasks that you would outsource to 'external' labeled contractors, less engaged community members, and highly engaged members? I would estimate:

External: field officer work of EA-related charities that does not require problem solving or critical thinking (such as distributing bednets, enumerating whether bednet is hanging, ...), data entry and management or personal assistance for EA non-decisionmakers and non-influencers (making spreadsheet look better, re-posting content, ...)

Less engaged: field officer work that would benefit from critical thinking on higher impact (e. g. enumerating whether bednet is hanging and seeing why people do not use them, what their priorities are and how they can be better assisted with equal resources), assistance to EA decisionmakers or influencers (e. g. making spreadsheets look better while learning about further possibilities to do good within the organization or its cause area, drafting content based on discussions, ...)

Highly engaged: strategic planning, thought, and narrative leadership (e. g. what should we do about regions that experience malaria and other issues that is most cost-effective but is also well-received locally, what kind of AI safety image should be designed to limit reputational loss risk of companies that profit from AI advancement for a poster, ...)

Regarding software projects specifically: Why not outsource fixing bugs rather than product development?