This post is by Darren Woolley, Founder of TrinityP3. With his background as an analytical scientist and creative problem solver, Darren brings unique insights and learnings to the marketing process. He is considered a global thought leader on agency remuneration, search and selection and relationship optimisation.
According to the ANA, the trend of establishing an in-house agency is well established, with almost 80% of their members having in-house agency services. But in our experience with several major marketers and their in-house agencies, one of the major flaws is these in-house operations are often not performance managed effectively to ensure that the investment is justified.
But how should you measure the performance of your in-house agency? We have applied three standard commercial evaluations to in-house agencies as a way to provide a performance measure. These performance measures are cost, productivity and effectiveness.
Measuring the real cost
What is the cost of your in-house agency? The real cost? If you simply consider the cost of the salaries and the on-costs of those salaries it is a good start. We were called to assess an in-house agency that had quickly expanded from a handful of staff to half a floor of a city building and more than 50 staff, and this question proved difficult to answer because all of the costs were hidden in the overall marketing budget.
The first recommendation is that any in-house agency has separate account of cost that can be monitored for increases or even decreases in operational costs as otherwise these can be hidden by the overall marketing accounts.
But beyond salary cost, there are many other associated costs including HR costs in recruitment and redundancy, technology costs for the computer equipment needed, operational costs including consumables, along with the real estate, and utility costs. We have been challenged on including real estate and utilities, but while these costs are often simply absorbed by the organisation, it is still a cost of having the resources and capabilities in-house.
The first task for use when assessing an in-house agency is defining the facility and building a detailed structure and a financial cost model that we can then benchmark to an external service to ensure there are no anomalies. One anomaly we often find is the salaries for in-house agency staff can be higher than equivalent roles in an external agency. Usually the person managing the in-house agency often justifies this, they needed to pay a premium to attract the right calibre of staff to the in-house agency.
The second recommendation is the cost and the comparison to market should be measured regularly as often in-house agency capabilities will be challenged by the CFO, especially if head count starts to rise. In this way the marketer is prepared to justify the value compared to outsourcing the same services.
Beyond cost, the next measure is the productivity of the resources within the in-house agency. Productivity is measuring what those resources are producing. While this seems obvious it is surprisingly often overlooked with the focus simply on the cost. But what is the value of having in-house agency resources if those resources are not as productive as an external agency or, ideally, more productive?
I say more productive because one of the things championed about in-house agencies is the increased efficiency in having the resources located in close proximity to the marketing team. This should then translate into improved productivity. But this means tracking the work product and outputs of the in-house agency.
The third recommendation is that in-house agencies should embrace the disciplines of external agencies with disciplined project management, including a project management system and a way to measure resources’ use by project.
We often face push back on this point, especially from those managing the in-house agency, because they see the cost as part of the marketing budget and so should they track project volume and resource use? The point is, these metrics are needed to provide the financial value of the in-house agency. It is not just the cost but the value of the outputs or the productivity that is the true measure of value.
Even if the in-house agency does not have a measure of the resources by project, as long as there is a record of the output or measurable scope of work, then we can use our ScopeMetricTM Units to assess how this productivity compares to external agencies. This provides a measure of value of the in-house agency and not just a cost comparison.
There is certainly a measure of cost and value, but what is the measure of effectiveness? As I mentioned previously the proximity of the in-house agency to the marketing team and the business should deliver increased productivity. But what about the quality of the outputs and the measure of how well they meet or exceed the expectations of the marketing team with whom they work?
There are a number of ways to achieve this from satisfaction scorecards to agency relationship management systems. We have used our Evalu8ing system and evaluated the in-house agency alongside the external agencies. While this may be paradoxical, the fact is that almost all advertisers with an in-house agency of some sort also continue to use external agencies to provide additional services or support. Therefore the evaluation of all relationships, internally and externally, provides a unique context.
Therefore our fourth recommendation is that you undertake regular assessments of the perception of the marketing team and other stakeholders on the qualitative measures of performance and effectiveness.
If you structure the scorecard or survey well, there will be ample opportunity to assess if the in-house agency is providing any inherent benefits such as improved responsiveness, alignment to culture, values and purpose etc. This then demonstrates not only the effectiveness of the in-house agency in a like-for-like assessment, it also should demonstrate if you are receiving all of the benefits of the in-house agency over the external alternatives.
This allows you to assess if the in-house agency is delivering the value expected from taking the capability in-house and not just the cost.
How well is your in-house agency performing?
We have seen a number of organisations build in-house agency capabilities only to later make the decision to dismantle those same services. This is often because a change in leadership, change in strategy, financial pressures etc, will lead to questioning the value of the in-house agency. After all, the arrangement is not as flexible as an external agency relationship which can be ramped up, cut or even terminated as required.
This is why our final recommendation is to make sure you set up your in-house agency to monitor cost and productivity on a regular if not constant basis and then overlay this with the regular feedback of the marketing team stakeholders on their level of satisfaction. This means you can manage the agency to optimise performance and be able to intervene if performance issues arise. It also means you are well informed to be able to answer those questions that will arise about justifying the in-house agency investment.
We work with organisations to assess and benchmark the value and performance of existing in-house services or we undertake a cost / benefit analysis of developing your own in-house agency service. Plus we can help monitor and manage on-going performance to ensure you benefit from the performance improvement… Find out how we can help you here