Internal departments versus outsourcing arrangements

How do arrangements with internal departments (eg. between a regional entity and a global shared services group) differ from outsourcing arrangements?

Historically, internal arrangements have often avoided topics such as invoice credits for failure to meet service levels because it was assumed that this was just internal money.

Likewise, challenges in hiring staff in remote locations were often passed back to the service buyer under the explanation that this would be more efficient for the organization as a whole. Further, parent company guarantees--in relation to subsidiaries--were rare with internal shared service group subsidiaries, as it was assumed you could rely on the common parent.

Recently, there would appear to be a bit of a change occurring, at least in the Asia-Pacific region, whereby boards seem to have become more interested in validating that internal arrangements, while different, are reasonably consistent with arms-length marketplace transactions (i.e. outsourcing arrangements). This is particularly so for boards of subsidiaries that are not 100 percent owned by the parent of the internal services group.

As such, more and more, topics like the ones mentioned earlier are being explicitly addressed in internal shared service arrangements.

I think this is particularly promising as it shows a degree of maturity on the part of both the buyers of internal services as well as the truly strong internal shared service groups.

It's a change that I hope continues to grow but I wonder, is your organization more or less demanding of internal shared service groups compared to external ones?

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Michael Rehkopf

Michael has more than 20 years of experience in operations, strategy and sourcing covering all major parts of the globe. He has also worked for Australian, Canadian, German and Japanese companies in both business process outsourcing and IT outsourcing.
Michael's industry experience includes the financial services, manufacturing, telecommunications and travel sectors. He leverages this diverse industry experience and his university background in accounting, IT and his Master of Dispute Resolution, to assist clients in the development of business strategies and the implementation of sourcing strategies. These include the associated evaluation, negotiation and organizational change.
Michael is currently a partner at TPI, the world's oldest and largest sourcing advisory firm. Prior to joining TPI, Michael held leadership positions with Siemens Business Services, OpenPlus International, Mitsubishi Electric and Netron.