What lessons can external agencies learn from the best IHAs?

Here’s a question for marketers: what would you think if an agency head said the following?

“We won’t give you an account service team because we don’t regard ourselves as being ‘in service’ to you – we’d like you to see us as colleagues, working towards the same goals. We want to be judged against the same KPIs as you. We’ll work alongside you and your teams. We won’t just wait for a brief – we’ll work with you to understand your business, identify your challenges and help your customers.

“When we are briefed, we listen, we collaborate, we share – and ultimately the work we produce has one primary aim: to have a positive impact on your business. If we manage to win awards as well, that’s brilliant. But we share those awards with you. We all take credit for the work we do together.”

I am willing to bet that most marketers would (a) love the sound of all that and (b) be highly sceptical about whether the agency will actually behave this way in reality.

But this is how some of our leading In-House Agencies operate. Last week, at the In House Agency Leaders Club’s inaugural panel debate, we heard from three IHA leaders – Emma Perkins from LEGO, Ed Morris at Draftline (Inbev’s IHA) and James Wood from BBC Creative – who spent an hour in conversation with WDC’s Nicky Russell and IHALC’s Patrick Burgoyne.

They talked in strikingly similar terms about their relationship with their marketing colleagues, their focus on business results and their openness to collaboration in the name of achieving their (shared) goals. Wood, who runs production at BBC Creative, was also very clear about the advantage of spending time with programme makers, as well as with marketers, to understand their worlds and their priorities – thereby building trust and understanding, long before a brief lands.

Now, I know not all IHAs are quite as well developed as these three. But this panel session provided a glimpse of their potential. And I couldn’t help reflect on how effectively they were leveraging some significant competitive advantages over their ‘external’ agency counterparts. It left me wondering: if I was running an (external) agency now, how worried would I be about all this and how would I respond? What would I do to compete?

Well, I’d start by identifying the sources of the IHAs’ competitive advantage. Then I’d need to work out how to fight back in each of these areas. Based on what I heard last week, the best IHAs use the following three Ps to their advantage:

· Proximity

· Pricing

· Performance measurement.

Let’s consider each in turn.

Proximity to marketers and stakeholders is the most obvious advantage of an IHA.

Of course, the physical distance of traditional agencies from their clients is often held up as a big source of value – affording an ability to see problems with fresh eyes. Being ‘in-house’, by contrast, can be an invitation for interference and micro-management. Having a more open and collaborative attitude is one thing, but there still need to be boundaries!

However, the best IHAs guard against these risks and turn proximity into an advantage by building relationships, demonstrating expertise and winning trust. And there is not much to stop an external agency from doing likewise.

It’s primarily about spending time amongst clients: listening, observing, sharing jokes, building friendships. Perversely, at a time when everyone is working from home, the playing field becomes more level – there’s no travel required, no desk space to be made available. And the clients themselves aren’t enjoying any chance encounters anymore. They’re having to engineer the equivalent of corridor conversations, so what’s to stop agencies from taking the initiative and setting up similar check-ins?

Ultimately, it’s about having the right attitude – seeking to help rather than to impress, to understand rather than to persuade, to solve problems rather than to sell solutions. If the will is there, this is eminently doable.

Pricing is a slightly harder nut to crack.

And, by this, I don’t mean cost – although generating cost-savings is one of the most common reasons for building an IHA. With no mark-ups on direct salary costs, it’s hard to see how an IHA could fail to be cheaper than its external equivalent. But inefficiencies, resulting from poor internal governance due to a lack of experience in running an agency, can offset such savings. Poor briefs, unreasonable demands and overly ambitious utilisation targets all contribute to this inefficiency, leading to wasted staff time, money and resources, while providing a more inflexible service into the bargain. It doesn’t have to be this way, but it often is. Cost is not the ace in the pack you might think it is.

What’s less easy to overcome though is pricing – in the sense not of how much IHAs charge, but how they charge. This is generally much less dependent on time commitments that have to be monitored and reconciled under Procurement’s watchful gaze. Instead, the best IHAs agree resource allocations based on estimates that everyone agrees upfront, probably on an annual basis, and which are then set aside so they don’t get in the way of getting the best possible job done.

Nicola Wardell, the MD of the Specsavers Agency, described recently how just such a process works for them.

But, for an external agency to work like this demands a return to retainers – and for that to happen, Finance and Procurement teams need to reverse the direction in which they’ve been pushing the industry over the past decade or more. This is not impossible, but it’s a hard argument to win in the current cost-sensitive climate, especially if advanced by the agency who, undeniably, benefits from the arrangement.

Performance measurement may actually hold the key to winning that argument, however.

If IHA teams have the same KPIs as their marketing colleagues, why can’t agencies be bonused using the same measures as their clients?

This may involve a little pain in return for the potential gain – charging a base fee below the negotiated level, but with an achievable upside if targets are hit.

Agencies will often be nervous about this because business results are dependent on factors beyond their control; and Procurement teams are equally uncomfortable about making spending commitments that are not fixed. As a consequence, such arrangements are pretty rare. But there’s a very strong case for making them less so – and the way the best IHAs work, as described by last week’s panellists, illustrates that case rather well.

So, if I was running an agency, my pitch to clients would run something like this:

“Pay us a retainer, with a pain or gain element linked to business results, and we will commit to making ourselves a part of your team. This will allow us to bring all our expertise and talent to bear on creating work that is both efficient and effective, growing your business while not burdening you with the fixed overheads of in-house creative talent.”

At the same time, if I was running an IHA, I’d make damn sure we were running efficiently by ironing out all the governance issues I referred to earlier! And I’d be very mindful of the three Ps as I sought to emulate the successes at LEGO, Inbev, the BBC and elsewhere.

I’d also feel pretty confident I could attract the best talent by not only committing to great work (because that’s what drives results) but by also promising far better work-life balance, sufficient variety of briefs and the opportunity to learn from colleagues who are creative in all sorts of different ways – not just advertising. Again, the evidence of all this was presented by Perkins, Morris and Wood in last week’s debate.

Framed like this, it’s a fascinating duel. And I really do think there’s an existential threat to external agencies that don’t start to learn some of these lessons and work in more of the ways I’ve outlined here.

However, external agencies and IHAs are not enemies. Most of the time, they will be asked to work together. For this to be successful, clear and complementary remits are critical. Marketers, IHA heads and external agency chiefs should all insist on that.

And, once they’ve done so, they should seek not only to do great work together, but to show real curiosity in each other and the way they go about their various tasks. Because the other thing to draw from last week’s debate is that, right now, in-house and external agencies are very different beasts. And, as a result, they both have so much to learn from each other.