Well in the world of outsourcing, we have forgotten that a lot of things that have become industries in their own might were supposed to be done in-house, like, let’s say, accounting or waste management or training etc. But as the complexity and the scale of things got bigger, we sought help from other people to get it done for us. And thus we ended up creating a lot of huge industries.

We are approaching a period where AI might cross the threshold where it is able to do a lot of work that humans do that is not that complicated but requires some reasoning. It is becoming something that can deal with volume and complexity. That means a lot of outsourcing that needed to be done need not be done anymore. There are a lot of industries that thrive on outsourcing might suffer. These industries grew enormous precisely because the gap between what organizations could do internally and what they needed was wide enough to sustain whole ecosystems of specialists.

So whatever was being outsourced can be in-sourced now! It is true for software that we were having a lot of SaaS applications now. With agents you might be able to do a lot of things on your own soon enough, with a reasonable scope of error. So I think this is an era of great insourcing and a lot of things that were dependent on outsourcing will suffer but that means a lot of costs are also going to go down that were associated with it.

A good mental model to deal with this paradigm would be to imagine you are 200 years back in time. The government said, ‘Hey you will need to do everything in house but you get this little guy to help you out and he can do anything.’ What business do you do then? An easy cop out in the past was that, hey, I will do things that people might not want to do and want to outsource. In the era of insourcing how do you create value?

Value creation in the era of insourcing.

Damn, someone give me the title of being father of this term.

Well back to the thought experiment. If this little guy can get anything done for you, then basically you can do anything. A lot of people also have this little guy so everyone can do everything. Now it becomes the question of relationships because anyone can do anything so why not get it done by someone you like?

I think after everything is being in-sourced, there will be a few value creation activities that are kind of independent of each other yet interdependent for their supply chain. The N of organizations existing would be lower than now I think. So this will just lead to cartelisation.

we can say that taste might be a scarce resource that people would want. In future I would go after people who have good taste because anyone can do anything but a person with good taste can get good things done, right? But taste come from trust that this association wont spoil my social status. So everything is converging down towards relationship.

Let’s imagine a world where there is no commerce at all and all the humans can do the same things, right? We all can count to 100; we all eat; we all breathe, whatever. In this world capabilities are almost the same but still associations will emerge based on group dynamics. So in a world where we are insourcing everything and everyone has almost the same capabilities, we all herd together towards a gravitational point. And that gravitational point is not capability but belonging.

In the human thought experiment, people will start belonging with each other because as factions rise we need protection from each other. In terms of the insourcing world you will forge relationships so that there can be reciprocal transactions; that is, you buy from me and I will buy from you so that we both can survive.

Like the insourcing world has reduced the operational cost but has increased the relationship risks by a lot. Businesses are going to have way greater key man risk than before. Because the man is bringing the business not the capabilities. McKinsey survives the exit of any single partner because the methodology, the brand, the network is larger than any individual. But in future as they employ more and more AI agents and reduce their total head count, each person becomes that much more valuable and the key man risks keep increasing.

The real scarce resource is not capability or even belonging. It is the next stage of belonging, that is, reciprocal relationships where things actually get exchanged first hand or because of others you get introduced to. A very political world, I would say.

Maybe your technical capabilities will not matter; the products in your inventory won’t matter but actually what matters is your social inventory: how many sponsors you got in your pocket, how many introductions you can fetch and how many exchanges can you make happen? It is all human. The era of outsourcing brought great dehumanization in the world. The repetitive tasks, the alienation from one’s own work, really did a lot of damage but I think we are returning back to normalcy. You are connected to your work and the people you transact with. It is no longer onshore, offshore, or 50 promotions away.

Back in the day it was, I guess, cost arbitrage or capability arbitrage that “Hey I can do it cheaper or better than someone.” Since everyone can just do it in this hypothetical world, the arbitrage is that “Hey I know a lot of people. I would rather get something done by my friend than a stranger in this world.”

Like imagine you are hiring and you conduct a test and everyone gets 100 marks in it. Who are you going to hire? What are your selection points? I bet it’s going to be something social, like:

• Hey, this guy is pleasant to be around.
• Hey, I feel safe around this guy.
• Hey, I trust this guy.

I believe we all know that it is easier to re-sale to an existing customer than to sell to an entirely new one. I think the same happens with social relationships also, that we double down on people we know than on strangers.

Being known is a really really really good thing in the coming era.

Also if anyone can do anything then it also becomes a question of trust. Even in the current world, anyone can be honest but some are not. Same carries over in that world also that, in exchange for payment, does someone do the thing? There are a lot of things in the world right now where anyone can do it but some don’t even if they say they will do it. We have to heavily rely on the vibe or judgment of a person we have.