In-house agency or external agency?

Increasingly, brands are finding that they have a third option as a growing number of firms are specializing in setting up on-site agencies staffed with outside agency talent but integrated into the culture and operations of the client brands.

Here's a look at the advantages and disadvantages of in-house agencies and on-site agencies.

Benefits of in-house agencies

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Total integration is possible

When a brand builds its own in-house agency, it has the opportunity to align the capabilities of the agency to its needs in a way that is not possible with an external agency. In-house agency staff is truly a part of the brand and thus there is an opportunity to truly ensure that the agency culture and processes are matched with the culture and processes of the overall company. 

This is ultimately the biggest selling point of a brand's own in-house agency.

Talent is owned, not rented

An in-house agency is an investment that produces an asset a brand owns. Given the ever-increasing importance of marketing, particularly digital marketing, to brands, this is likely one investment that has the potential to deliver a significant future return.

Disadvantages of in-house agencies

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It can be harder to recruit and retain talent

When it comes to recruiting and retaining talent, particularly digital talent, brands are likely to find that they're often at a disadvantage over agencies for a variety of reasons. For example, many individuals who want to build careers in marketing prefer agencies, believing that they'll be more challenged and have greater opportunities to grow.

Cutting-edge knowledge and tools can be lacking

While brands are capable of building internal teams that are savvy and have access to sophisticated marketing tools, there are a number of reasons that in-house agencies often lack the resources of external agencies.

One of the biggest: lack of exposure. Because external agencies work with multiple brands, they are in many cases more likely to be up-to-speed with the latest industry developments and tools, giving them an ability to spot opportunities to bring these to other brands they work with.

Agencies are also more likely to have close relationships with third-parties, such as adtech firms. For small and mid-sized brands especially, the agency's relationships could be a boon.

In-house agencies can become insular

One of the biggest risks of setting up an in-house agency is that it will become insular.

The recent Pepsi protest commercial flub, which thoroughly embarrassed its new high-profile spokesperson, Kylie Jenner, is seen as some as an example of the shortcomings of in-house agencies. "It's a case study reminder of the importance of looking at outside voices and opinions on what your creative is," Matthew Quint, director of the Center on Global Brand Leadership at the Columbia Business School, told The Drum.

Obviously, brands don't need to hire external agencies to access outside voices and opinions, but for better or worse these are often the place brands turn to to get these.

Benefits of on-site agencies

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They can offer some of the best of both worlds

On-site agencies offer a middle ground between external agencies and in-house agencies. They give clients access to the kind of skill, experience and knowledge they value highly in external agencies, but the individuals who have that skill, experience and knowledge are also embedded in the client organization, enabling them, in theory, to better understand their clients' needs and apply their talents accordingly.

It's easier to build a quality team, and quickly

On-site agencies benefit from their parent agencies' talent pool, which they can pull from to assemble high-quality teams and in a much faster manner than clients typically can on their own.

Because recruiting talent, particularly across disciplines, is one of the most challenging parts of building an in-house agency, this is arguably one of the on-site agency's biggest selling points.

There is greater flexibility

One of the biggest benefits of an on-site agency is that clients have a much higher level of flexibility in all aspects of the arrangement and operation. For example, it's easier to change the composition of an on-site agency or negotiate the ability to scale up or down staffing levels as needs change.

This flexibility can help clients take advantage of short-term opportunities that would be harder to capitalize on if factors such as long-term costs and recruitment lead-times were taken into account.

Productivity is said to be high

According to Simon Martin, founder and CEO of Oliver Group, which operates a number of on-site agencies, claims "we typically save 30% against a traditional agency." A big part of that cost savings is said to be the result of higher productivity, which comes from having skilled agency staff embedded on-site with a client.

Disadvantages of on-site agencies

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The agency is rented, not owned

An on-site agency is like an apartment that is rented. In some circumstances, renting makes more sense than owning, but the long-term drawbacks are significant in this case. When a brand chooses to go the on-site agency route, it is not only spending money on something it will never own, it is also helping build the knowledge and skill of an external agency's staff – staff it is eventually likely to lose one way or another.

Mileage may vary

The potential benefits of an on-site agency aren't guaranteed to be realized. There are any number of reasons that an on-site agency won't live up to expectations. These range from poor parent agency-client fit to a brand's inability to successfully integrate the on-site agency into its operations.

External vendor risk still exists

While having an external agency's staff on-site mitigates some of the risk associated with an external vendor, there's still external vendor risk. For instance, a client is still dependent on the parent agency's ability to recruit and retain staff, maintain its financial health, etc. 

So which one is right?

Is the on-site agency a superior alternative to building an in-house agency? Surprise: there's no clear-cut yes or no answer because success largely depends on how well a brand is able to work with either.

On one hand, setting up an in-house agency is no small undertaking for many brands but the potential rewards are significant for brands with patience, a willingness to invest and access to talent.

On the other hand, a brand's ability to take advantage of the on-site agency model will depend heavily on its willingness and ability to truly integrate the on-site agency into its organization, not to treat it as an external organization that just happens to be physically located on-site.

Ultimately, before deciding on an agency strategy, brands need to thoroughly assess their capabilities, and do so honestly.

Further reading:

Patricio Robles

Published 9 June, 2017 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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Comments (1)

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Robert Berkeley, President at Express KCS

As an outsource marketing production provider we work for agencies both traditional and in-house. It's very clear that for whatever of the above reasons, there is a trend for brands to want to bring their creative up close to their leadership, and therefore aligned with their authentic brand voice. Further, we see a lot more firms solely keeping creative on staff but moving away from handling the activation (and production) themselves.

My guess is this is due to the advent of multiple marketing channels and the over-riding need to represent brands consistently across them, particularly during high-stakes campaigns. So far, most external agencies have proven unable to handle this economically.

6 months ago

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