The points of view offered in these forums typically revolve around the merits of outsourcing this-or-that type of activity; which outsourced or in-sourced work lead to a tangible economic return for the marketing team; which types of contracting or in-sourcing offer a greater strategic advantage; and, which activities are good candidates for outsourcing or in-sourcing as companies grow more sophisticated with their technology usage.
Decisions on “how” to best design the marketing organization are at the heart of so many fundamental business issues: economics of course, but also job design, systems design, productivity, HR flow, employee satisfaction, knowledge management, and the list goes on. When it comes to contracting out, some managers are uncomfortable with the very idea of it. “This is our core,” is the common argument. In their eyes, a partially outsourced marketing operations team is something to be avoided – except as a last-resort. They will always push to in-source every aspect of their operations (except for the underlying software itself, which is an interesting contradiction).
Why the fuss?
Some work just makes good sense to outsource. For example, you might be the kind of person who mows your own lawn rather than hiring a gardener. But when it comes to heart surgery, there’s no argument for doing it yourself. The surgeon performs critical work that cannot be done by the patient themselves.
All else equal, the same could be said about contracting out in marketing operations.
Outsourced work doesn’t need to be complex work, either. I chose “surgeon” in the example above, but it could easily have been “janitor.”
Contracting out does not need to introduce more risk to the business. If the surgeon suddenly quit their job, or if they were somehow deemed unqualified or incompetent, you would hire another surgeon. The surgeon performs work that is “critical” to the business, but not “core” to the business. It is a subtle but important difference.
A few years ago I wanted to understand for myself if companies tend to organize their marketing departments differently as they adopt new technology. I researched 60 companies using marketing automation to examine how managers in these companies rank their firms across a wide variety of organizational design characteristics. After crunching the numbers, and ruling out some common-sense traits (e.g., larger companies have more staff, etc.) the results disproved any notion that there is an “ideal” way to specialize, centralize or outsource. (You can link to the research, here.) If the study proves out, you won’t ever find two companies who staff their marketing operations team in exactly the same way.
So as staffing practices go, we marketers are all over the map. Which helps to explain all the divergent opinions out there.
Recently my colleague Mark Radding offered his opinion on the merits of outsourcing to independent contractors from an economic perspective. Mark is an expert CPA working in the Boston area, offering accounting and tax services to small- and medium-sized businesses who use contracting in a variety of different functions. He outlined the sizeable advantages of outsourcing in one of his recent newsletters. While the IRS, workers’ compensation boards, unemployment compensation boards, federal agencies, and even the courts each have slightly different definitions of what defines an independent contractor, thus leaving some room for interpretation, we can still generalize accurately about the productivity and cost-effectiveness of outsourcing.
Bearing this in mind, the advantages of “contracting out” can be classified into three broad categories:
1. Contracting out eliminates the overhead costs associated with FTE headcount. While direct wage costs are generally higher than equivalent FTE salaries, independent contractors do not collect employee benefits, insurance, pensions, vacation pay, or sick pay. Companies do not have to pay federal payroll taxes for contractors. Contractors also provide their own facilities, equipment, and ongoing training/certification, an important saving. Lastly the complications of unemployment insurance, workers’ compensation, federal and state wage, hour and labor law compliance are all bypassed. Externalizing these direct and indirect costs represents a considerable economic advantage over keeping full time employees employed to do the same work.
2. Contracting out allows the firm to staff up or down faster. Contractors work for either fixed periods of time, or in projects with fixed deliverables. Either way, the closure of the contract presents an opportunity to review performance and productivity, and adjust the next contract up or down to best meet forecast staffing needs. Compare this to employees, who require a longer ramp-up time, are fixed in their workload capacity, and where productivity and performance may only be formally reviewed on an annual or quarterly basis (even if they are “at-will”). The flexibility to change the lineup faster creates a valuable option for the marketing team, to best meet the variable workload with projects and keep labor costs low.
3. Contracting out can foster more innovation. Contractors who work for more than one client at a time offer an excellent competitive advantage that stems from “cross-pollination.”Contractors import new skills, capabilities and innovations from their other engagements and this continues well after their original date of hire. This doesn’t mean they will play fast and loose with your corporate IP, it just means you’ll benefit from their insight of how other companies are doing perhaps a very similar thing.
While the added savings, flexibility and knowledge-sharing are all attractive advantages of contracting out, it’s important to weigh the possible tradeoffs:
Higher turnover. Attracting and retaining qualified contractors can be difficult. Many contractors enter the field involuntarily, undertaking contract work as a bridge to their next full-time gig. The ups and downs of contracting can be very disruptive. Contractors who abandon their contract halfway through to pursue the perks and stability of full-time employment can be tremendously disruptive, leading to inconsistent service and outages for the marketing team while replacement hires are found.
Inconsistency. Departing specialists who take their tacit knowledge with them can induce a “collective forgetting,”, putting the organization at significant risk. Three preventive measures mitigate this flight of knowledge. One is to document. Second, put each new candidate through the same selection and new hire process as FTEs (verify claims of past experience, make sure the goals, check references, etc.). Lastly, once hired the contractor should be managed as though they were an employee themselves, in spite of the technicalities of their employment arrangement.
Security risks. Does contracting out lead to more data theft, increasing the likelihood of system failure or other security breaches? Reasearch does not substantiate this theory, but companies can bolster their security by making sure contractors operate as securely as employees do. As a prospective client candidly admits, “We don’t want our contractors messing things up any more than our employees already have.” While colorful, this statement also underscores just how important it is to have effective security policies that apply universally to both employees and contractors.
Redundant labor. As the contract labor pool is established, this often introduces the perception of redundant capacity within the department, with FTEs who perform (or want to perform) the contracted work. This redundancy is not a bad thing in itself (think twin engines) but can produce goal conflict and power struggles. Managers can avoid this pitfall by clarifying the “boundaries” of each job, set goals to minimize any competition for shared resources or expertise, and prepare their contingencies for succession.
What can managers make of these tradeoffs?
Foremost, if you find yourself captivated by someone who claims to have a grand unifying theory about how to successfully staff your marketing operations team, treat it with a healthy dose of skepticism. There are no quick fixes and since every organization has a different situation, the “best” staffing solution will be contingent on many factors including those above.
Keep an open mind about employing a mixed labor pool that combines the very best of your available in-sourced and outsourced talent. The more options you have to source talent, the better the outcomes for your business.
The value of your own intuition is not to be underestimated! Rather than looking to formulaic approaches, take a contingency approach to your staffing strategy. Start with an inventory of all of the routine skills and classifying the long list into two columns, one representing “core” activities (sacred, must be performed by employees) and the other for “critical” activities (important to our success, but not core). Then, take the list of “critical” activities and compare them to the pros and cons as outlined above. Where could you find more efficiency?