Companies generally know what marketing is, but don't necessarily know what to do with it. 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 among 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 organizations would like to outsource more functions. Currently, the most popular outsourcing areas are data hygiene, customer analytics, list brokerage, creative, and campaign management.
Determining what to outsource and what to insource is not a simple financial exercise. It's not uncommon for marketing organizations 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.
Amidst 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 reliant on the following challenges:
Challenge #1: You lack a specific expertise or bandwidth. Effective marketing organizations require a wide range of expertise, and 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. Similarly, many marketing organizations do not have the skills needed to use marketing automation tools optimally. In either case, specialized outside help is often required.
Challenge #2: You lack a specific technology. Marketing organizations are notoriously technology deprived. While this situation is being somewhat remedied by the proliferation of marketing automation tools, the marketing organization is, many times, at the bottom of the IT organization's priority list. As a result, marketing organizations often use a hodgepodge of incompatible technologies. Often, a better solution is to outsource specific marketing functions to specialists who use leading-edge technology.
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 organizations need to quickly adapt to sudden changes in customer demographics and markets, as well as take advantage of immediate opportunities. As such, those functions or projects that can be outsourced create a greater overall level of flexibility.
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 want to entrust it to a company that has done it before. The experience gained supporting many companies is key to deriving best practices. 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 organization. There are some people whose primary responsibility is to understand, position, price, and promote products. Some focus on understanding demographics, segments, and buying patterns. Others manage relationships. In most marketing organizations, other staff members are activity-oriented, managing processes, activities, and events. They ensure that X and Y come together in the right way and at the right time to ensure 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 organization; all 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.
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. Other companies experience significant fluctuations in their business on an irregular and unplanned basis. Outsourcing functions gives a greater degree of flexibility, and can improve the boom/bust cycle.
Challenge #8: You need to mitigate your legal risk. Life is changing for marketers around the world. Legal compliance has become a top priority for all marketing organizations. Most do not have an adequate understanding of the relevant laws or processes in place to ensure compliance. Marketing outsourcers, especially database marketers, do (or 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.
Challenge #9: You just acquired another company. An increasing number of corporate acquisitions, mergers, and spinouts have been taking place and will continue to do 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. Outsourcing additional marketing functions can smooth the acquisition process by freeing up IT staff. Also, 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.
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. The more geographies and channels they include, the greater the opportunity to make a cultural or financial mistake. Outsourcing them or using outside resources to supplement internal resources is generally a good idea.
Michael Shanker is CEO and director of Extraprise, which specializes in right-time revenue optimization for B2B and B2C enterprises, providing database marketing and demand generation services. For more information, contact him at email@example.com or go to www.extraprise.com.