According to a recent survey by the Association of National Advertisers (ANA); “More companies are leaning on in-house resources for their marketing needs in place of external shops.” In fact, the survey showed that the “penetration of in-house agencies shot up to 58% in 2012 from 42% in 2008.”
While there are many reasons that might prompt an advertiser to consider such a move, ranging from budgetary pressures and content ownership rights to responsiveness, “cost efficiencies” were cited by 88% of the ANA survey’s respondents. A recent announcement from Apple reinforces this trend. Apple indicated that it sought to bring more of its advertising in-house, hiring outside creative talent, including “senior level creatives known for innovative work” to bolster their in-house design team. Of note, Apple indicated that this group could grow from 300 people today to over 500 in the near-term.
While the notion of “cost savings” may sound alluring, advertisers should tread cautiously in this area. Boosting headcount comes with its own challenges, risks and costs… some of which may be transparent and others that may be unknown. Perhaps the first question to be asked is; “How do you know whether or not moving work in-house will yield savings?” Validating this hypothesis would require that the advertiser has historical information on “what it cost” to execute work utilizing their advertising agencies; a level of detail that goes well beyond agency billings, agency labor hours and bill rates, and studio rate sheets.
As part of the discovery process for analyzing potential benefits associated with transitioning work from agencies to an in-house staff, advertisers may want to consider gathering very detailed project time and costing information.. This would include securing answers to questions such as:
- What are the typical project lead-times provided to the agency by the various client stakeholder groups? What would the impact on lead times be in an in-house model? Would there be efficiencies and and thus cost savings by adjusting the cycle? Can this be achieved in-house?
- What about project turn-around time parameters?
- Does the separation between client and agency cause communication issues and re-work? At what cost?
- What % of the work is highly complex? Moderate?? Or Simple? What are the costs for each category?
- What is the cost of innovation vs. adaptation? Should an agency relationship be maintained for one or the other?
- What level of staff proficiency/ experience is required?
- And MOST importantly, can creativity, and overall advertising effectiveness be continually improved in an in-house model?
For many advertisers, this type of data may not be readily available from the project tracking and summary documents utilized by your agencies today.
Thus it makes sense to identify the key decision making criteria which will be utilized to benchmark any efficiency gains tied to bringing work in-house. Once identified, there are at least two avenues an advertiser can consider:
- Go Forward – Amend current project tracking reporting to incorporate measures which support the aforementioned decision making criteria and monitor performance against those criteria for a pre-determined period of time.
- Historical – Work with the agency to conduct a review of project activity over the course of the prior 12 to 24 months to establish an historical database of information to aid the organization in preparing a “business case” for such a move.
Depending on the timeline for the decision, the “Historical” approach may prove to be both more practical and will likely yield a more accurate perspective on organizational behaviors which can impact project costing.
So, “Where to begin?” you ask. It may be a worthwhile investment of time and resources to engage an independent consultant to work with you and your agency to accumulate this information. Of note, most client-agency agreements afford advertisers access to the data necessary to conduct a thorough audit of past project costs (i.e. agency fees, time-of-staff, 3rd party invoice detail, in-house studio charges, etc…). The key then becomes conducting a comprehensive analysis of the DATA, timeframes, time value of money, vendor costs, studio costs, labor costs, overhead costs, etc., rather than “hard copy” assessment of a limited sample set of projects, which is necessary to make an informed decision across the hundreds if not thousands of jobs initiated/ completed on an annual basis.
Armed with a detailed, historical perspective an advertiser will be able to accurately assess if the “efficiency gains” are substantial enough to warrant a further examination of building out an in-house resource.