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Bringing an Outsourced Service In-House

(April 2009) posted on Tue Apr 14, 2009

Many variables to consider.

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By Marty McGhie

One of the mistakes some companies make when starting a new division is to try to fold the management of that division or service into your existing leadership or management structure. This usually doesn’t work. Typically your managers will either dedicate the majority of their efforts to the new and exciting business segment, ignoring their current responsibilities, or conversely, will pay minimum attention to the new business so their current job duties aren’t neglected. Having dedicated management in charge of training, personnel, quality, and customer service will greatly improve your chances of success.

Evaluate the potential costs
So far we have considered personnel, logistics, and management. After evaluating these factors, now you should be ready to deal with the financial side. It is likely that your initial decision to consider developing this particular segment of your business was tied to financial reasons. There is a point where the amount of money paid to outside companies becomes overwhelming, even irritating. You’ll find yourself asking the question, “Why don’t we just do this ourselves? It can’t cost as much money as we are spending!”

In our case, Ferrari Color was paying several hundred thousand dollars to other installation companies. However, it took over a year of careful analysis and planning to develop a business plan that would be profitable for us. I believe that we transitioned successfully into our own installation division because we spent the necessary time and effort considering all the potential costs we could incur. Even then, we missed some, but nothing so significant that it turned our financial model upside down. By crunching the numbers and including all the factors discussed previously, you should get a good sense of whether or not expanding into a new business line will be profitable for you.

This process doesn’t have to be overly complicated. The key is spending the necessary time to ensure that you have covered all your bases. You will most likely overlook some of the small things, but those won’t make or break you. Just focus on the things you do well in your business as strategic advantages and identify your weaknesses as areas to pay closer attention. Once you decide to pull the trigger, make sure you give it your best efforts. Starting a new business segment will probably be frustrating and challenging, but it can also be very rewarding and ultimately save your company a lot of money.