Internal markets

Case: Wessen, R.R. and Porter, D., “The Cassini Resource Exchange” Ask Magazine 16, Fall 2007, p. 14-18

Textbook Reading: Chapter 4 (Section 4.5; pp. 127-134)

For more on the Cassini mission, see here:

Watch Cassini’s grand finale:

I find it a real shame that for many years I’ve been opening students eyes to the economic benefits of utilising internal pricing between different business units, but almost all attention to “transfer pricing” in the last 10 years or so is in terms of tax avoidance (and therefore something to be discouraged). In terms of useful cases, the most relevant ones from HBR are all pretty old, although Knowledge at Wharton have an interview that covers IBM’s utilisation of transfer pricing.

In terms of metrics, I like this warning from Jeff Bezos:

Somebody a long time ago invented that metric… [and] they had a reason why they chose that… but that metric is the proxy… And then fast forward 5 years… and a kind of inertia can set in, and your forget the truth behind why you were watching that metric in the first place, and the world shifts a little, and now that proxy isn’t as valuable as it used to be, or it’s missing something, and you have to be on alert for that and know ‘I don’t really care about this metric.. and this metric is only worth putting energy into, and following and improving and scrutinizing only in so much as it actually affects [what I care about]’. [You have to be on guard against] managing metrics that you don’t really understand, you don’t know why they exist, and the world may have shifted out from under them a little and the metrics are no longer as relevant as they were.

Learning Objectives: Think creatively about how to use markets within organisations