Marketing Activities: Outsourced vs In-House?
According to the 2016 Gartner Marketing Organizational Design and Strategy Survey more than half of marketing leaders say their current marketing organization relies heavily on agencies and third parties and only 19% have a strong in-house focus. Lack of Internal Team Coordination and Skills Gaps are the sources of multichannel struggles for nearly 40% of marketers. One-third of marketing leaders say they'd like to strike a better insource/outsource balance.
On the other hand, after a positive turn in 2015, the client/agency dynamic has hit a roadblock with the number of agencies reporting relationship improvements falling from 70% to 53% according to 2016 Digital marketing outlook by SodaReport. This is likely due to an increasingly competitive landscape, where clients work across multiple agencies and are feeling more and more pressure to not only produce successful marketing campaigns, but to also “out-innovate” their competitors in areas that are still relatively new, like digital experiences, customer lifetime management and mass creativity.
The most common functions for outsourcing? Content development and social engagement, strategy development, analytics or monitoring, design work, and campaign or multichannel execution.
Meanwhile, more and more businesses are opting to move at least some of their marketing functions in-house. Based on RSW/US 2016 Marketer Agency New Year Outlook Survey responses agencies may be underestimating the potential shift to in-house work.
When asked about their expectations, nearly a third of agencies indicated they thought they would see a moderate to large shift in work going in-house. From the Marketer perspective, 46% foresee such a shift.
Simplistically, there are two types of agencies: creative agencies that generate your key messages and content, and media agencies that run your campaigns and spend your media budget.
Creative agencies these days go wrong when they think they can still charge you $1 million for coming up with a 30-second TV ad that takes six months to produce. That slow, mass ‘push’ marketing model is obsolete. As the world of marketing gets closer to 100% digital, it’s about precision targeting of different messages to different customers, combined with high-speed listening, learning and iteration.
Media agencies go wrong when they push media dollars towards the areas where they make the best margins or require the lowest opex (typically TV, print, outdoor, radio and their own digital trading desks) as opposed to recommending the media that delivers the best ROI (typically search, social, email and digital video) in order to make higher margins for themselves from your media spend.
Advertising agencies can survive …. if they evolve. Forbes got it right in a May 2015 article that reported, in no uncertain terms, that the “agency of record” is as dead as the dodo. Instead, a much more complex organizational model is required, which will definitely mean advertisers doing more in-house.
Major corporations like Frito-Lay are moving to a “project” model, where instead of hiring one jack-of-all-trades ‘generalist’ agency for several years, it contracts specialists as needed to address a specific marketing activity, from collateral design to SEO. They are effectively becoming their own agency of record, then outsourcing execution of activities that require specialist skills or technology. That approach has its own problems, of course. Your team would need to have enough bandwidth to screen, select and brief third parties properly, assess their quality, and regularly shop around to see if you’re missing something. But even with that, the project model is agile, adaptable and efficient. You can maintain a strong in-house creative core, then mix and match creative agencies for different concepts. You don’t need a five-year relationship to get brilliant work, because today’s model is all about rapid innovation, trial and error, and seeing what works.
When you’re trying to make your decision on which third-party to use, one thing you can do is ask agencies and/or third-party technology companies to do what are often called “bake-offs”. Not enough people do these, in which you give two or more vendors the same campaign to complete, and assess their performance in terms of ROI, speed, insights, service level, etc.
For example: if you don‘t know who’s going to be best at, say, acquiring customers through Google, running efficient video campaigns, or driving mobile app downloads, you put out an RFP and get potential vendors to submit their proposals. You then winnow the contenders down to your favorite two or three companies, and give them a similar campaign to run and see who does the best job. How quickly did they get set up? What cost-per-action (like for like) did they achieve? What engagement levels did they drive? What customer insights did you get from them? How do you like working with them?
Here are some guidelines regarding the in-house versus outsourcing decisions:
“Should I outsource?” decision depends on many factors. The key messages are as follows:
Change is Constant: Marketing technologies and options available are constantly changing, as are your needs. So you should be constantly challenging what you do in-house versus what you outsource, and fine-tuning your operating model. “Because it has always been like this” is the lazy answer to organizational questions.
Key In-House Activities: Some activities, such as managing your customer data, media planning, plus tracking and analyzing ROI, should always be in-house, due to the strategic importance of these functions, and the need to keep the ecosystem honest.
Vendor Selection: This is a critical skill set going forward, and shouldn’t be delegated to an agency-of-record, but conducted in-house. And don’t forget to make use of regular bake-offs.
In-House Headcount: All of the above points are likely to lead to an increase in your marketing team’s headcount, unless there are some other activities that you can cut. However, these hires will deliver massive improvements in marketing effectiveness, efficiency and overall ROI. This in turn should enable you to reduce your costs for third-party fees and media spend, which more than offsets the costs of your new hires. Many CMOs that I have discussed this with are paying for the extra headcount with media money from reducing the analog media spend (e.g. TV, print) that was targeting the wrong consumers. Typically, there are a LOT of wasted dollars there.
Don’t take forever to get started on these changes. There are typically some obvious places to get started, such as bringing media planning and analytics in house. Other decisions are more complex, but it should be possible to work out your entire approach within three months, then maybe 9-12 months to execute. That will set you up for success for some time, but never be complacent – no organizational structure will last for long ….