The ANA last conducted an in-house agency survey amongst its membership five years ago. The group first went out with the updated study in April, and returned to the field again this summer for follow-up questions for the respondents. In total, 203 client-side marketers responded. Among them: Wendy's, Fidelity Investments, Brown Forman, Dell, Wells Fargo, IBM, HP, Marriott, Aflac, Beam and even marketers known to work with a range of agency partners, such as Kraft Foods.
The results showed that the penetration of in-house agencies has shot up to 58% in 2013 from 42% in 2008. Five years ago, half of the marketers surveyed said their company didn't have an in-house agency, but that number fell to 32% this year. Another 6% had one, but have discontinued it or are discontinuing it, while 4% don't have one but are planning to add those capabilities.
What's more, the in-house agency and outside shop aren't simply working in tandem and dividing duties as they have in the past. The rise of the in-house shop is to some degree coming at the expense of established outside firms.
Among those companies with in-house agencies, more than half of respondents -- 56% -- claimed to have moved established business that used to be handled by their external agency to their in-house agency. When asked which specific services they had moved from external to internal agencies, almost 40% cited moving creative strategy to their in-house agency. And strategy is an area of expertise that's previously been the domain of outside experts on Madison Avenue.
"I candidly was quite surprised; I did not think this shift had happened," said Bob Liodice, president-CEO of the ANA. "It took such an incredible leap. Sixteen is lot of percentage points [regarding the penetration of in-house agencies]."
Mr. Liodice thinks the survey results suggest that adland needs to reexamine its value proposition and find better ways of communicating why agencies are important and relevant to advertisers today. "We have always relied on the agency model because there was something they were providing that in-house agencies did not," he said. "But is the value equation with the agency still there? Are marketers still finding there is value in working with outside partners?"
"I think it suggests that in general, agencies are having a more challenging time staying one step ahead of the marketer," Mr. Liodice said. "What marketers are now finding is they can reach out directly to Facebook, Google or NBC, and get insights. And we're seeing sometimes they are going directly to them for ideas and innovation and creativity."
Work More Varied, Larger Staffs
Beyond growing in popularity, in-house agencies appear to be growing in size -- a sign that marketers are investing more in the way they are run. Five years ago, the ANA said 46% of in-house agencies had 11 to 100 employees, while in 2013, that number has risen to 57%. In addition, almost half (43%) of those surveyed said that their in-house agency's reach is global.
The ANA reports that in-house agencies are expanding their capabilities, too, handling a broader range of work than they have in the past. "It's still a lot of collateral and point-of-purchase, but strategy work is increasing and about half of the in-house agencies are doing some kind of media planning and buying," said ANA group exec VP Bill Duggan. He added: "When we went back in the field in June and July and asked about newer functions like digital, social and mobile, we were told those were assigned to in-house agencies, too."
Cost-Cutting, Procurement Influence
The ANA attributes the increase in in-house agency activity largely to corporations slashing ad budgets and the CMO suite being forced to do more across a range of marketing channels with less. Those marketers that have in-house shops say that moving advertising duties to an internal organization can reduce costs when compared with outsourcing, especially with the increased reliance on digital and social marketing channels.
Cost efficiencies are still the most often mentioned advantage (88%). However, other factors, such as institutional knowledge (up 14% from 2008) are adding to marketers' decision to build up their in-house resources.
The trend isn't being driven by CMOs alone. When a company has a marketing procurement department, those procurement execs often influence the moving of business from an established external agency to an in-house one. According to the survey, 45% of those companies with marketing procurement divisions referred to procurement as "influential" in deciding to move business in-house.
The largest percentage of those surveyed (42%) say that their domestic budget for labor hours and overhead to support in-house agencies is less than $1 million, while just over one-third (34%) say that their budget is $1 million to $4 million.
"I think it's absolutely cost-driven and the need for quicker turnaround as well," said Mr. Duggan. "[In-house agencies] are closer to their internal brand groups and internal decision groups and have those conversations in the hallway rather than setting it up via phone and email."
The biggest challenges that in-house agencies face in 2013 are staying on top of key trends (it was cited as a disadvantage 45% of the time in 2013, up from 36% in 2008) and the lack of creative innovation (which increased to 43% from 34%).
The dissatisfaction with creative innovation calls into question whether marketers can attract the same quality talent that Madison Avenue can. For one thing, ad agencies permit creatives to work on more than one account, which is often appealing to creatives. Secondly, as ad budgets on the marketer side tighten, agencies are often able to offer more generous salaries.
The survey showed that 6% of respondents had previously had an in-house shop but closed it. The top reason cited? The need for better marketing skills.
"It's long been the reputation of in-house agencies that talent is not as strong as outside agencies," said Mr. Duggan. "But I do believe that's changing. Increasingly there are in-house agencies that are doing better work, and there's some degree of talent migration from traditional to in-house agencies." That information was based on discussions with members and others in the industry, but not something that was borne out out of the study, he said.
"The continual emphasis on the bottom line and cost-savings has accelerated the in-house agency," said Mr. Duggan. "But the new news seems to be that they are delivering on the 'good' not just the 'fast' and 'cheap' -- in some cases doing work more comparable to outside agencies."
Said Mr. Liodice: "I don't expect people to be dumping their entire outside agency roster, but what you're seeing are some things peeling off. Is this a warning? Are marketers getting more comfortable with having conversations directly with the media companies or even doing media-planning and buying themselves? I think the answer is yes."