This article will consider the benefits of creating a fully new organisation, outside of any existing entity, or simply adding a new department to the existing entity.

Urban example

One way to think of this, and this might help make things clearer: Think of a city that has to chose either to build a new town from scratch or to expand their own city limits and start building. It is assumed that the new city and the expansion of the old city are both built on the same place.

Creating a new city is rather expensive and a lot of work as a full organisation has to be build and people have to be persuaded to live somewhere entirely new. But it does prevent bloating bureaucracy and reduces the possibility of faults made in the original city from being repeated.

The ecosystem will also have to be built, almost as we are building near city limits, from the ground up: People need stores and jobs, these all have to be facilitated. Stores actually have to be operational before people start moving in (possibly early movers with extra subsidies), big corporate jobs can come a bit later as nobody wants to open shop somewhere desolate: But you really need to persuade them, or make transport easily accessible, for the simple reason that people will need to be able to get to their jobs. Talking with big companies before deciding on a location is a possible step, offering them money in whatever form could be useful (you need to give them a reason to employ your citizens). Building a corporate ecosystem as the template for your building plan is a possible option.

When expanding it is perfectly possible to use new infrastructure for most of the added burrow; it just has to work with what you have already. Plus you have no need to form a full governmental organisation for a whole lot of common goods (water, waste management, public projects, etc.)

Expanding the old one

In this case you have to first decide on where to place it in the existing organisation; somewhere separate but still under to command of a current manager with a relevant portfolio and skillset.  Once completed a full assignment needs to be formulated and assets, regulatory requirements plus people need to be acquired. When these steps are completed you can usually start work. Naturally each type of operation has its own needs, which might differ from this piece and are likely to be a lot bigger than the described generalisation.

When translated from the urban planning example: You will still have to build something, from old infrastructure, but can use new pieces and have a great opportunity to start modernising the internal organisation. Possibly buying in bulk for a discount.

You will not need to find a new building for this option, as that would be rather inefficient, plus create a psychological hurdle for other departments to contact this one.

Building a new entity

In this case you have to go through all the steps of starting a new company (including licences, bank account, etc.) before you can even start thinking about hiring people. But there is an upside: Instead of getting a slightly bigger company, you will have two companies which operate independently from one another. As such the smaller one will have to go through less layers of organisation and not face the difficulties of adaptating an old system to their new needs (should be noted that fully tailoring a new system does also require a significant investment of both time and money).

In above example of the city; you can actually sign new contracts with existing suppliers, so not everything has to be built from the ground up. Assuming they have the excess capacity. Naturally new contacts have to be found for whatever the department specialises in.

A new location, to house the company`s employees is advisable, otherwise you still get cross contamination.

A very good reason for starting a separate entity: Investors tend to value conglomerates less then the value of the individual parts, because they are usually inefficient as a whole.

Conclusion

Of course it depends on your unique situation but a general rule of thumb is: If your organisation is already bloated, best to start a new one to avoid adding to the problem. If you are still small and fresh it is perfectly possible to add a new department.