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Building the Core of Your Agency

Advertising agencies are notoriously inefficient in digital media. A recent study showed that agencies typically spend more than $4,000 in media labor to place an advertisement on a website.

The good news for challengers is there’s a big opportunity to win business away from inefficient agencies by adopting new methods that give you a sustainable competitive advantage. Gaining this advantage starts by understanding your core competencies.

Here’s a handy litmus test: of everything you do at your agency, which of those activities does your client appreciate when you do a great job? Those are your core competencies. Conversely, which activities aren’t noticed even when you do a perfect job? Those are non-core activities.

Core competencies are the defining activities of your agency. A core competency fulfills three key criteria:

1. It differentiates you from your competitors.

2.  It’s not easy for your competitors to copy.

3.  It’s highly valued by your clients.

Identifying your core competencies is an important exercise because it guides your decisions on how to best allocate your resources. Once you understand your core, you know where to focus your time and money. You also discover where your resources are being squandered because they are diverted away from your core competencies.

To illustrate this concept, see figure 1 for a breakdown of core versus non-core activities of a media agency on a typical digital campaign.

In this example, you see that 45% of time and 33% of labor costs are being diverted away from core competencies.

Non-core does not mean not important. For example, it’s critical to traffic tags without error. If not, the campaign would fail and your client would surely be disappointed with you.

How can you perform those non-core activities as efficiently as possible? The goal is to minimize the resources you spend on non-core activities. Cost advantage is a classic competitive advantage and even more powerful in the context of non-core activities.

Outsourcing is one way to reduce non-core activities. In addition to reducing costs, outsourcing insulates your organization from distractions related to running the operation like hiring, training, managing, providing office space, and many others. Outsourcing is common in many industries. For example, consider software companies and their data centers. Despite the mission-critical nature of the data center, the activities involved in running a data center are not a core competency of a software company. Therefore, it’s typical for a software company to outsource their data center to third party specialists. This enables the software company to focus their resources on their core competencies such as building software, selling software, and servicing their clients.

While it’s common for publishers to outsource their ad operations, it’s not yet common for agencies to outsource ad operations. The dynamic nature of agency ad operations makes it difficult to outsource.  It’s not a factory job. Working in agency ad ops is like playing in a jazz band. You constantly have to adapt to changes from other “band” members. For example, revisions to creative assets often come without notice to meet client demands. These changes need to be implemented flawlessly without delay and to make beautiful “music” for your client.

“I’d outsource if I could,” says Michelle Burnham of Burnham Marketing. “I tried outsourcing our trafficking and reporting functions. It worked great when there weren’t any changes to the plan. Unfortunately, that’s hardly ever the case in digital. I found myself spending more time documenting what had to change than it would take me to make the changes myself. It was scary when we started running up against deadlines because of the short lead time on these changes. Ultimately, I gave up and brought it back in-house.”

While the benefits of outsourcing non-core activities are clear, it’s also clear that the problems related change management need to be resolved to make it feasible. Agencies that solve this problem will be able to focus their resources on high value activities and to operate more profitably.

Can you outsource your non-core activities? If not, why not? Answering these questions will help you discover weaknesses and opportunities in your agency.

Regardless whether or not you choose to outsource, your strength is at your core. Focus your time and money on your core competencies and you will gain a competitive advantage.

  • http://twitter.com/ROIFactory ROI Factory

    Brilliant article, I could not agree more. I was the founder and owner of a successful digital agency that grew to over 100 employees, but so much of what we did was virtually non-differentiable. As it stands now, clients pay virtually the same compensation schedules to any agency they hire, there is little price differentiation amongst agencies. One point you didn’t make is that by specializing and focusing on the highest value activities, an agency can also increase it’s margins if they can find clients who appreciate their talents and understand exactly what they’re paying for in terms of creative and strategic talents.

    Outsourcing is an inveitability, just like last minute changes and late deliverables. Systems and processes are coming online to make managing them simpler and more efficient than trying to keep in-house staff on call for whenever something shows up.

    Michael McMahon

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