The use of internal sources rather than outsourcing for activities such as hiring and operations

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What Does In-House Mean?

In-house, or insourcing, is a term used in business to describe the utilization of internal sources rather than outsourcing for activities such as hiring and operations.


In-House vs. Outsourcing

The performance of operational duties and activities is an increasingly important aspect within a business that requires educated cost allocation to become profitable. When deciding where to allocate costs it is important to understand the difference between outsourcing or choosing to complete business activities with their own staff.

In-House: When referring to internal sources, it means a business would hire and use its own employees to complete specific jobs, making it an “in-house” job or operation.

A good example of executing in-house would be if an organization were to propose a new accounting department and hire all the accounting staff from within.

Outsourcing: When an organization employs an external company to perform business activities on a contract or agreed-upon basis. Some of the most popular outsourced business activities include accounting, marketing, manufacturing, information technology, legal, and human resource management.

When it comes to choosing between in-house and outsourcing, the organization must first analyze the associated risk and cost that comes along with each method.

Advantages of Choosing In-House

Opting for in-house initiatives provides several advantages that can potentially increase margins and overall efficiency, including:

1. Operational Control

Considering you are hiring from within, the organization is able to manage its team and control processes more easily. In contrast, outsourcing increases the amount of time that the consultant would need to understand the issue and the way the organization and the team works, reducing team control.

2. Work Continuity

Recruiting externally can be a slow process because due to the onboarding and orientation process. It is immediately eliminated due to the fact that the internal employee is already immersed within the organizational atmosphere and understands a company’s history.

3. Motivation

Implementing a system that focuses on hiring from within creates a large aura of motivation throughout the entire organization. It is because employees feel motivated to climb up the organizational hierarchy and will put more effort into their work to achieve job growth.

4. Social Capital

According to studies, insourcing business operations directly correlates to an increase in social capital and knowledge sharing. It is because trust plays an important role and knowledge sharing and colleagues are more likely to trust employees they already know compared to new hires.

Risks of Choosing In-House

Although there are a number of benefits that are presented when choosing to utilize operational activities in-house, there are also some risks associated. Described in detail below are the risk of choosing to allocate operations in-house,

1. High Costs

Compared to outsourcing, it can become quite costly to allocate operational duties in-house. It is because the business will need to equip the workplace for new employee positions and/or buy/rent additional office spaces due to potential team extensions.

Also, it is common the in-housing directly correlates to higher wages, thus increasing overall expenses quite significantly.

2. Reduced Job Pool

Considering in-housing focuses on hiring from within, the practice immediately limits the number of job candidates and may eliminate highly qualified individuals.

For example, choosing to in-house may forfeit the potential opportunity to find the perfect person for both the organization and the position concerned.

3. Delays in Process Flows

In some cases, hiring from within leads to a longer implementation of process flows, training, and production. It is because in-housing generally hires less experienced applicants compared to opening the position up to the entire labor pool and selecting the best fit.

The Most Common In-House Operations

To understand the depth and commonality of in-housing operational activities in an organization, listed below are the most common activities that are insourced:

  • Human Resource Management: HR is the most common in-house operation due to the relationships that are needed to be developed with the employees.
  • Accounting: Especially for payroll, accounting is one of the most common in-house operations due to organizational complexity and linearity.
  • Marketing: Employees within the organization are already immersed with the culture and history, making marketing a somewhat common in-house option.

As it may seem to be a running trend, in-housing is utilized for positions where direct relationships are necessary for development. It is why the operations above are the most common ones that are insourced.

Additional Resources

CFI is the official provider of the Certified Banking & Credit Analyst (CBCA)® certification program, designed to transform anyone into a world-class financial analyst.

In order to help you become a world-class financial analyst and advance your career to your fullest potential, these additional resources will be very helpful:

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