Symptom: Clients expect results, whether or not resources are available; i.e., client demand exceeds supply.
Particularly with internal staff functions, clients may think they have the right to demand whatever they need without regard to available resources. In such cases, demand quickly outstrips supply.
One possible reason is that demand is unbridled; clients may be allowed to expect more than the organization can afford to deliver. If an internal staff function does not charge for its products and services, then clients perceive its price as zero. And when price is zero, demand approaches infinity. There is no incentive for clients to filter low-payoff ideas. This leads to backlogs, i.e., demand far in excess of supply. And, by the way, much of that backlog may not be worth doing.
A similar problem occurs when one client decides what to buy and another person (perhaps at a higher level in the client organization) pays the bills. Whenever purchase decisions are disassociated from economic consequences, the effect is equivalent to a price of zero.
Demand can exceed supply if the client purchase-decision process is faulty. For example, if projects slip into the backlog without going through a client purser who controls their spending power, or pursers are not be aware of the limits of their spending power, expectations will exceed resources. In this case, the systemic answer is to ensure that nobody other than a client purser with finite spending power has the right to request systems.
Demand can also get out of hand if clients do not recognize their limits of affordability. It may be that they are not disciplined to work within their finite resources, and believe that the organization can do more work for them even though they've consumed all available resources.
Another possible reason is that supply is not allowed to float to meet legitimate demand. Some executives think they can control expenditures on staff functions by holding down the size of the staff group (supply management). If clients have needs that are worth satisfying, and the corporate staff function doesn't have sufficient resources to serve them, clients will simply go elsewhere. They will start their own decentralized groups or spend money on contractors and vendors. In either case, expenditures have been diverted to higher cost suppliers, not constrained.
In other words, controls must be placed on spending power, not supply. If executives attempt to control expenditures by controlling supply, they in fact only limit the market share of the central staff function while overflow demand is satisfied elsewhere. The only way to cut spending is to cut clients' spending power, that is, manage demand rather than supply.
If the marginal return on investments (ROI) in the organization's products are significantly above (or below) other uses of capital, then the capital market is out of balance. (For example, if the organization offers 1,000 percent return on strategic applications, while investments in other areas return only 40 percent, then resources should have shifted from the other areas into your organization's products.) This indicates a problem with the resource-level adjusting mechanism. (Unfortunately, capital arbitrage is not a viable option within organizations.)
In an internal staff function, problems with supply may originate in the budgeting process. Since clients are the ultimate beneficiaries of your resources, they should be the ones who argue for more resources. If clients do not defend the your budget, there may be a lack of executive belief in the payoff of your products and you won't get the budget you need to satisfy your clients.
Another reason supply may not be adequate to match demand is mid-year inflexibility. Business conditions change, leading to legitimate changes in demands on the organization. The organization must be free to expand and contract as demand warrants, without being limited to a budget done long ago or subject to arbitrary caps on headcount or expense.
The balance between supply and demand is a critical function of the internal economy. In that subsystem of the internal economy, all of these processes are treated.
