In-house In-conomics

Unless you've spent the last month swearing off all news media and have been holed up in your rec room downing Red Bulls, playing Grand Theft Auto 13 and watching every Star Trek episode ever made, you've probably, even if just fleetingly, seen the sobering financial reports and worried about your in-house group's future. Here's the newsflash: the economy is tanking and your in-house team is vulnerable to downsizing (or “rightsizing,” as corporate PR likes to call it). One of three things will happen:

1. Nothing—which is not likely for many teams.
2. Your department will be downsized on the misguided assumption by the bean counters that this will save your company money—all too likely for many departments.
3. Or, you and your creative team leads will effectively articulate your value and convince upper management to actually shift projects from outside agencies and firms to your in-house group— unfortunately for you, perhaps the least likely scenario.

Economic instability has many in-house designers feeling off-balance. (photo: Pittsinger)

At the very real, though unintended risk of pitting in-house departments against agencies and design firms, I contend that the third scenario would best serve you and your company from a cost perspective. In addition, the urgency of the economic realties may actually provide you with an unprecedented opportunity to make your case to a more open-minded (read “desperate”) group of decision makers. If you don't take advantage of these circumstances, don't come crying when you get that dreaded call from HR.

Regrettably, upper management's knee-jerk reaction to the need to reduce overhead is to cut staff. While this may be an appropriate action to take with some departments, it often does not apply to creative teams. This fact is not obvious to someone who is unfamiliar with the process of creating marketing materials. “Finance” may not realize that if the company is still committed to marketing its goods and services, someone is going to have to execute on those projects; and by moving to an outside vendor, the net result will be an increase in marketing expenditures. Finance only sees the elimination of creative team staff as an easy way to quickly reduce overhead. Therefore, the case to be made is your team's cost-saving potential—and you'd better make it now, but you'd better do it smart.

The case to be made is your team's cost-saving potential.

The first step is to identify the people with whom you will need to have an objective, informative, but assertive discussion. Is it your manager, your one-up manager, a director in the Finance or Procurement departments, or all of the above? With whom will your discussion resonate the most and who truly has the power to act on your recommendations? Ideally you'll want to involve all the key players at one time in the same place so that they all hear the same message, can discuss the pros and cons of your proposition as a group and call out or squelch the hidden agendas of any of the key stakeholders.

Once you've determined the who, you will need to focus on the what, how and why. You'll have to gather hard data that benchmarks your costs against those of existing or potential vendors. The most basic point of comparison is hourly rates. Reach out to Procurement or Accounts Payable to get the agency rates. To calculate your rates, add up the salaries of everyone on your team and add in an additional 35 percent if they are full-time employees, to account for benefits. Divide this figureby 1,920 hours (48 weeks x 40 hours), and then divide that figure by the number of people in your group. That will give you a blended or averaged cost per hour for your team's services. (Note that 48 weeks was used to take into account vacation, holidays and sick days.) You can then present the agency/design firm costs side by side with your costs.

Be aware that this formula does not take into account overhead, other than your salaries, such as office space and utilities. It therefore could be argued that you are not comparing apples to apples. If you put this formula into the context of your company's fixed operating costs, though, it actually speaks to a key advantage of having an in-house department: the leveraging of existing corporate assets to gain additional value. Simply put, it's most likely that your company has made commitments for office space and contracts for office services that, whether or not your team happened to be there, would still have to be paid for. In essence your company is using these resources (which otherwise might have gone to waste) to better effect by using them to support an in-house department rather than paying agency rates that have to include those very same types of expenses (agencies must also factor in their rent, utilities and equipment).

There are many non-design functions that your team provides that save your company money and external partners cannot provide.

This rationale can be extended to personnel. An outside firm has to employ staff to handle non-design functions such as HR, bookkeeping and legal functions. Your company can leverage its existing staff in Finance, HR, Operations, etc., to support your team at no additional cost to the company's marketing budget. Taking this a step further, your in-house team's structure is most likely flatter than an outside design firm's. While they might have account executives, traffic and project coordinators, many of these functions are likely being handled by your design staff, further reducing overhead (and possibly adding efficiencies).

Your department does not mark up subcontracted services. It is general (and perfectly ethical and accepted) practice for agencies and firms to charge what basically amounts to a handling fee when they have to purchase print, photographs, illustration or other specialty services that they do not create internally. Typical mark-ups range from 20 percent to 30 percent. These fees can quickly add up over the course of a year. By utilizing your team those costs disappear.

There are many non-design functions that your team provides that save your company money and external partners cannot provide. Your team has a broad and deep understanding of the marketing, review and creative procedures and policies established by your company. You are in the unique position to assist in the training and support of new marketing hires in these areas. Your team can guide your clients and other partners on how to most efficiently move their projects through these often-complicated processes, so they can be more productive and spend more time on their core competencies. This extends to your branding knowledge as well. Your team will catch unintended branding and compliance errors early in the creative process before they get to a stage where it would take much more time and money to correct.

The faster marketing materials are produced, the greater the cost savings. Fewer hours spent on a project mean lower costs for that project. Your team's “speed to market” efficiencies and advantages over agencies include quicker learning curves than agencies on new projects; incentives to shorten turn times; and greater access to clients, as well as the previously mentioned brand and compliance institutional knowledge your team possesses.

Your intimate understanding of the creative process can provide valuable insights to others.

Working with your internal team simplifies your company's financial procedures, thereby saving time and money. Instead of having to issue purchase orders, process payments and pay tax on services rendered by outside resources, in-house teams often require much simpler chargeback procedures or already have funds in their budgets. This minimizes or even negates entirely the need for your company's Accounts Payable group to be involved in payments.

In your commitment to have your team best serve your company in times of financial hardship you may need to make difficult concessions that will impact your departmental structure. But these concessions can be minimized. If reduction of full-time headcount is an issue where you reach an impasse with Finance or that they can make a reasonable case for, you should consider moving some of your staff to contract-worker status. While this may not be well received by staff at first, having them come in through a staffing agency that provides benefits and a steady check beats being on unemployment any day of the week.

Finally, be sure to make yourself available as a design business expert to help your management team craft and refine its agreements with outside partners. Your intimate understanding of the creative process can provide valuable insights to others who are responsible for setting up and managing these relationships—a big value-add rationale for you and your team.

Keep in mind that the suggestions I'm making are in support of transparency, clarity and doing what's best for your team and your company—not to obscure or manipulate the facts for your benefit only. If you go into these difficult conversations with shared goals as your primary commitment, you'll be making the best case possible for the value you bring to your company.

One HUGE caveat: I'm offering this advice based on what I presume to be your company's cost-savings concerns and misperceptions about where it can best find savings in a troubled economy. By going down this road, realize that you run the very real risk of commoditizing and devaluing design. Only you know your employers well enough to predict if these rationales will resonate or if they could potentially hurt you, your team, your design firm peers or even the broader industry. When having these conversations with management, you need to clearly state the value of design in a broader context—that design is not a luxury, but a necessity of doing business in the 21st century—and assert that you are speaking to efficiencies when comparing your team to outside agencies, not comparing quality.

Editor's note: There was a mistake in the formula as published on October 17. It was corrected on October 21. go back to article