10 guidelines to determine when to outsource a complete marketing function or specific project, as provided by Michael Shanker.
Since Neil H. Gordon’s classic 1964 article “The Concept of the Marketing Mix” and E. Jerome McCarthy’s “4P’s of Marketing” much has been written about the basic elements of marketing. In addition to the standard Product, Price, Promote, Place attributes, the intervening years have seen many additions and variations: the 5 P’s and 7 P’s among others.
Companies generally know what marketing is, but don’t necessarily know what to do with it. Jokes abound. “I waste half of my marketing investment. I just don’t know which half” and “Marketing is where the rubber meets the sky” to mention a few.
All companies have a unique marketing mix depending on their business model (B2B, B2C, or B2B2C), structure, industry, market position, product life cycle, degree of government regulation and other factors. One of the major variables in any marketing budget can be found in the allocation between internal spending and outsourcing.
Marketers are big outsourcers. Public relations, design, data management, analytics, direct marketing, advertising, event planning, and many other activities are frequently sourced externally. Outsourcing budgets are often spread over a number of vendors, and it’s not uncommon for some companies to outsource marketing functions to more than 20 unique specialists.
In fact, many marketing organisations would like to outsource more functions. Currently, the most popular outsourcing areas are data hygiene, customer analytics, list brokerage, creative and campaign management.
The decision to outsource a marketing function can be both strategic and tactical. Many companies have a philosophy of outsourcing any activity that is not core to their business. Developing a positioning and communications strategy may be central to the company; writing a press release or calling a journalist may not be. At the tactical level, companies often find themselves strapped for marketing resources to respond to a rapid or unexpected change in the business, an increased volume of marketing campaigns, or expanded telemarketing efforts.
Determining what to outsource and what to insource is not a simple financial exercise. It’s not uncommon for marketing organisations to face challenges when defining return on investment (ROI). Many state that it is difficult to change established strategies even if ROI metrics determine investments are ineffective. Perhaps more sobering is the fact that marketers cannot get information on their own results in a timely fashion.
Without adequate measurement and analysis, many marketing organisations find it difficult to determine what to outsource and what to staff internally. As a result, they have many specialised, often short-term and overlapping vendor relationships. This, of course, does not imply that marketers wish to outsource less; only that they want to have fewer vendors to manage.
There is a distinction between two kinds of outsourcing. In this context, the term managed services means the delivery and use of specific marketing applications that may be owned and hosted by the company. A vendor that either hosts or uses your Siebel marketing system to execute outbound campaigns provides a managed service.
Business process outsourcing means the management of a specific marketing function such as database management, leads generation, or telemarketing using either internal or outsourced technology. A call centre company that handles your telemarketing is a business process outsourcer. The distinction is useful, but obviously some vendors provide both services.
Against this backdrop of chaos, confusion and contradiction, there are still some general guidelines that determine when to outsource a complete marketing function or specific tactical project. These are typically made up of the following challenges:
- You lack a specific expertise or bandwidth
- You lack a specific technology
- You want to manage more costs as variable expenses
- You want to benchmark your operations to best practices
- You want to focus on insight not operations
- You need to grow more rapidly
- You are trapped in a boom/bust investment cycle
- You need to mitigate your legal risk
- You just acquired another company
- You just launched an additional geography or customer channel
Challenge #1: You lack a specific expertise or bandwidth
Effective marketing organisations require a wide range of expertise. A typical group may include strategists, analysts, auditors, technologists, product specialists, communications professionals, creatives, brand managers, event organisers, e-commerce experts, advertisingspecialists, telemarketers, copywriters, alliance managers, and the occasional Webmaster.
Let’s face it, there are times when some component in the marketing process is unavailable or inadequately staffed. Marketing analytics, database marketing, and data hygiene are three common areas of weakness in many companies. Understanding customers, their demographics, preferences, and buying criteria is the life’s blood of any company. However, most product-driven companies, many B2B companies, and more than a few consumer products companies do not have enough people with the requisite skill sets.
Similarly, many marketing organisations do not have the skills to use marketing automation tools optimally, or, even, effectively. The tools are complex to use, particularly the more advanced features. Building multi-touch, multi-channel, trigger-based campaigns that will support both marketing and sales functions is very challenging. Also, when it becomes necessary to understand the underlying data contained in the tool, many marketing organisations can find it too time consuming and overwhelming to make real progress. Consequently, the marketing organisation either has insufficient resources to use the technology, or finds the product features unsatisfactory. In either case, specialized outside help is often required.
Challenge #2: You lack a specific technology
Marketing organisations are notoriously technology deprived, even in high technology companies. While this situation is being somewhat remedied by the proliferation of marketing automation tools, the marketing organisation is, many times, at the bottom of the IT organisation’s priority list.
As a result, marketing organizations often use a hodgepodge of incompatible technologies. Some may be managed by the corporate information technology group (data mart, marketing automation system, etc.), while marketing may own others like analytics software, a reporting package, and thousands of Excel spreadsheets. Integration between these systems is often by sneakernet, as lists, flat files, and reports circulate too slowly among groups.
Getting access to an integrated, technology-rich set of marketing applications can be an expensive exercise. The options are to wait until the corporate CRM roadmap finally leads to marketing, or to purchase components separately and try to integrate them later.
A better solution is often to outsource specific marketing functions to specialists who use leading-edge technology. In the long run, this only works effectively if the marketing staff has direct access to the technology (the campaign manager, email server, analytical engine, etc.) so they can develop their skills accordingly.
Renting or leasing access to these applications in the interim is an excellent way to enhance staff expertise, before applications are implemented internally. When the staff is sufficiently experienced, deploying new applications internally or subscribing to them on demand can become a simple financial decision.
Challenge #3: You want to manage more costs as variable expenses
Fixed costs in people, systems, and facilities often account for the largest portion of a marketing budget. Marketing organisations need to quickly adapt to sudden changes in customer demographics and markets, as well as to take advantage of immediate opportunities. As such, those functions or projects that can be outsourced create a greater overall level of flexibility.
While the specific costs of outsourcing might appear to be higher than doing it yourself, there are hidden costs in maintaining internal fixed marketing assets. These include, but are not limited to, absorbing delays caused by changing priorities, attrition, lack of support when it is needed, etc.
Finally, the costs of expansion and contraction of marketing functions, even on a monthly basis, can be very expensive when done internally. In the best case, an outsourced telemarketing program may last a month and canceling it can impact spending in the current fiscal quarter.
The money can be quickly redirected to another program or not spent at all and drop to the bottom line. A three-year retainer agreement with a database marketer may be fiscally indistinguishable from a fixed-cost, but the level of service provided can scale up or down as the situation changes.
And while an outsourcer may charge more for any one unit of work, they also bear much of the risk that changes in your strategy engender.
Challenge #4: You want to benchmark your operations against best practices
Whether you are outsourcing a function like public relations, a channel like telemarketing, a capability like marketing operations, or a technology like your data mart, you almost certainly entrusting it to a company that has done it before. The experience gained supporting many companies is key to deriving best practices.
A database marketer who works with dozens of financial institutions, may not understand the marketing strategy for your new credit card introduction, but will have seen many relevant databases and campaigns. Many outsourcers package their understanding of best practices not only in the form of their employees, but in data models, process flows, or partnerships. Building this understanding from scratch may be possible, but it takes time. Engaging an expert provides immediate access to expert people and institutional knowledge that can be transferred immediately.
Challenge #5: You want to focus on insight not operations
Think about the mix of skills in your marketing organisation. There are some people whose primary responsibility is to understand, position, price, and promote products. Some focused on understanding demographics, segments, and buying patterns. Others manage relationships with specific customers or channels. Some focus on consolidating and understanding data about transactions, margins, and other metrics to improve operations. These people, with their varying skills, handle the core functions of the organization. They are the brain trust.
In most marketing organisations, many other staff members are activity-oriented. They manage processes, activities, and events. They insure that X and Y come together in the right way and at the right time to insure that Z takes place on schedule.
To be blunt, the former are the essence of your marketing group, the latter are not. The brain trust is the irreplaceable element in an organisation; all the other functions are candidates for outsourcing.
Challenge #6: You need to grow more rapidly
During a high growth phase, it is usually faster - and often cheaper - to outsource newly required staff or processes. Getting to market quickly with a new product, offer, or distribution channel is very difficult if all the key functions must be identified, hired, and trained before execution.
Outsourcing functions and hiring temporary staff are the typical responses to the exigencies of rapid growth. In practice, they are quite different. Temporary staff is exactly that – temporary. At the end of the contract period they go away. Any cost in training and any familiarity with existing systems and processes are lost. Many companies fall into the trap of hiring "perma-temps," that is, temporary employees on long contracts. While this can be a good way to manage staffing costs, it still has a negative impact on institutional memory.
Outsourcing functions can also be deleterious to the company’s long-term knowledge base. As a result, outsourced functions, even if they are expected to be temporary, should insure a committed level of knowledge transfer. This can come in the form of direct employee access to outsourced systems, in-depth documentation, and frequent meetings to identify areas of developed intellectual property. A hybrid insourcing/outsourcing approach might be a good way to take advantage of the benefits of outsourcing while still developing and maintaining internal capabilities.
Challenge #7: You are trapped in a boom/bust investment cycle
Some industries and many companies are trapped in a boom/bust investment cycle. In some markets, like tax preparation, the cycle is repeatable and predictable. There is time to prepare and insure that revenues and expenses are in balance at each phase. Other companies experience significant fluctuations in their business on an irregular and unplanned basis.
When revenue or profit falls, the companies cut costs immediately. Marketing investments are often the first to go; they are a “discretionary” expense. Advertising insertions are slashed, direct mail campaigns are pushed out several quarters, and staff is cut. Six months later, whether the pipeline has improved or gotten worse, there are usually a new round of investments to “fuel the engine.”
Switching between investment and retrenchment modes is expensive. In the short-term, canceling marketing activities will incur costs. In the intermediate-term, the costs associated with attrition, staffing, and the associated erosion of the knowledge base can be more expensive.
Outsourcing functions gives a greater degree of flexibility, and can improve the boom/bust cycle. Some outsourcers bill on a project basis and these can be scaled up or down with a minimal notice period. Some contract based on a minimum level of services that can scale up, but not down, from the base. Where there is a retainer agreement in place, there is a lower degree of flexibility in law, but a significant level in practice. Customers are important to any outsourcer, and there are deals to be made when one finds itself in difficulty.
Challenge #8: You need to mitigate your legal risk
Life is changing for marketers around the world. Privacy legislation in the European Union has been harmonised around an explicit opt-in policy that spans all communications channels. The sectoral approach to privacy in the U.S. (National Do Not Call List, CAN-SPAM, California SB 1386, etc.) has led to an inconsistent set of regulations depending on industry, use, jurisdiction, and channel. Many privacy laws detail not only who can be contacted, but also what information may be stored, under what circumstances, for how long, and how people must be notified of a security breach. Other laws, such as the USA-Patriot Act, specify what information must be provided to the U.S. government and when.
Legal compliance has become a top priority for all marketing organisations. Most do not have an adequate understanding of the relevant laws or processes in place to insure compliance. Marketing outsourcers, especially database marketers, do (or at least should). A well-crafted outsourcing agreement that covers customer data privacy and security not only helps marketers understand these issues, but can also offload at least some legal risk when there is a customer complaint or government audit.
Challenge #9: You just acquired another company
An increasing number of corporate acquisitions, mergers, and spinouts have been a fact of life for many years and will continue to be so. While these combinations and divestitures create new marketing opportunities, they also result in a proliferation of incompatible systems, databases, record formats, relationships, and processes.
Cleaning, de-duplicating, and merging data to create a consistent marketing database are core competencies of many outsourcers. Others specialize in redesigning and automating marketing processes. Some focus on enterprise-wide marketing solutions that can respond rapidly to changes. Finding these resources and performing these operations are an important step in new business combination.
Due diligence processes for these kinds of combinations frequently have a systems component. They investigate what computing, networking, storage, and communications protocols are in place, but typically do not consider marketing operations in-depth.
Outsourcing additional marketing functions can smooth the acquisition process in several ways. First, the corporate IT organisation will typically be overwhelmed integrating higher priority systems like the general ledger, payroll, accounts receivable, and other business-critical functions. In most acquisitions, the marketing database gets short shrift.
Second, since the outsourcer’s business (take a database marketer, for example) is managing large numbers of external databases, they will have the expertise and ability to scale as necessary.
In the case of other functions such as customer segmentation or other analytics, the outsourcer may have existing models that can be readily adapted to the newly acquired business.
Challenge #10: You just launched an additional geography or customer channel
Developing a new customer channel or geography is in some ways analogous to managing through an acquisition process. Each addition creates new opportunities and pitfalls. There is a heavy cultural element to most marketing campaigns. The more geographies and channels they include, the greater the opportunity to make a cultural or financial mistake.
Multi-touch campaigns that span point-of-sale, advertising, PR, direct mail, email, and the Internet require particular care. Cultural differences exist not just in different languages and geographies, but also in communications channels. Effective direct mail techniques do not necessarily translate well to an email campaign. You may need an integrated television and radio advertising campaign, but the media have quite different dynamics.
Implementing a new marketing channel requires a level of expertise that many, perhaps most, companies simply do not have. Outsourcing them or using outside resources to supplement internal resources is generally a good idea.
Michael Shanker is CEO and director of Extraprise, a provider of right time revenue optimization for B2B and B2C enterprises, providing database marketing and demand generation services. For more information, contact the author at [email protected], visit www.extraprise.com, or call +1(888)i2iMKTG.
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As we all know that the current economic climate is pushing many businesses to downsize, keep costs down and to re-prioritize workloads. So in that outsourcing can be a cost effective way to realign a business to fulfill certain goals and functions and marketing is one of the areas of an organization which can be effectively outsourced.
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