The Power And Paradox Of In-House Agencies

Data-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by Chris Ross, VP analyst at Gartner.

There have been plenty of splashy headlines in recent years about big brands launching or expanding in-house agencies with the aim of reducing agency spending and shifting work to less expensive internal resources. Costs aren’t the only factor, but the bottom-line is usually a driver.

But how prevalent is the in-house agency model?

Recent research reflects that 34% of organizations are operating an in-house agency, and a whopping 32% of marketing work is shifting from external agencies to in-house resources. Social media, creative, video, PR, media and other disciplines are the most common types of work moving from agencies to internal resources. In-house agencies and the shift in work is very real.

Cue the “agencies are dying” storyline …

But not so fast – there’s more to this story.

Marketers still value and spend a sizable chunk of their budgets on agencies. To be precise, marketers spend 23.7% of their budgets on agencies, slightly up from 22% in 2019. What gives? How can a 32% shift in work away from agencies to in-house resources and a consistent and significant level of agency spend both be true?

Part of the answer can be tied to the evolution of marketing into a much wider and deeper collection of disciplines and responsibilities. It’s common for a modern CMO to carry the full suite of traditional marketing responsibilities and also lead innovation and customer experience initiatives.

Underpinning all of these new functions is the need for a much more complex and intimate understanding of data, technology, brand, customer behavior and marketplace dynamics. And as if that wasn’t enough, the breakneck pace of change in virtually every area compounds these challenges. The magnitude of the CMO role, and the pressures on marketing organizations, are substantial.

Some agency capabilities are evergreen. Agencies have always been in demand for specialized skills, providing a flexible source of additional marketing capacity, and as an incremental team to lead larger initiatives beyond what existing staff can support. On-demand talent augmentation is not a need likely to go away any time soon.

Agencies are holding on, for the moment, while the in-house agency movement continues to evolve with mixed results. There are without question plenty of success stories where brands have realized both financial gains and improvements in quality and responsiveness. But with all the successes, there are also many stories of disappointing or underwhelming in-house initiatives. It turns out, running an agency, no matter where it may reside, isn’t so easy.

Without strong agency-style engagement, resource alignment and project management skills, many in-house agencies follow the same predictable and difficult path of a badly managed agency. They burn out high performers, struggle to meet client requirements and subject everyone to a chaotic environment. There’s no magic in the agency model if it’s not run with the rigor of a high-functioning agency or consultancy.

Marketing leaders considering or evolving an in-house agency should:

Operate like an agency – Use agency/client style engagement and planning models. Don’t just be agency-like in name; use the processes, workflows, and work styles that make high-functioning agencies effective. This includes clear documentation, agreed upon scope and deliverables and clear project ownership and accountabilities.

Manage internal client expectations – Moving from shared resource models to in-house agency models can create resource disconnects. Internal clients often need to be trained that just like an external agency, there is a “price” for every request. Change scope with your external agency and reasonably you’ll be asked to cover incremental costs, deal with timeline shifts or be OK with quality changes. Internal clients need to understand that in-house agencies are not free and infinite wells of capacity.

Be realistic about agency management and operation – As with any agency, good people are hard to find and keep, client demands shift frequently and work and resources need to be continuously calibrated and aligned. Effectively running an agency is not for the faint of heart.

Don’t count on huge savings – Yes, some organizations do see financial gains, but for many those gains are consumed by additional management, staffing and overhead costs.

Marketing organizations are evolving to look and operate more like agencies regardless of what label they use to describe their structure. This agency-like behavior is being woven into the fabric of marketing teams’ everyday operations right now. Work is shifting, and marketers are seeing success and struggles with the in-house agency model. In-house agencies are no silver bullet, but a model and mindset that will shape the modern marketing organization for years to come.

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