The agency model is a massive success in the business world.
For proof, just consider Statista’s figures for advertising agencies in the United States. It says that the advertising agency industry alone will be worth $424 billion by 2027. That’s not counting the many other types of agencies out there, such as real estate. All told, this figure represents a 20% increase in the advertising agency industry’s value in 2023.
Over $400 billion.
That rapid growth is fueled by companies like yours.
When you don’t have the in-house expertise to do something – like run a digital marketing campaign – you go to an agency. That agency charges money, often in the form of a monthly fee, and you send work to them.
But what if you flip the script?
Instead of hiring agencies, you build an in-house internal agency into your existing business. You essentially cut out the intermediary and gain more control. However, the cost of going in-house may be larger than you anticipate.
To understand what an in-house internal agency is, you first need to understand what it isn’t.
In the typical agency model, you have a business that provides a specific service to clients. Let’s say the agency works in digital marketing. It will provide digital marketing services – such as web design and SEO – to multiple clients, each with its own goals. The agency is filled with experts that their clients don’t have. Fees charged go toward access to those experts and the services they provide. Plus, the agency will likely have project management software – perhaps with client portals – to help it manage its client load.
That’s not how an in-house agency operates.
Though an in-house agency does what an equivalent external agency does, the key difference is simple:
It does those things for a party of one.
In other words, the client that uses the agency’s services also owns and operates the internal agency. Thus, it essentially acts as an internal department to the owning company. However, it’s a department that may have some level of autonomy. In some cases, the internal agency’s materials may be directed to outside companies, though this is on a per-project basis.
It can often be tough to separate an in-house internal agency from a simple department within a company. That’s especially the case in the marketing sphere – surely an in-house marketing agency is simply a “marketing department?”
Not exactly.
The following two examples provide some insight into how an internal agency functions inside a business.
Having an in-house real estate agency is exceptionally rare. So rare, in fact, that it’s the domain of extremely large multinational companies that have vested interests in property.
Companies like Microsoft.
Microsoft maintains an in-house real estate agency because it manages hundreds of buildings. These buildings constitute a massive real estate footprint, including warehouses, offices, labs, and many more.
And, as the company points out, managing real estate within Microsoft is a little more complicated than running a standard real estate agency. Its in-house team is responsible for locating viable property, as well as managing purchases and sales. However, it also takes on a logistical component, with transportation and facility operations included. Plus, Microsoft’s internal real estate agency is often tasked with setting up buildings so they’re suitable for work.
Marketing perhaps provides a better example of an in-house internal agency. Though, like real estate, these types of agencies are often formed by massive enterprises.
One example is BBC Creative.
An in-house agency that works solely for the BBC, it’s responsible for the organization’s marketing and branding. Typically, this involves a lot of the work that a normal advertising agency would do. For instance, its campaign for the “Young Families” TV show involved creating what amounted to banner ads installed on elevators. This is print advertising – a common service offered by external marketing agencies – though it’s tailored to the BBC by an agency it owns.
BBC Creative is also responsible for creating the BBC’s marketing and advertising strategies. Once those strategies are approved, it executes – creating whatever materials are needed for the campaign.
So, why does BBC have its own marketing agency?
The company spends about $5 billion per year producing dozens of new TV shows. Having an in-house agency simply reduces friction. Rather than relying on an external agency to match its fast pace, the BBC can work directly with BBC Creative to develop marketing strategies.
Let’s stick with the creative agency example when examining structure.
An in-house internal agency’s structure will match that of an external agency, for the most part. There’ll be a hierarchy in place, with the agency’s head at the top. Underneath that agency head will be departments within the creative team, including Finance, Technology, and Product Design. Collectively, they’re responsible for keeping the team running and ensuring it has the agency management software it needs.
However, it’s here where you may see the first key difference:
Most in-house internal agency structures lack sales and marketing departments.
The reason being, those departments are practically useless to an in-house agency. The business only serves one client – its parent company. Revisit the BBC Creative example and you’ll see what that means. Rather than having to spend a lot of money on attracting prospects and driving sales, BBC Creative simply waits for its next assignment. That assignment will always come from the BBC – its parent company – meaning sales and marketing aren’t needed.
Returning to the hierarchy, the departments an in-house agency does have will usually be structured in the traditional format. For instance, the Finance department will have accountants and bookkeepers. Product will focus on the creative side, with teams in place for each service the agency offers to its parent company.
It’s all very familiar, barring the lack of sales and marketing.
But let’s zoom back to the top of the structure for a moment. There’s another difference compared to external agencies:
There’s a parent company above the agency head.
In a traditional agency, the head is usually the agency’s owner. While that owner may have a board to answer to – in the case of large agencies – that owner is typically in charge of overseeing strategy. But as with sales and marketing, overall business strategy isn’t a concern for the head of an in-house internal agency. So, above that head will be the parent company, which passes down tasks for the head to manage.
Perhaps you can think of an internal agency’s head as a glorified project manager.
They’re responsible for building strategies and campaigns for the parent company’s products. But they’re unlikely to develop growth strategies for the agency itself. That lack of overriding strategy creation is replaced by the task of liaising with the parent company’s representatives.
So far, the focus has been on what an in-house internal agency does.
But what about the other side of the coin? These agencies exist because a parent company creates them. The question now is simple – why would a large company decide to create its own agency?
The answer: There are several advantages to this model. But beware! There are also a handful of downsides that might make working with an external agency a better choice.
First, the advantages. Why create an in-house agency when external agencies are readily available?
Control is the key reason why a parent company will even consider creating an internal agency. They want control over the projects the agency works on, the agency software they use, and the agency’s ultimate output.
And that may not come as a surprise when you realize how many brands aren’t happy with their external agencies.
One survey – which quizzed 106 CMOs – found that only 14% of companies are “highly satisfied” with the services they receive from their marketing agencies. Granted, a further 55% say that they’re “moderately satisfied,” though “moderate” isn’t exactly the exceptional service many brands expect. Worst of all, nearly a third (30%) of CMOs are simply unhappy with their creative agencies.
None of these companies can control how their external agency operates.
They can merely choose whether or not to work with them, creating a trial-and-error process of testing agencies to find one they like.
A company with an in-house internal agency doesn’t have that problem. If it’s not happy with the agency’s output, it has control over strategy and personnel changes to ensure it gets what it needs.
Let’s assume a company wants to launch a new marketing campaign as soon as possible. If it’s working with an external agency, “as soon as possible,” could take weeks, or even months, to start. Their agency will have other clients – some of which may take priority – making it harder to start a project. And once that project is in play, the company then has to trust that the external agency has appropriate systems for easy communication.
Many don’t.
They may not have client portals in place – making the serviced company feel unimportant – and every request has to go through multiple approval stages.
Again, these issues disappear with an in-house internal agency.
Communication is easier because the agency is part of the organization. They understand the organization’s goals like no external agency can. And, when they receive requests, the internal agency will always prioritize their sole client.
After all, that sole client owns the agency!
Trust is a major barrier in the agency world.
Take marketing as an example. Digital marketing expert Neil Patel points out that 80% of company CEOs don’t trust marketers. Perhaps that’s why 69% of businesses admit to having no digital marketing strategy – the top brass don’t trust an external agency to make one work. However, Patel also points out that CEOs are much more likely to trust internal figures in their businesses, such as CFOs and CIOs.
You see where this is going.
An in-house internal agency will be overseen by an internal figure, such as a chief of marketing. As a result, trust is much higher in the agency, which benefits both the agency and its parent company. The agency can get on with its work without worrying about maintaining its clients. As for the parent company, the trust comes back to the control benefit mentioned earlier:
It’s much easier to trust something when it’s yours.
Let’s revisit the BBC Creative example from earlier.
The BBC is a U.K. television network. It has several rivals in that space, including ITV, Channel 4, and Channel 5. Now, imagine that the BBC has identified an external marketing agency that would be perfect for its objectives.
The problem?
That agency currently works with ITV.
Now, there’s a conflict of interest because the agency isn’t going to work with two major television networks. Even if it was willing to do so, there would be a major trust issue – what if materials from one leaked to the other?
With its in-house internal agency, the BBC doesn’t have to worry about these conflicts arising. BBC Creative isn’t going to start creating campaigns for some of the BBC’s biggest competitors. Any work it does – whether for the BBC or another company – has to be approved by the BBC first.
The point is simple:
With an in-house agency, a business can wave goodbye to conflicts of interest.
Building on the above mention of material leaks, data security is a major concern for any business. It’s not just leaks related to the company’s marketing strategy that could be problematic, either. An external agency may have access to sensitive information that needs to be protected at all costs. Again, the BBC provides examples. As a television network, it needs to keep its marketing agency up to speed on TV projects and intended release dates.
If that information comes out before BBC is ready, its rivals could start counterprogramming early.
Now, consider the fact that there were 3,205 data compromises in the U.S. alone last year. Those compromises happen because companies don’t have adequate cybersecurity measures in place.
This leads to an obvious question:
Can a company trust an external agency to take proper precautions with data security?
With an external agency, it can ask about security processes, but it can’t confirm those processes are followed. For some, that means an in-house internal agency with cybersecurity processes the parent company defines and implements is preferable.
Though the benefits of having an in-house internal agency are clear, they’re not always enough to outweigh the disadvantages. Heading the list is the most obvious drawback to building your own agency.
When a company works with an external agency, its costs are easily defined. The agency will charge either flat fees or hourly rates for different services, all of which can be worked into a budget. A company using that agency doesn’t have to worry about anything else.
No hiring.
No salaries.
No equipment or agency software purchasing.
All of that’s handled by the external agency, ultimately, making that agency cheaper than the in-house equivalent. If a business sets up its own agency, it has to accept the costs that come with it. These costs aren’t just monetary, either. As the in-house agency is owned by its parent company, that parent company has to expend time on running the agency. Even when some of these tasks are delegated to the agency head, it has to be overseen by the parent.
The very thing that attracts a business to the concept of an in-house internal agency can also be a major disadvantage.
When you keep everything internal, you fail to invite outside perspectives into your marketing.
The point of an in-house agency is to gain alignment and make processes smoother. The problem arises when there are issues with processes that neither the parent nor its agency identifies. They’re almost too “in sync,” leading to them falling into the same-old, same-old strategies.
And external agency brings a new perspective.
It’s able to take an unbiased look at a company’s marketing strategy and provide insight without worrying about internal politics. That’s not always the case with an in-house team. It’s a “missing the wood for the trees” situation – sometimes the internal agency is so close to the parent that it can’t see problems.
Skill limitations are the leading reason why brands outsource to external agencies in the first place. In fact, 69% of business leaders point to skill gaps as being major problems in their companies.
Building an in-house internal agency is an attempt to fill those gaps.
But there’s no guarantee the attempt will be perfect. Take an in-house marketing team as an example. That team may be primarily focused on traditional marketing, such as print, radio, and TV. The people hired for it are experts in those fields, but the agency’s approach is too narrow.
The parent company wants to move into digital marketing.
Now, that parent faces a problem. Does it hire more talented people – increasing costs in the process – to cover the skill gap? Or, does it try to pivot or retrain its existing team to do something it’s not currently capable of doing? Either approach costs time and money, with a high possibility that something will go wrong.
Those skill limitations aren’t an issue with an external agency.
Companies hire external agencies based on need. If the “traditional” marketing agency used today can’t cover the digital marketing needed tomorrow, that’s no problem. The company just ditches the old agency to move on to a new one.
That’s rarely an option with internal agencies unless the parent company is willing to conduct mass layoffs.
For a small business, building an in-house agency of any kind is usually a bad decision.
It all comes down to cost.
You’re essentially building a business within your business – one that needs constant oversight and investment. Every new hire takes tens of thousands of dollars away from your bottom line. And that’s not to mention the costs of setting up and ensuring the agency has the appropriate business management software.
Going the internal route works better for massive companies. It’s no coincidence that the two examples cited in this article are multinational businesses. They work at such a scale that it might even be cheaper to create an in-house internal agency. Even if that isn’t the case, companies as large as those highlighted here have brands to protect.
Far better to work with an internal agency that understands the brand than an external one that might get things wrong.
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