Outsourcing, Insourcing and
Co-Sourcing Marketing Functions

Key Motivations for Outsourcing, Insourcing and Co-Sourcing

Access specialist skills
Improve service quality
Focus on core competencies

Cost savings / cost containment

* KPMG Survey, 2000

Definitions

Outsourcing=

Using external contractors / consultants to provide a service, on a long-term basis, through a retainer, long-term contract or service level agreement.

Ownership of the “outsourced” service includes: full ownership by the outsourcing organisation; partial ownership / partnering by the outsourcing organisation; full ownership by the service provider.

(eg. call centres; advertising; printing)
 
Insourcing=

Accessing external consulting expertise to supplement internal experience and resources for specific projects & timeframes

. (eg. pitch development & training; brand strategy; CRM tools & technologies).
 
Co-Sourcing=

Using a mix of full-time internal resources and contracted external resources, on an ongoing basis, to jointly provide specialist services

(eg. market research; PR; design).

Scope of Arrangements

Full Ownership (Product Development)
  Partial Ownership (Call Centre; Direct Mail House)
 

Joint Development / Partnership (Customer Information Management)
 

Retainer (Advertising; PR)
  Long-Term Contract / Project (Printing; Sales Promotion)
  Short-Term Contract / Project (Market Research; Product Launch)

Outsourcing, Insourcing, Co-sourcing Marketing: Why and What ?

Always retain internally, a core marketing competency, which has 3 key characteristics * :

1. It is a source of competitive advantage
2. It is difficult for competitors to replicate
3. It has potential breadth of application

* Philip Kotler

Core marketing competencies include:

Marketing strategy and planning
Brand architecture / strategy
Product development
Pricing
Channel strategy

…..but organisations should also “insource” these competencies to meet specific circumstances, projects and demands.

Outsourcing of “commodity”, and many communications and customer contact functions is appropriate (eg. printing, sales promotions, advertising, call centres)
Because:

They are not core competencies
You need to access external communications skills, where broad experience / fresh perspective is vital
Maintaining such functions internally involves significant costs re: infrastructure & resources.

Research* shows that amongst financial services marketing:

50% outsource marketing activities
Large institutions spend 40% of budget on outsourcing; medium-sized institutions, 45%; and smaller institutions, 30%
Activities typically outsourced include: promotions; direct mail; advertising; market research; corporate literature

Activities typically kept in-house include: market planning; product development; strategic planning; brand strategy

* Bank Marketing : USA

Insourcing & Co-Sourcing Marketing

Insourcing is a viable option when:

A project requires highly specialist marketing skills (eg. customer profitability modelling; email marketing; pitch training; CRM tools; data mining etc)
When the nature and / or scope of a marketing project is politically sensitive
There are resource gaps due to resignations, sickness etc.

Co-sourcing is a viable option when an organisation wishes to retain some internal control, contain operating costs, but also provide the organisation and staff with access to external expertise, resources and industry “best practice”.

E- Business: Outsourcing, Insourcing and Co-Sourcing

E-Business is driving marketers to face the following key issues:

What kind of business model best enables your organisation to seize new e-commerce opportunities ?
What do you need to do to act quickly to meet customers’ expectations ?
What must you do to be agile and fast moving ?

How can you expand your offerings and enter new markets with your current infrastructure ?
 

One of the primary ways these issues are being addressed is via external service providers, and in turn, this is expediting the emergence of “The Virtual Corporation”.

 

However, the way most marketing functions are still formally structured, hinders the agility, speed and flexibility to keep pace with the market’s evolution and organisational requirements.

Virtual Marketing Organisations (“VMOs”)

New-style marketing groups know traditional structures can’t drive value in dynamic environments - to keep pace, they rely on a continual process of evolution (ie. the “VMO”)
The number of VMO managers, the scope of their responsibilities and the people to whom they report, evolves constantly to reflect changing opportunities.
VMO teams can be drawn from internal resources, recruited from strategic partners, or hired in from outside.
 

In the VMO framework - having launched a new product or service, some members of the VMO continue to manage or sustain them, others go back into a pool and are redeployed on a new opportunity, while external resources are disengaged at the completion of the project.

Effective VMOs are based on three critical success factors:

It is everyone’s job to identify new opportunities
The best opportunities are prioritised and fast tracked via application of predictive modelling tools and streamlined decision-making by senior management
To maximise flexibility, people are hired for roles not jobs (and these may be outsourced to external consultants).

Critical Success Factors: Outsourcing and Co-Sourcing

Common themes linked to successful outsourcing and co-sourcing include:

Tight yet flexible contractual arrangements with well-defined Service Level Agreements
Maintaining the trust of internal staff impacted by the arrangement
Good cultural fit between the client and service provider.

Measuring and Monitoring Outsourced and Co-Sourced Arrangements

While every arrangement is different, two key “value” principles should underlie outsourcing and co-sourcing:

The outsourcer / co-sourcer’s business objectives are kept aligned with those of the client organisation
The outsourcer / co-sourcer is rewarded for providing value in proportion to the value received.

Common forms of measurement include:

Straight dollar comparisons
Cash flow (NPV)
Efficiency measures (ROA, ROI)

Value creation (EVA, SVA, Brand Equity).

Outsourcing/Co-Sourcing Management Framework

 

 

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