Obligatory disclosure: I am the Manager of Value Engineering here at The Pedowitz Group (TPG), a marketing consulting firm, and would benefit if you choose to outsource marketing functions or augment your team with external advice from TPG. That said, the reason I’m at TPG is that I believe this form of collaboration is not only invaluable but impossible to replicate internally.
Architecting and Coordinating the Firm of the Future
Let’s get this out of the way: while outsourcing isn’t new, as a business strategy, it’s fairly young. It was officially labeled a business strategy in 1989 and started gaining ground in the 1990s. This is when firms started offloading what they considered support functions – functions required for running their business yet not part of their core competitive advantage. And while organizations have become increasingly comfortable outsourcing both support and core competencies since then, the explosion of data as a leverageable asset has revealed new dimensions that add nuance to outsourcing decisions in the modern world. Savvy marketing executives are rightfully stepping back and taking stock of these nuances, uncovering more reliable methods for making outsourcing decisions that don’t expose the firm to unforeseen risks and consequences.
The New Risks of Outsourcing Marketing
I recently read a rich and robust article from McKinsey about the strategic considerations for outsourcing within the mining industry. The authors unpack this complicated issue very well, in such a way that it’s immediately applicable beyond mining. They gave me a lot to think about and I expect they will do the same for you. I highly recommend reading the post to get the benefit of their well-thought-out perspective. Even so, I offer a different perspective for you to consider through this article.
I came away from the article feeling like it painted modern outsourcing in the hue of a catch-22. Resist outsourcing and miss out on insights and optimization opportunities that are simply unavailable to your firm as a single consumer/producer of any one piece in the value chain. Buy-in to outsourcing and run the risk of empowering suppliers to unacceptable levels, potentially trapping the firm, while simultaneously enriching competitors with the same insights you’d benefit from. Feels a bit circular to me.
To be fair, the authors present a model for determining which activities or functions you might consider outsourcing. It’s unique in that it considers the value your firm would receive by way of the supplier’s performance advantage, or how much better a supplier can complete the activity because they span many customers. Additionally, surrounding that model, their well-thought-out perspective provides ample criteria for building your own model, specific to your operating environment and your firm’s position within it. As such, this model will probably work well for certain organizations in certain contexts. Yet, given the nuance the article presented, reducing the decision to a binary “in or out” feels insufficient for such a complex decision. Further, asking executives to accurately estimate and assess a supplier’s performance advantage, both in the near- and long-term, lands squarely on “improbable” along the possible spectrum.
Clearly though, these are the questions marketing executives should be asking. They should be strategically considering the capabilities they need to achieve their objectives. Do you have these presently? Should you have these capabilities in-house or does it make sense to seek a partnership to fill those gaps? What do you do with resources that currently staff capabilities you no longer need? How do you take advantage of cross-industry insights without giving up control?
A More Intuitive Approach
If you’ve made it this far, thank you! You must be ready for the new approach, the one that counters McKinsey’s model, and I hope not to disappoint. But before we jump into it, let me try and manage your expectations.
- This was not developed in response to McKinsey’s model. I was conducting an internal analysis in the middle of 2018 when I created this model.
- This model is far from perfect, as you will soon see. There are three dimensions on each axis, for starters. I left it this way as the dimensions compose the intuitive way marketing executives make a singular decision about outsourcing.
- This was developed on the foundation of countless discussions with marketing executives about their goals, the teams, and the best approach to structuring and coordinating resources to achieve their goals.
- Since developing this model over a year ago, I’ve tested and refined it to be even more intuitive.
- Similar to McKinsey’s model, this is designed for decision-making and active application. It is not a descriptive model.
Reading McKinsey’s article clearly uncovered the need for a model that was simultaneously more comprehensive yet more intuitive and more consistent with the way marketing leaders are making outsourcing decisions in practice. The time just feels right to reveal the C3 x C3 Matrix, a practical approach for strategically architecting the marketing resources – internal and external – critical for achieving your business objectives.
Let’s start by defining the three Cs of the C3 x C3 Matrix.
- Competency: The ability of individuals on the team to perform a given skill.
- Capacity: The necessary amount of resources to execute the activities required to achieve objectives.
- Capability: AKA as a core competency, the application of knowledge & resources, often facilitated through technology, to achieve a business outcome.
Using the model is very intuitive and leverages appraisals you’re likely making today as part of your regular decision-making process. The model’s advantage is that it allows you to plot this information and step back to see the whole forest of your capabilities at once, relative to each other as well as their position within the matrix. You’re able to make decisions about how to evolve your resources as a whole, instead of each capability individually. To do this, you just need to assess two things: whether any of the C3 are advantageous to have in-house and your organization’s current proficiency with those same C3. The assessment determines which quadrant that C3 sits in and the specific action you should take in response to its position – specifically within the quadrant as well as relative to other C3.
Exploring the entire model is a worthwhile effort and one that I’ll do at a later time. For this article, we’re going to focus on the upper right quadrant (that just feels substantial, doesn’t it?), where it’s advantageous for your organization to have C3 in-house and you’re already proficient. It doesn’t make sense to outsource any of this C3, yet you want the advantage of the cross-industry insights and efficiencies often only available through outsourcing. As you’ve probably already sorted out, the answer here is to augment your C3 with external advisors.
An Aside on Trusting Marketing Consultants
Remember the disclaimer I made at the start of this article? Now’s the time to revisit that conflict of interest and I encourage you to continue to be critical of my position. And while the best relationships are mutually beneficial, it’s natural to be suspicious of consultants when their advice benefits both their clients and their firm. By definition, there’s usually information asymmetry that favors the consultant. This asymmetry breeds skepticism, understandable skepticism, that I’ve encountered often in my work. Therefore, you should place a premium on consulting relationships where the consultant works tirelessly to remove that asymmetry. This comes in the form of consultants who articulate, measure and hold themselves accountable to the value they help create. Also, where the consulting methodologies are transparent and invite equal participation from consultant and client in the recommendation and decision-making process. Not only does this remove the undue reliance on the consultant, but this collaboration also capitalizes on the unique skills and information the client and consultant bring to bear. Consultants that trade on asymmetry can’t be relied upon to put your interests ahead of theirs. The C3 x C3 Matrix is so intuitive and self-evident that marketing executives can not only pressure-test the assessment of their C3 but then use the framework to determine how to move forward. I’m especially proud of removing asymmetry in the C3 x C3 Matrix and I’d love to hear your thoughts in the comments on whether I succeeded.
The Case for External Marketing Advisors
Alright, back on topic. How do you access the competitive advantage of outsourcing without giving up control and unduly empowering suppliers or enriching competitors? Leverage external advisors to augment your C3. You’re able to access the advantage of suppliers integrating insights, practices, and scale within and across industries without turning over control to those suppliers. You still own and control your data, a leverageable asset and arguably the single most important foundation for businesses in the knowledge economy. You only need to expose it for the purpose of analysis and integration. You don’t need to provide systematic access. In turn, the advisor will gain new knowledge that can be further integrated, and new insights recycled back to your organization. Given the broader experiences and the sheer number of cycles the advisor is going through in due course, you increase the likelihood they’ll have experience beyond that of your team. This mitigates the risk of new situations by deepening the pool of experience and insights available to your team.
You’ve probably benefitted from a mentor in the past or are currently getting advice from one. I currently have multiple mentors and am thankful for it often. An external advisor for your C3 is like a mentor for your organization. They have an interest in seeing your team grow and ultimately improve performance. And your team benefits from this interest applied with inimitable expertise and experience. It’s the foundation for a mutually beneficial, transparent relationship.
How are you making marketing outsourcing decisions? Are you taking a holistic approach and focusing on the relative importance and impact of all your capabilities or are you addressing individual needs as they arise? Would love to hear your thoughts in the comments!