From another angle, this is also a parable about outsourcing and how it is reshaping large swaths of the economy.
Jeff Ellis, it turns out, is something of a pioneer in the lifeguard business. He started out as a consultant to water parks, clubs and municipalities, training lifeguards and performing annual audits of equipment and procedures that include simulated drownings to test the guards and the equipment. Today that business has nearly 700 clients in 50 states and 14 countries. Insurers have been known to give discounts on liability policies to operators who use Ellis’s services.
About a decade ago, Ellis moved to extend his franchise by offering to hire, train and manage lifeguards for water parks, municipalities and pool owners that wanted to outsource that function. One of his first customers was Hallandale, which had up to that time put beach protection operations under its fire department. In the first year, Ellis says, his company cut the city’s annual $700,000 tab for lifeguards in half. In the nine years since, Ellis says there have been no drownings and his contract has been routinely renewed.
Hallandale is like many public and private enterprises that decided to outsource to contractors work that is not part of their core missions or competencies.
Because they are generally free from union contracts and the unwritten norms of pay equality that exist within any enterprise, contractors are able to pay lower wages and benefits — in many cases, a lot lower. That was certainly the case with Ellis and the Hallandale lifeguards.
The second big advantage that outsourcing firms enjoy is the economies of scale. A firm that specializes in one function and does a lot of it can generally do it at a lower cost simply by spreading fixed costs over a much larger base of business.
Simply by having more experience, a specialty contractor is also more likely to hit upon the most efficient and effective ways of doing things and can quickly adopt those improvements throughout its operations. Unlike in-house operations, outside contractors are also subject to the discipline of competition when contracts are up for renewal.
There is, however, an important trade-off that is made by outsourcing that contractors reflexively deny but is inherent in any firm that derives its competitive advantage from having carefully constructed systems for doing just about everything.