Most companies already outsource a portion of their marketing function—advertising. But what about direct-mail management, lead management, or customer analytics? Increasingly, expertise in these and other marketing areas lies outside your own walls. And that is why more and more companies are turning to marketing partners.
Harvard Business School professors Gail J. McGovern and John Quelch documented the trend in an article in the March issue of Harvard Business Review. One reason behind the move? While company marketing departments have plenty of talented right-brain, creative types, they may lack the left-brain analytics needed to better understand their customers in today's information-rich environment.
Besides, argue McGovern and Quelch, outsourcing marketing can lead to better quality and lower costs.
McGovern offers a unique perspective: Before joining the HBS faculty in 2002, she was president of the Fidelity Personal Investments unit of Fidelity Investments, serving 4 million customers with $500 billion in assets.
She answers our questions in this e-mail Q&A.
Poping Lin: We are familiar with the benefits of outsourcing various corporate functions, but the idea of outsourcing marketing, at least beyond advertising, seems relatively new. Can you discuss this concept and the potential benefits to businesses?
Gail J. McGovern: The outsourcing of marketing activities is catching on; in fact, in a recent poll of marketing executives, 53 percent reported plans to outsource most of their marketing activities.
The benefits to business include cost savings and improved quality. Additionally, many firms lack "left-brain" analytical skills in-house, even though those skills are becoming more important than ever in an age of one-to-one marketing, and find that outside expertise is often needed. Sony, a legendary marketer, outsourced its program to market products through its online "Sony Style" store, recognizing that they needed expertise in areas such as customer database construction.
With media fragmentation, such decisions will become far more common, because companies can no longer rely on mass marketing to reach prospective customers. Communication tasks have become much more complicated, and therefore more dependent on computer-aided analysis.
Q: What marketing functions should and should not be outsourced?
A: Companies stand to benefit considerably by outsourcing, for example, analytical functions to qualified suppliers if those skills are lacking in-house. But some aspects of marketing are less amenable to outsourcing—those that directly drive marketing strategy.
While computers are important, the CEO and top managers still need to meet regularly with customers. Companies need chief marketing officers to drive marketing strategy and make the most of the company's customer relationships. And companies still need flesh-and-blood employees to win and service major accounts.
Companies can no longer rely on mass marketing to reach prospective customers.
Q: What is the role of the head marketing executive who oversees an outsourcing program in his or her department?
A: The skills required of the marketing manager are rapidly changing. Today, managers are like ringmasters in a circus; they must understand how to access the skills they need, since in practice they are relying on a variety of in-house and outside suppliers to get the job done.
Q: What are the keys to consider in successfully managing outsourcing relationships?
A: Marketing managers need to nurture ongoing relationships with outside suppliers. The best outsourcing arrangements are partnerships. Suppliers should not be regarded as mere contractors, since contractors do not always perceive a long-term stake in the project's success.
The value created should be seen as shared value. Managing suppliers in this way requires a great deal of skill and competencies that are not always resident within a firm. This challenge requires negotiation and communications skills as well as a strong ability to project manage several elements of various marketing campaigns.
Q: Is there a tie between outsourcing marketing and the increased global outsourcing we see in other functions? Will offshore marketing be next?
A: There are some strong connections. Motivation, for one. Companies in general turn to outsourcing as a means of saving money while accessing the skills they need, whether it's marketing or IT services.
As companies have become more comfortable and familiar with outsourcing arrangements, they've become willing to trust outside suppliers with business functions that, until recently, have not been outsourced.
Q: What are you working on now?
A: I am exploring board governance issues, specifically the role that boards should play in ensuring the effectiveness and efficiency of the marketing function in a firm.