Saturday, April 12, 2008

Analogy #171: Super Job

Superman is a very busy guy. First of all, he has a full-time job working as a reporter under the name of Clark Kent. Second, he has a full-time job solving crimes as a superhero.

Having two full-time jobs like that doesn’t give Superman much time to do all of the other tasks involved in everyday living. And because he isn’t married, he doesn’t have someone to share those everyday duties with. So when does he have time to do all those mundane chores like cooking, cleaning, doing taxes, laundry, and so on?

So if there was anyone who could use help outsourcing some of his tasks, it would be Superman. But there is so little he can outsource.

It would be difficult to outsource any of the tasks which require his super powers. First of all, there aren’t very many people qualified to take on that task. Second, he couldn’t afford to pay for them on a reporter’s salary. Third, all the other people with super powers are already using them to fight crime. They, too, don’t have time to take on extra duties.

Superman would have difficulty outsourcing his job as a reporter as well. That’s his cover identity. In addition, it is a good source to learn about crimes needing a superhero’s help.

So the wise move for Superman would be to outsource those mundane tasks. However, what would life be like if he outsourced the crime fighting and did the mundane tasks himself? While Superman is at home doing laundry, he hires some person from a temp agency to go out and fight the crimes for him. Not exactly the type of drama that makes for good comic books.

Outsourcing can be a very effective part of an overall business strategy. However, as we saw in the story, it is important to make sure you outsource only certain items. In general, it is wise to keep in-house those differentiating points of expertise in which you excel and which give you your strength.

On the flip side, most experts recommend outsourcing the more mundane things which are a less critical element of your success or which do not provide much of a differentiating advantage.

Using this logic, Superman should continue to do the crime fighting, for which his super powers give him a distinct and unique advantage. However, he could easily outsource some of the mundane tasks for which super-human powers do not provide much of an advantage, like doing the laundry

Although this sounds pretty obvious when applied to Superman, it can sometimes be less obvious for businesses. To apply this principle, you first have to understand your business success model well enough to know what your distinct expertise is. In other words, you need to know what your super powers are that give you an edge.

Not all companies think this through. This applies not only to the companies thinking about what to outsource. It applies to the outsourcing specialists who are looking to get some of that outsourcing. For example, what temp agency in its right mind would try to send crime fighting temps to Superman? To be an effective outsourcing specialist, you have to understand what it is that you do so well that people will be willing to outsource tasks to you.

The principle here is that if you do not understand which areas are most appropriate for outsourcing, you can get in trouble. In this blog, we will look at an industry that is suffering, in part, because of this principle. The industry will look at is the advertising industry.

The advertising industry is long past its glory days of the 1950s and 1960s. Things have been a bit tough for the industry for awhile. Now it’s true that there are a lot of factors behind this problem. However, one of the problems is that advertising agencies and the companies that use them are not following the proper principles of outsourcing.

Advertising agencies are essentially placing where companies outsource a portion of their marketing. So the question here for the brand companies is how much marketing should be outsourced to the agencies. For the ad agencies, the question is how they can out-market their clients.

Back in the 1950s and 1960s, this was a relatively easy decision. It was the era of manufacturing. The manufacturers were experts in knowing how to manufacture something. That was their super power. Although they were masters in knowing how to make something, they were less skilled at knowing how to sell something.

That is where the ad agencies came in. They were experts in knowing how to sell something. It was the era of mass marketing, and the agencies were the masters of it. They could apply that skill to all sorts of products quite well.

Hence, it was a successful outsourcing arrangement. The manufacturers stuck to their superpowers of making things and outsourced to the marketing experts the art of selling what they made.

Now, let’s fast forward to today. Manufacturing is no longer much of a source of differential advantage. It doesn’t take the same level of super powers to run a factory. Lots of people all over the world can do it. In many cases, they can do it cheaper than the owners of the brands being manufactured. Therefore, manufacturing is now what is being outsourced to places like China and Vietnam.

So if the branded companies are outsourcing the manufacturing, what becomes the new differentiating super power? In many cases, the new differentiating factor becomes the ability to out-market the other brands competing in the same space. In other words, the new super power for branded companies is marketing.

So where does this put the advertising agencies? Their specialty now is not that dis-similar from the required super powers of their clients. For an owner of branded products today, it makes about as much sense to abdicate responsibility for marketing to an outsider as it would be for Superman to outsource his crime fighting.

Since both the agency and the client claim expertise in the same field (marketing), it is no surprise that there are more frequent and more contentious arguments between the two sides. The brand owners don’t value what they get from the agencies as much as before, since they are also experts in the field. The agencies feel like they are getting less respect than they used to and are tired of the higher churn rate in clients switching agencies.

In addition, mass marketing is losing out to niche marketing. Niche marketing tends to vary more depending on the particular niche. Therefore, the generalized marketing expertise at the agency may not be as effective as the specialized marketers at the brand company.

If advertising agencies want to see the “glory years” return, they have to stop competing with their clients and instead offer something which is more appropriate for the clients to outsource.

A good outsourcing arrangement is when the client keeps in house the key differentiating super powers and outsources to the agency the less critical factors. Right now, the super powers of the ad agencies and their clients are too similar. Until that changes, there will be continued problems with this arrangement.

If manufacturing can be outsourced and marketing is the key for brands, why don’t the ad agencies become owners of branded products? In other words, why don’t they become their own clients?

1 comment:

  1. Interesting thoughts around agencies however there are a few points that I disagree on (and I'll admit I may a bit biased as I work at an agency).

    You've forgot to include the pace of change in the advertising industry itself that clients may not be as aware of as their outsourced agencies. The digital channel (although one might argue is not exactly just a channel anymore) is an area that many clients have little true knowledge of. They know the basics but not all of the parts needed or how they are interconnected. There just isn't enough time to be an expert at marketing your brand and all of the possible ways to execute that. Brand marketers should know marketing - and know it well. It makes the agency's job that much better. However, when it comes to knowing how to effectively execute those strategies within the media world in which we live today, agencies just have more experience and understanding for the end user. Agencies that are experienced in the use of digital (rather than the mass marketing approaches of the past) bring unique and new knowledge to the company's brand marketer so that they can navigate the new landscape and not fall into the pitfalls that others in the past have.

    So, if, in your story, Superman could outsource to someone to map out for him where all of the kryptonite was and how to most effectively navigate his way around it so that he could fight even more crime in a day, then maybe he could catch twice as many criminals in one day as he had before. But new kryptonite will always show up and maybe even new capes to wear or new ways to fly. If Superman had a partner that could help him make smarter choices along that path then it wouldn't really be an outsourcing situation anymore would it? It would be a partnership. And that's what agencies and marketers should really have.