Insourcing of Digital Media Activities: Advertisers versus Digital Agencies

Abstract

As digital technologies and possibilities within advertising develop, advertisers are faced with the decision of whether to outsource or insource their digital media activities. Drawing on research within social and economic science, the authors seek to investigate the insourcing decisions of digital media activities facing Danish advertisers, as the sourcing decisions have not previously been investigated within this context. The primary objective of the paper is to examine the relative importance advertisers in Denmark assess to factors from four different theories – Transaction Cost Economics (TCE), Organizational Agility (OA), Agency Theory (AT), and Knowledge-Based Theory (KBT), when facing the decision of insourcing digital media activities. To investigate this, a conceptual model is proposed based on an extensive literature review of previous relevant research and literature. Later, ten estimated hypotheses are tested based on the conceptual model. A quantitative study in the form of a survey is conducted to gather primary data to support the analysis of the hypotheses. In the paper it is found that the TCE factors frequency, threat of opportunism and relative cost advantage, the AT factor outcome measurability and the KBT factor technological level significantly affect Danish advertisers’ likelihood of insourcing digital media activities. A secondary objective of the study is to examine the gaps in perceptions between advertisers and agencies on the factors advertisers in Denmark find important. Through a cross-comparison analysis, highly significant differences in advertisers’ and agencies’ perceptions are found. In particular organizational agility, bounded rationality and the threat of opportunism are perceived very differently from the two groups, showing a clear pattern of agencies perceiving themselves to be looked upon better than what is the case. Overall, the research is guided through a deductive method based on primarily quantitative data complemented with qualitative data. The findings indicate several significant factors affecting the insourcing of digital media activities, which can potentially help agencies find solutions on how to act and collaborate in future relationships with advertisers. The findings ultimately lead to a discussion of the practical and theoretical implications of the research.