Why don’t internal service providers give clients the same degree of control over their purchase decisions as service providers do? When buying outside, you decide what you want and when you want it, and your outsourcing vendor provides it. You get to set the priorities.
The fact is, internal service providers can give clients control over priorities. This is a matter of what is called the “internal economy.”
Consider an internal service provider such as IT as a “business within a business.” It operates in a marketplace comprising the rest of the organization, and produces goods and services for a price. Its clients should decide what they will and won’t buy from it.
This is easy to see for departments that charge for their services. In those cases, clients have exactly the same control over internal providers as they do over outsourcing vendors.
It’s a little more difficult to make work when staff gets its budget directly, rather than through fees for services. Nonetheless, the same mechanisms can be constructed.
Look at an internal service provider’s budget in a different way. Instead of thinking of its budget as belonging to the service provider to do with as it wishes, consider this: Clients supply money at the beginning of the year — called core budget — so that they can buy products and services all year long. This money goes into “escrow,” in other words, a “prepaid account” that belongs to the clients, not to the service provider.
Then, during the year, the internal service provider sells its products and services, and bills the escrow account to recoup its costs.
The key to making such an internal economy work is appointing clients to control the escrow account, not leaving it to the provider. At a minimum, priorities can be controlled by a client committee that manages that escrow account and sets priorities within available resources.
Of course, it’s far better if the escrow account is divided among the business units, so that each has resources to spend on the internal service provider. Once clients control this fund of “virtual money,” they will have as much control over priorities as they have with external vendors.
While simple in concept, an internal economy comprises an intricate set of processes and mechanisms. And implementing changes in an internal economy requires the adoption of new skills and processes by both clients and staff.
Additional benefits that accrue from the optimization of an organization’s internal economy include the following:
- Client control of priorities prevents unnecessary and expensive decentralization, as well as outsourcing, pressures.
- Matches clients’ expectations to available resources.
- Insures a proper rate of reinvestment in your infrastructure and capabilities.
- Aligns priorities with clients’ business strategies automatically, on an on-going basis.
- Implements service-level agreements (contracts).
- Reinforces a culture of customer focus, entrepreneurship, empowerment, and integrity through clear contracts with customers for products and services.
Client control over staff’s priorities should only be implemented as part of a systematic analysis and design of the entire internal economy. But when you address that, you eliminate the use of unnecessarily expensive outsourced services simply to reestablish clients’ control over IT priorities.
A more detailed introduction to the concept of an internal economy can be found here.
Why Your IT Team Needs a Full-time Internal Consultant
How To Get Your IT Staff to Give You Service Like Your Service Provider
5 Reasons Management Considers Outsourcing (And Why Those Reasons May Be Shortsighted)
How To Transform IT without Outsourcing: An Interview with N. Dean Meyer
Two Vendor Claims on Cost Savings that Deserve Major Scrutiny
Five Common Claims Vendors Make in Outsourcing Sales — and the Reasons Why You Shouldn’t Believe Them
© 2005 NDMA Inc.