Agencies: To Subcontract or Partner?

Interactive agencies, it seems, still lack the respect traditional companies garner. Our firm recently learned we weren’t even part of the RFP (define) process for an existing, extremely satisfied two-year-old client because it “wanted a real, full-service agency” to take over its marketing and advertising. Ironically, the agency it finally chose actually outsources portions of its online marketing work — to us!

In the wake of this announcement, I couldn’t help but examine the classic advertising agency model and client perceptions of it. Anyone in the business knows hardly any “full-service” agency can actually perform every single service in-house. Certainly, the larger the agency, the more likely it’ll have more services under its own roof. But when it comes to specialized tasks, any agency will subcontract to service its client (and protect its relationship with that client). Typically, the agency will mark up the subcontractor’s services, thus turning an outsourced service into an additional revenue stream.

Depending on the agency’s policy, the subcontractor may be invisible to the client. The client never knows whether the talent performing services for it is in-house or subcontracted. In times past, it was virtually taboo for larger agencies to reveal it was subcontracting client work. God forbid the agency reveal an Achilles’ heel! Better to subcontract than not deliver at all.

Now the pendulum is swinging in the opposite direction. With various new media and rapid changes in technology, it’s impractical to believe a single traditional agency can maintain all kinds of specialists on payroll. Nor can many agencies profess instant expertise in all new media. Clients realize this, and their expectations are changing. It’s acceptable for a traditional agency to merely act as a general contractor. This permission means the agency must no longer hide the subcontractor.

Hail to a new type of service provider: “partnering agencies” or the “virtual agency.” In this kind of service relationship, an agency with the primary client relationship brings in another agency or individual with the talent required to fulfill project obligation. It’s a best-of-breed approach, with all parties completely visible to the client. The thinking goes: Rather than try to pretend we have this expertise, let’s bring in others who really do. Together we’ll be a stronger team.

The virtual agency approach can also be more economical for the client, even if best-of-breed talent at first seems more expensive. Bringing in expert talent usually brings with it streamlined processes and efficiencies the agency trying to tackle the project on its own or through invisible subcontractors doesn’t have. By not trying to hide a subcontractor, learning curves and brokered communications are reduced.

Cost savings can also be realized through the relationships the partnering agency brings with it. For example, an online media buying agency brings its publisher relationships and negotiating experience. The virtual agency arrangement needn’t make client billing any more complicated than the single agency version, either. The primary agency can still act as general contractor, billing the client and paying all its partners.

When an agency comes to the table as a partner rather than as an invisible subcontractor, there’s pride at stake. From the start, that partnering agency’s name is on the work and in front of the client. The partnering agency receives respect and credit for the work. These are extremely strong motivating factors beyond fees alone. The primary agency can benefit by becoming heroes for assembling such a strong team.

Adopting this approach requires courage and risk on the part of the primary agency. Not all agencies are comfortable admitting there are services they can’t perform. With a subcontractor, it’s clear who owns the client relationship (the agency). But with partnering agencies, by exposing the client and the partnering agency to one another, the primary agency potentially risks the client going direct in the future. Trust is a huge factor among partnering agencies.

Then, there’s the matter of integrating all parties’ processes and deliverables into one cogent project. Ideally in this kind of situation, to the client the delivery of services should be still seamless and streamlined. Needless to say, things don’t always run smoothly.

Agency rationales for partnering versus subcontracting vary. But until clients more readily accept nontraditional models, it will continue to be business as usual.

Hollis is off this week. Today’s column ran earlier on ClickZ.