Not so long ago, agencies were classified using an imaginary line, whose origins stemmed from 19th century accounting terminology1. In recent years, that divide has almost disappeared, as ‘below-the-line’ operators have railed against the snobbery of the terminology and ‘above-the-line’ shops have rushed to proclaim their integrated credentials. However, a new line has emerged and it has both profound and practical implications for agency models going forwards.
The new line describes the degree to which an agency outsources or not. Of course this is a question which all businesses have to wrestle with these days, typically for cost-related reasons. But for marketing services companies, it has been exacerbated by two additional issues.
The catalysts On the one hand, there has been a growing demand from clients for more joined-up advice. Marketers have seen the fragmentation of media and channels, spotted the danger of inconsistent brand experiences across the customer journey, and become frustrated with agencies’ traditional silo structures. This has, in turn, prompted many agencies to bring a much wider range of skills in-house, so that they can offer a more holistic view.
On the other hand, there has also been a growing demand from clients for specialist skills and advice. Marketers have recognised that the very fragmentation described above makes it very difficult for any one company to do everything equally well. This has, in turn, prompted other agencies to adopt a much looser model, whereby only a core management team is retained, and other specialists are pulled in, on a freelance or subcontracted basis, depending on the task in hand.
The pros and cons The interesting thing is that each agency model has a strong rationale, underpinned by cultural trends and client demands.
Advocates of the in-house approach argue that they can exert much greater quality control over the thinking and creative product, by keeping them close to home. They even claim that they can offer better value, by removing the need to relearn for every project, stripping out duplication and third-party overheads, and avoiding hefty freelance fees.
Meanwhile, fans of the outsourced approach (often called the ‘Hollywood model’ as it mirrors the way in which studios assemble teams) reply that it is actually they who can provide better quality, by picking from a wider pool of talent. Similarly, they claim that it is they who can achieve keener value, by paying for people only as and when they need them.
So which side is right? Well, both and neither. And that’s where the line comes in. Where do you draw the line? The truth is that the polarisation which I’ve described above doesn’t really exist. No agency in the world seriously claims to offer every single marketing service, equally well, under one roof: there will always be some discipline which they lack for one reason or another (be it data, media planning, web build, search, PR or whatever).
Likewise, no serious player advocates the outsourcing of everything: while a handful of virtual creative agencies have sprung up, they do not look like achieving mass any time soon, and in any case tend to retain some form of central editorial control, at the very least.
"As with most things in business, the winners will be those who are flexible enough to adapt. But the challenges are not going away, and they will impact on everything"
Instead of two opposing camps then, there is really a much subtler spectrum of approaches. Nobody operates a purist model. Everybody is somewhere in the middle, trying to figure out exactly where to draw the line. There is no wrong or right answer, but there are some key considerations which agencies should mull over before adopting a stance.
Some other considerations The first factor to take into account is perhaps agency size and life cycle. Unless they are blessed with wealthy backers, start-ups will naturally gravitate towards a more outsourced model because they have neither the workload nor income to justify a host of in-house specialists. More established agencies may well incline to the opposite point of view, in an attempt to generate economies of scale from their existing workforce.
Related to this is the question of cost. Certain disciplines need heavier investment to set up than others – media buying being the classic example because of the systems required, data analysis being another. Even established agencies may baulk at these costs and prefer to outsource instead.
In contrast, other services may command relatively high fees and margins (brand consultancy, for instance), making them more desirable to bring in-house for financial reasons.
Another key factor is, of course, client needs. Whether agencies like it or not, the people who pay the bills will also have a major say in where to draw the line.
Smart shops will have a constant eye on the ever-changing needs of their clients, anticipating the need for new marketing services but also – crucially – deciding whether these needs would be best served in-house or externally.
Honesty is the best policy here. History is littered with agencies who have overclaimed about their internal capabilities or, at the other extreme, outsourced too carelessly. Either way, the truth will out, so it’s better to take an objective stance in the first place, based on the client’s best interests.
Last but by no means least, there’s the agency’s vision. For instance, a start-up’s founders may simply believe that a particular discipline must be kept at the heart of the agency, regardless of size, cost or current client needs.
Alternatively, a more established company may resist the temptation to take a service in-house, despite the financial possibilities and client demands, because it might change the culture for the worse.
These are principled positions which are often subsumed by the first three, more pragmatic, factors. However, this is exactly where they derive their power: by taking a visionary stance, in spite of more practical pressures, an agency can differentiate itself and prosper in the long term.
Keeping an open mind It should be obvious from the above that each agency must decide for itself where to draw the line, on a discipline-by-discipline basis. But just as importantly, it must continually review this position as circumstances change.
A new hiring may bring specialist skills in-house (or a departee might take such expertise away, and not be worth replacing). A client win or loss could be equally telling. Relationships with external partners might improve or deteriorate. Technological advances might change the relative costs of in-house and outsourced options.
As with most things in business nowadays, the winners will be those who are flexible enough to adapt. But the challenges outlined above are not going to go away, and they will impact on everything from hiring policy to remuneration, creative approach to office design.
So even if your line is drawn in the sand, rather than carved in stone, you will still need to draw it somewhere.
Andy Nairn is chief strategic officer at Dare, and head of punning
1. The precise origins of the phrase are lost in the mists of time. Most writers trace it back to the different sections of a balance sheet, although others claim the phrase had its roots in film-making.