As an organization grows, internal support structures evolve to handle certain services that are needed throughout the company. It needs HR to manage hiring and employee relations. It needs IT to keep the company’s technology assets running efficiently. It needs an accounting department to handle day-to-day financial functions.
Teams across the organization have no choice but to use these internal structures for the services they provide … and generally, that’s a good thing. Imagine the chaos if each department had to make its own arrangements for hiring every new team member or for paying every bill.
We see where problems can arise when we consider that these internal service providers are monopolies — and we’ve all seen what can happen with monopolies in the marketplace. Unbound by the rules of competition, a monopoly can become complacent. It can take advantage of the consumer’s lack of choice by increasing its prices at will. It can become sloppy in its customer service. It can allow bureaucracy to spiral out of control. None of that matters as the unspoken mantra “Where else are they going to go?” begins to infuse every decision.
In far too many organizations, internal service providers take on a monopoly mentality. It’s not that the people in these support structures are bad. But in the absence of competition, they can eventually stop making market-driven rational decisions and begin acting in their own self interests.
Five Warning Signs of a Monopoly Mentality
To determine whether an internal support structure is developing a monopoly mentality, it helps to be on the lookout for the following red flags:
- Low responsiveness. When the department or function receives a request or a question, how long does it take them to respond? When they do, is their response helpful, or does it give rise to more questions? Do people throughout the organization feel like they have to fight for every answer and every action they need from this department?
- Slow pace. What is the team’s average turnaround time for performing its standard services? Does the time frame seem to be unusually long compared to what you know of other organizations or external service providers?
- Heightened bureaucracy. How many steps are involved in requesting a service from this function? How many forms are required? Does technology help facilitate the work or make it more difficult to get things done? How many people at how many levels are involved? In troubleshooting situations, how many times do you have to tell the same story to different individuals before action is taken?
- High costs. How much does it cost the organization, considering both fixed and variable expenses, for this team to perform its standard services? Does the cost appear to be unusually high compared to what you know of other organizations or external service providers?
- Lack of continuous improvement. Functions without an external motive to change and improve may lack the discipline and focus to continually improve processes and services. What evidence can be seen that things are getting better or easier? Is there a culture of continuous improvement? When a problem arises, does the department or function have a standard procedure for finding and addressing the root cause, or is every situation an exception?
Building in Market Relevance
If the organization is to guard against a monopoly mentality among its internal support structures, the alignment leader must set up an operating model that incorporates market relevance.
The first step an organization might consider is to determine which activities it must perform internally and which ones could be outsourced. For example, one of our clients has implemented an in-depth psychological assessment as part of its executive recruitment process. As this assessment is unique to the organization, it makes sense that it remain in house. Conversely, more standard activities like payroll might be good candidates for shopping out to external experts.
Shopping outside the walls of the organization might not be a practical option for every service, every time, but under certain conditions, it might be appropriate for internal clients to compare internal services with those of outside providers.
When internal services are isolated from the market dynamic, it’s all too easy for a monopoly mentality to arise. By implementing organizational strategies that introduce market considerations, alignment leaders can ensure that internal support structures continue to serve the organization in an efficient and effective manner.