What Is In-House?

What Is In-House?

Let me explain what in-house means in a business context. In-house refers to any activity or operation that you perform within your company, using your own employees and resources, rather than outsourcing it to an external provider. For instance, this could include tasks like financing or brokering, where your firm handles everything internally.

This approach stands in direct contrast to outsourcing, where you hire outside help, often another business, to take care of those activities for you.

Key Takeaways

To summarize the essentials, in-house means conducting operations inside your company without relying on external providers. You'll see many larger companies maintaining their own legal teams, developers, marketers, or other specialized services. While outsourcing is common, keeping things in-house can give you more flexibility in how those operations run. In-house financing is particularly prevalent among carmakers and financial firms. That said, there are tradeoffs, as you have to keep these professionals on full-time even when they're not always busy.

Understanding In-House

When deciding whether to keep activities in-house or outsource them, you need to analyze the costs and risks involved. These calculations can differ based on your company's size and core business nature.

You might choose to handle things like accounting, payroll, marketing, or technical support internally. It can sometimes be cheaper to outsource, but there are cases where investing in your own professionals pays off. For example, in-house financing is something many retailers provide to make purchasing easier for customers.

By keeping activities in-house, you can exert more control since the services and personnel are under your direct management. This might also reduce security risks, especially if sensitive data would otherwise go to an outside party. Plus, your internal employees often have a deeper understanding of how your business works overall, which helps them align decisions with your core vision.

In-House Services

When dealing with customers, you might aim to keep the entire transaction in-house. Take in-house financing as an example—it's common in certain industries where your firm uses its own resources to extend credit to customers. This way, you can benefit from interest payments while taking on the default risk.

For a brokerage, you could match a client's order with another customer's, creating an in-house transaction that lets you capture commissions from both sides and cut administrative costs. Essentially, in-house financing is seller financing where you loan money to customers to buy your goods or services, bypassing reliance on external financial institutions.

Although cloud hosting is a cheap way to maintain an online presence, opting for in-house hosting gives you greater control over your online infrastructure.

Advantages and Disadvantages of In-House Operations

Running operations in-house can create an additional revenue stream by offering services your clients might otherwise seek elsewhere. Auto companies, for instance, often provide in-house financing at rates higher than banks or credit unions.

You also gain more control over how these operations are executed since you're the direct employer of the teams involved. The main downside is the cost of maintaining an extra team that might not align with your core business. Many companies outsource payroll, IT, or technical work because they're too small to justify full-time staff for those roles.

When to Outsource vs. In-House

In-sourcing gives you greater control over task execution as the direct employer, but investing in specialized full-time staff can be expensive if their skills are only needed occasionally. Most small companies, for example, don't need an in-house legal team.

That's why many keep key functions in-house while outsourcing highly specialized or non-core roles like payroll, web services, legal, public relations, and online security. Larger companies might have the resources to keep these teams internal.

Risks of In-House Operations

Outsourcing means contracting third parties to handle certain activities, with performance expectations often detailed in a contract, including tasks and deadlines.

The main risks come from involving a third party you don't directly control. If needs aren't clearly specified, they might not be liable for incomplete work. They could also have different standards, like in data security, putting your information at risk.

Web hosting illustrates insourcing vs. outsourcing well—outsourcing to a cloud provider is cheaper and easier, but some businesses prefer controlling their own server infrastructure.

Real-World Example of In-House Financing

Consider Ford Credit as a prime example of in-house auto financing. They provide loans for Ford car buyers right at the dealerships, instead of sending customers to external banks or credit unions.

In January 2017, Ford Credit partnered with AutoFi to streamline car buying and financing online, allowing customers to shop and finance through dealer websites. This reduces time at the dealership and speeds up sales for Ford. Other companies like General Motors have similar in-house financing arms.

What Is the Main Advantage of an In-House Approach?

The primary advantage is that you retain greater control over operations by keeping them in-house rather than outsourcing to a contractor. You also benefit from specialists who know your business and brand intimately, unlike an external firm that might be less familiar.

What Is the Difference Between In-House and Outsourcing?

Outsourcing involves hiring an outside company or contractor for work, while in-housing—or insourcing—assigns that work to your existing employees.

Is It Better to Outsource or Keep In-House?

Both options have pros and cons. You have more control over in-house employees' direction and management than over an external contractor. However, outsiders might bring more experience and resources for tasks like legal services. Plus, you pay full salaries and benefits for in-house staff, whereas outsourcing costs can vary depending on the task.

What Does In-House Recruitment Mean?

In-house recruitment is when you advertise, interview, and hire new employees directly to fill roles, as opposed to outsourcing to a professional recruiting agency.