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Is it better to hire an agency or build one in-house?

While recently perusing HBS Working Knowledge, a Harvard University website covering business innovation from the Harvard Business School faculty, I came across an article written in ’08 by Sarah Gilbert entitled: “Should You Bring Advertising Expertise In-House?” In it, Harvard Business School professor emeritus Alvin J. Silk answers questions about companies developing in-house advertising capabilities (aka: vertical integration). The article covered factors involved in making decisions to bring advertising in-house or not and included company size, company leadership, and control and cost issues.

I have had the pleasure to work for companies with internal ad agencies and also for companies that farmed it all out and both methods have the potential to be effective. Operative word: potential. Quite often companies wanting to bring advertising in-house desire greater control over costs – resources – and the end product. External agencies, when maligned, are viewed as expensive and difficult to control. There are critical factors that impact a decision to keep advertising at arm’s length and outside of the company’s walls or integrate it within the company.

For example –

Does the company have enough of an ongoing need or projects of critical mass to substantiate the expenses and resources required to house an in-house staff? How would the costs of planning, developing, and implementing marketing/advertising campaigns compare with those incurred by an outside firm?  Does the internal agency have the required economies of scale and expertise required to make cost-efficient media buys when compared with a larger external agency?  And most importantly, does a company have the expertise and sophistication to attract and retain the best creative resources as effectively as independent agencies?

Another consideration is the internal agency’s potential impact within the corporate environment and whether it would be hampered from driving necessary yet unpopular strategic decisions.  While external agency creative directors have been known to go to bat for a compelling concept, would an internal creative director mindful of his employment, wage that battle?

As mentioned earlier, having been in firms with internal agencies and with others that farmed out advertising to one or more external agencies, there is never one approach that can result in success. What is critical though is the following:

  • Leadership that understands the agency’s role – and most importantly, what the agency must produce.  The best leaders allow the agencies to present their cases and make impartial business decisions on fact.
  • Leadership that realizes there are true costs in hiring and maintaining internal agency staff -- and that there is much bargaining power when utilizing external agencies.
  • Hiring an agency takes time… hiring an internal agency takes time and skill… but firing an agency can be done very quickly.  Not so with internal staff.
  • Given their make-up, external agencies have greater potential to remain idea-fresh and generally do not carry company “baggage” or pre-conceived notions about the product.
  • External agencies only get paid when clients are happy.  “Employees” get paid twice a month…
  • External agencies are not part of your company.  You can take full credit for their work! (Kidding…)

(c) Alder & Associates 2011

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