Buy, Borrow or Build
When you're looking to add a capability or competency to an agency, there are generally three options on the table:
- Do you acquire another company that specializes in that capability (or has significant market share in that space)?
- Do you hire another company (also called outsourcing) to provide that capability?
- Do you build the capability internally by hiring the right people, purchasing the necessary equipment, etc.?
- Each has benefits and drawbacks.
Buying the capability is usually the most expensive option and takes the longest. Researching potential acquisitions, reaching the appropriate people, broaching the idea of a purchase and negotiating the purchase details can take months or even years. The benefits are also quite significant in that you gain a legitimate capability, usually a client list as well and experienced people that know how to execute the capability at a high level. Acquisitions generally make the press, so you get free advertising out of the deal as well.
Most agencies don't have a war chest set aside for acquisitions though, so the real options tend to be either Borrow an existing capability (outsource) or Build it internally. Outsourcing is by far the cheapest and quickest alternative, but the downside is that the agency never really has the capability to offer and there's always a significant risk that either the client will discover who is actually providing the capability and go to them directly for less, or the vendor somehow connects directly with the client and takes the business that way. For those reasons, it's rare that most agencies rely on outsourced capabilities for very long or for anything but the most expensive capabilities (like TV or Film production).
Outsourcing can often be a strategic first step for agencies that want to build their own capability. By outsourcing the work initially, you can offer the capability immediately while educating yourself on what is required to offer the capability well and what type of skills and characteristics best define individuals qualified for the work. You can observe the processes involved, study the models used and better understand the costs of standing up the capability internally.
Another reason to consider outsourcing is if the agency isn't 100% sure of how strong the market is for the capability amongst existing and prospective clients. Since both Buying and Building represent a strong commitment both financially and strategically, it makes the most sense to outsource until that picture is clear.
Which brings us to the last option of Building the capability in-house. Many clients are busy doing this with their advertising and they're a great cautionary tale. Building an internal capability requires finding and hiring individuals with the experience to build the capability (clients are fond of promoting people internally into these roles which is why so many attempts at in-sourcing advertising fail). You need to identify and acquire the right equipment and you often need to identify and instill the "intangibles" that accompany certain capabilities.
For instance, if you want to offer TV/Film Production, you can't just run out and hire some people who have done it before, dump them into the general agency environment and expect success. There's a reason production studios exist and a reason why they look and operate like they do. Time is a very fluid concept in a production studio and their work environment has very different requirements than a standard agency space. Most agencies couldn't successfully standup an internal production studio even if they wanted to; the talent wouldn't come and they wouldn't stay long if they did. Building a competency can be the most difficult of all the options available.
The benefits of building your own capability are substantial though. Unlike an acquisition that brings with it the acquired company's culture, leadership, processes and pain points, when you build the capability yourself it's organic from the start. It fits right into your agency's culture because it was born in that culture. There are no leadership squabbles to deal with, no conflicting processes, no integration issues. You can customize the new capability to fit within your existing workflows. A homegrown capability is by far the most authentic and profitable (long term) of the three options.
If you decide to build your own competency, start with the fundamentals like the operating infrastructure for the capability. For instance, if you're thinking of building your own Media capability (which is a huge growth space for most agencies today), consider a software package that is intuitive to use, integrates with your other systems and requires as few individuals as possible to operate. That way, you limit your risk and reduce your time-to-market for launching the new capability. A complete media planning and buying platform provides the ability to automate many of the media functions. For example, in Advantage's Media Planning module, orders can be created directly from the plan with one click! This simplifies the media workflow and eliminates hours of manual entry. Simplicity is key to success for software adoption and usage.
And last but not least, be sure you've figured out how you're going to train your team so the capability you build in-house is every bit as good as anything you could have acquired or outsourced. Advantage offers video-based training for Media (and every other part of the Advantage agency management system) that enables employees to learn at their own pace, whenever and wherever they learn best.
But don't take our word for it - see for yourself. We offer Free online demonstrations that answer every question and are tailored to the way you run your agency. Request your own customized demo below.