Outsourcing your marketing functions has a time and a place in business. You gain the expertise of the marketing firm. They are the experts and marketing is what they do. However, you trade forego valuable internal organizational learning. You save costs when you do not require a full-time marketing department, but when you do have the workload to fully staff a marketing department, you may find yourself at a disadvantage if you have continually outsourced prior. You and your organization should carefully balance the various incentives with the drawbacks and actively minimize the risks that you expose your firm to. First we will look at the incentives to outsource your marketing functions, second we will talk about business growth and the effects of outsourced marketing during this transition, and finally we will look at ways to outsource effectively and minimize risks.
Incentives for Outsourcing
These are the four main incentives and benefits of outsourcing your marketing functions to a marketing firm:
1. It saves costs when there is not enough internal demand
When a Business is in its infancy, resources are limited and it is unlikely that all business functions will be completed internally. Also, it is unlikely that the business will have the volume of work to justify the expense. The solution is to sub-contract the work to another business or to hire an independent service provider. With respect to marketing needs, a graphic designer may be hired to design letterheads, business cards, and product packaging, however these are only required on the spot so to hire an employee is excessive. Because these spot requirements are far and few between, a common mistake is to task a current employee with the work to save costs. This will likely end up reducing the quality of work and increasing the time cost of that employee because they are new to the role.
2. Let people do what they do best
Start up businesses are full of the entrepreneurial spirit and have a significant amount of that “can do” attitude. Engineers become accountants and managers become strategic planners. There is much overlap between roles. Smart professionals know that focusing your work on what you do best is the most productive method of operation so long as someone else is available to do the other jobs. That is what Marcus Buckingham states in all his books and I tend to agree. Small businesses fail because they do not grasp this early enough and end up trying to do too much. The founders get tied up completing tasks that they are not good at and focusing a majority of their time dealing with the resulting problems.
3. Focus on getting the maximum value out of everyone
Micheal Porter’s Value Chain concept can be applied to the start-up business and to the way in which it manages the functions it completes. Essentially, Porter can be interpreted to mean that you should add value to the part of the chain that increases the overall value the most. So if your painter has some graphic design skill and can develop a logo for your business, it might take him 5 hours. That’s 5 hours that he is not painting your walls. Now if you hire a freelance designer to develop your logo, she is an expert and can get it done in an hour. If those were the only two options than the opportunity cost of the value differences need to be considered. Assuming that both the painter and the designer developed a logos of equal quality, so long as the designers hourly rate was less than 5 times the painter, it is rational to hire her. The overall value of the business increases more. It all boils down to having the right person for the right job.
4. Expertise
In addition to the economical incentives described above, there are quality incentives. If a business requires an expert to complete a task, for example a lawyer, than it may be more beneficial to seek an outside organization like a law firm. If your organization requires a high-caliber marketing strategy, you may want to work with the best. When you are at this level, you can afford it and you already appreciate the value that solid marketing strategies deliver.
Business Growth and The Evolution of Business Processes
Goldratt’s Theory of Constraints focuses on business process improvements by seeking out and exploiting process bottlenecks. Essentially, he talks about only being as efficient as your weakest link. For this reason an organization should always continually strive to minimize constraints on the marketing function. If the bottleneck in your business model is customer awareness than you need a marketing department ready to handle all of your promotional requirements. You must continually focus your resources on promotions until awareness of your product and brand is no longer the bottleneck. If your bottleneck is your price-point then you should shift your resources into production planning and supply chain optimization to reduce costs allowing you to charge a lower price point. Having an outsourced marketing department allows you to easily shift resources to and away from the marketing function. This not only conceptually reflects the Theory of Constraints, it visibly tracks it through dollars spent.
There is a lot to be said for organizational learning. Your team will learn and grow the most when they conduct their own marketing activities. They will get better at it and you will maintain complete visibility on marketing activities. It is a larger cost in both dollars and in learning, but if your organization can tough it out then you will be in a much stronger position to compete.
Foregoing internal organizational learning for an outsourced strategy will handicap you. You need to carefully weigh this against the cost advantages and expertise that a professional marketing firm can provide. If you have the means, you may decide to acquire a marketing firm. You can also minimize this drawback by actively participating, both contractually and practically in the marketing process.
Active participation in this type of marketing means telling your secrets, your strengths, and your weaknesses to a third-party. This can be dangerous and a Non-Disclosure Agreement (NDA) is almost a necessity. If you have acquired a marketing firm or if you have developed one internally you do not face this threat. You must be particularly careful when crossing boarders with your agreements as international laws and business treaties have different effects in different countries. Ensure you work with a firm that you can trust in the long-term to work for you and promote your success.
In sum, outsourcing is cost effective and gives you access to a highly skilled pool of individuals, however, you give up internal learning. You also expose yourself to IP exploitation. However, you can visibly allocate resources to marketing efforts and pull them back with ease when you outsource, allowing you to focus your resources on functional bottlenecks.
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