Are You Outsourcing Value Creation?

by Jay Deragon on 08/07/2013

outsourcing-management-as-a-service-1-420x215John is the CEO of a $300 million national franchise that specializes in fire restoration and cleaning services. The company employs thousands of people and has franchisees all over the country.

The business is 25 years old and relies on its reputation and word of mouth created by national and local marketing campaigns for sales.  Most of their marketing efforts have been done through traditional channels such as trade shows and advertising through print, radio and television.

Recently the company hired a new CMO who wanted to bring the company’s message and marketing into the 21st century. The CEO agreed that the company needed to catch up with the times. The COM hired a digital agency who redesigned the company web site then put together an online and offline media campaign integrated with targeted channels with more being spent online that ever before. They did ad campaigns on Facebook and LinkedIn as well as used Google Banner Ads aimed at targets based on demographic and psychographic profiles of likely franchise candidates and buyers.  Millions of dollars was about to be spent and a lot was at stake.

Six months later sales began to increase, site traffic went way up, online interactions and engagements were pouring in daily, word of mouth was spreading, traditional media was writing stories about the rebirth of the brand and the new CMO looked like a hero. The CEO smiled at his wisdom and the shareholders were all happy.

The CMO took the CEO of the digital agency out to an expensive dinner and said “You all did a superb job and it looks like you’ll have our account for a very long time”.  ”I am happy because all I have to do is manage you”.

But then there is the rest of the story….

Are You Outsourcing Value Creation?

Most companies rely on digital agencies or consultants to manage their digital presence, social engagements and other related online things like optimizing search marketing.  Most organizations view all things social as a marketing process rather than a critical asset of the organization.

The Digital Economy flourishes not from tangible assets like servers, routers and all that stuff the IT departments ask for but from human connections, conversations, collaborations, ideas and experiences created by networks of people.   Such things are intangible and considered to be assets because these are the things that create value for consumption or exchange which are reflective or representative of economic value.  Economic value comes not only from financial transactions but also from the rich pool of data gathered from online activities revealing strategic insights about your buyers, prospects, employees and the markets you are trying to serve.

By outsourcing management, control and leadership of digital assets in essence you are outsourcing value creation which is core to creating value for shareholders.  What happens if the CMO gets hired away by a competitor because of the media’s coverage of your company’s recent success? What happens if the staff from the digital agency leaves with your passwords, data and knowledge?

You just lost your intangible asset because you failed to internalize the knowledge.    Now answer the questions from above.

There are a lot more intangible assets to lose and more to gain than told in this one story.

{ 3 comments }

Andrew Davison August 20, 2013 at 7:16 am

As Kidhannn says this is a comletely worst-case scenario outlook.

It the case of such a traditional business it’s safe to assume that they would not have been able to achieve such success so fast if they had tried to build internally from the start… they needed to bring in a consultant.

Now if the CMO is worth his salt he will try and build the relationship with the digital agency as if they are a partner rather than a supplier. They should be considered part of the company in all ways and trust should be built.

And of course the CMO can look to start to internalise some of the knowledge. Have round table feedback sessions where people at the company pitch ideas to the digital agency and the digital agency feedback on their efforts, strategies and ideas for the future… so everyone knows what’s going on and is on the same page.

Window Replacement Orange County August 9, 2013 at 7:39 am

Every business model depicts the design of transaction content, structure, and governance so as to create the value through the exploitation of business opportunities. We propose that a ?rm’s business model is an important locus of innovation and a crucial source of value creation for the ?rm and its suppliers, partners, and customers.

Kidhannn August 8, 2013 at 12:39 pm

I think it is always easy to look at the adverse effects but look at what was achieved. It is naive to think that outsourcing value creation does not work – in that above case, this has been proven totally wrong and rather there has been a lot of value created through outsourcing that channel.

You could apply the same thoughts on any type of activity… what is your IT administrator walked out with passwords; what is your key developers walk away with key knowledge and IP.

In my opinion, outsourcing in general has both positive and negative aspects as insourcing any type of skill. You just have to manage it well and cover yourself in situations like you mentioned above.

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