Should you outsource or bring in the skills internally?
This is a question that I’m sure has come up in every boardroom, in every sector, in every business across the world. So what’s the answer? There is no right answer. There are a lot of different factors that need to be set out and analysed to decide what is best for your business.
A Caffeinated Hedgehog
I’m currently sat in Grindsmith writing this blog, just before an event on GDPR at Ziferblat, so their sector seems like a good place to start.
So what do Grindsmith manage internally and what third-party services do they buy in? Their most important tangible asset is coffee and they source this from local suppliers. Now I’m sure if they wanted to, they could invest in this part of their business and start to farm and nurture their own coffee beans. In the long term, I’ve no doubt this would be a cost saving and open up another arm to their business. They would own the manufacturing, distribution and supplier of consumer sales of the market. So why not do this?
Aside from the huge financial implications of such an investment, it’s simply not their ’core business’. This is where it’s important to remember the Hedgehog Concept. If you’re not familiar with the concept, it’s an understanding that Jim Collins says ‘Good to Great’ companies have. They know what they are good at and stick to it. Just like the hedgehog who always reverts to the same safe tactic of curling into a ball, a business will consistently focus on its ‘core proposition’. (Read more on this here).
Grindsmith’s core proposition is hospitality. Of course, they sell quality coffee and this is paramount to their business, but their customers come into Grindsmith to buy ‘an experience’. The £2.60 that pays for your cup of coffee here isn’t really paying for the coffee beans, you’re paying for the great service, the location and the atmosphere (fixtures, fittings, PRS licence).
I’m aware that a coffee shop investing in coffee farms is an extreme example, but one that kicks things off nicely. I recently had a conversation with one of our clients about the value in outsourcing marketing services to an agency and the advantages and disadvantages to bringing those skills in-house. It might be pointing out the elusive elephant in the room to say to a client that the main advantage of bringing it in-house it’s more cost-effective. You can’t really argue with this.
But this is only really the case in the short term. What is the real cost of doing something in-house rather than outsourcing?
The True Cost
Let’s look at how the cost of outsourcing a marketing project might compare do doing it internally. For a project that might take 40 hours of internal time for an individual, to outsource to an agency with substantial overheads, this might cost in the region of £5000. Judging this on solely a cost-based argument, internal wins every time, so where is the logic in investing so much more money and outsourcing the work?
Here’s a real-life example of a business I met with in Manchester. This business brought in a social media apprentice to run their social media platforms. This business invested a lot of time in the initial recruitment and selection, the day-to-day training and support and the various training courses they had paid for them to go on in order to develop their skills. Around 6 months later, just about the time, the apprentice was finding their feet, they decided it wasn’t the right role for them and they left to continue their apprenticeship with another business.
The biggest loss to the business, other than the time and salary investment, was the knowledge. They had brought this person in because no one in their business had the capabilities, desire or knowledge to run their social media accounts. The one person who had these attributes had now left and they were back to square one.
The True Value
So the true value of outsourcing? Agencies always retain knowledge and skills. Of course, employees leave agencies it happens in every business, but these skills and knowledge run throughout the business and not just one individual. The value of an agency is greater than the sum of its parts.
When you outsource, you’re also not buying the skills of one person, you are getting a team of people who are each an expert in their specific field and team of creative minds and let’s face it, the best ideas come out of people working in teams. It also removes the stress of having to oversee and manage an individual who is far better at what they are doing than the person managing them, who potentially might have little to no knowledge on the subject. You can see where this can become a tricky dynamic for a manager. Where is the quality control of personal development going to come from?
Why did you start your business? Where do your passions lie and what do you want to spend your day doing?
While in the short term, doing something internally rather than outsourcing it, might be cost saving, in the long term, this is a huge distraction away from your business and its core proposition.
Working with an agency means that a variety of skills are brought to the table, due to their years of working with a plethora of different clients on creative and strategic levels.