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Quote: Sigmund Freud

“Just as no one can be forced into belief, so no one can be forced into unbelief.” – Sigmund Freud

Quote: Bennett Cerf

“The person who can bring the spirit of laughter into a room is indeed blessed.” – Bennett Cerf

Quote: Stephen Jay Gould

“We pass through this world but once.” – Stephen Jay Gould

Quote: Pauline Phillips

“The less you talk, the more you’re listened to.” – Pauline Phillips

Quote: Pearl S. Buck

“You cannot make yourself feel something you do not feel, but you can make yourself do right in spite of your feelings.” – Pearl S. Buck

Quote: Joseph Brodsky

“Cherish your human connections: your relationships with friends and family.” – Joseph Brodsky

Quote: Charles Dickens

“The pain of parting is nothing to the joy of meeting again.” – Charles Dickens

Quote: Charles Kingsley

“All we need to make us really happy is something to be enthusiastic about.” – Charles Kingsley

Quote: E. Stanley Jones

“Our actions are the results of our intentions and our intelligence.” – E. Stanley Jones

Quote: Dr. Seuss

“The more that you read, the more things you will know. The more that you learn, the more places you’ll go.” – Dr. Seuss

Quote: Rick Warren

“If you’re alive, there’s a purpose for your life.” – Rick Warren

Quote: Aldous Huxley

“Man approaches the unattainable truth through a succession of errors.” – Aldous Huxley

Quote: George S. Patton

“Success is how high you bounce when you hit bottom.” – George S. Patton

Quote: Socrates

“Beware the barrenness of a busy life.” – Socrates

Quote: Plato

“There are two things a person should never be angry at, what they can help, and what they cannot.” – Plato

Quote: Aristotle

“Quality is not an act, it is a habit.” – Aristotle

Quote: Oswald Chambers

“The whole point of getting things done is knowing what to leave undone.” – Oswald Chambers

Strategy tools: Effective transfer pricing

So much has been written about transfer pricing. Yet it remains a bone of contention in almost every organisation. Transfer pricing is not merely a rational challenge – it often raises the emotions of internal service users and providers who argue regarding scope, quality, price and value.

We have found that effective transfer pricing relies on some fairly simple best practices and critical success factors.

Many organisations recover costs as a regular ‘below-the-line’ deduction from operating division income statements. In our experience, charge out is almost always preferable. This results in internal value judgements and negotiation regarding delivery happening closer to time of use.

Internal prices / cost recovery plays a crucial role within an organisation: it ‘price signals’ to the buyer and the supplier of the service. Buyers make economic use decisions and suppliers make resource and capacity decisions. This fundamental function and consequence governs the optimal implementation of internal pricing / cost recovery.

We have typically seen that the realisation that internal pricing plays this role and the consequences of poor implementation are not well understood.

Results of poor transfer pricing implementation

Sub-optimal economic use decisions

Where costs / prices are higher than they should be, buyers pass this on as an inflated cost to their customers, experience margin squeeze, or utilise less of the service than they might have.
Strategically this can lead to incorrect decisions regarding the provision of services to the market and loss of market share.
Where costs / prices are lower than they should be, this can lead to overuse of a product or service and poor cost recovery from external customers.
Strategically this can result in the over promotion and sales of products and services that are achieving lower margins than thought, or that might even be making losses.

Sub-optimal investment and resourcing decisions

Incorrect pricing can lead to over- or under-investment in capacity and product or service quality. Further, the resourcing decisions will be incorrect should the price signal to the supplier be incorrect.

Political and emotional argument

Where buyers are unable to obtain assurance that an internal price is correct, there is typically resentment regarding the cost of the internal product and service and the sheltered position employees of the internal service provider occupy – in the buyer’s eyes free from commercial pressures.
Buyers and suppliers typically also argue regarding the quality of the service or product relative to the price paid.
Suppliers may react to criticism claiming their product or service is strategic in nature and refute its availability in the external markets.

Poor product / service quality

Poor price signals will result in lack of comparable product and service quality benchmarks. This can result in ‘gold-plating’ or poor-quality product and service provision.

Quote: Jim Rohn

“It is the set of the sails, not the direction of the wind that determines which way we will go.” – Jim Rohn

Quote: Ausonius

“Let us never know what old age is. Let us know the happiness time brings, not count the years.” – Ausonius

Global Advisors | Quantified Strategy Consulting

Quote: Sigmund Freud

Quote: Bennett Cerf

Quote: Stephen Jay Gould

Quote: Pauline Phillips

Quote: Pearl S. Buck

Quote: Joseph Brodsky

Quote: Charles Dickens

Quote: Charles Kingsley

Quote: E. Stanley Jones

Quote: Dr. Seuss

Quote: Rick Warren

Quote: Aldous Huxley

Quote: George S. Patton

Quote: Socrates

Quote: Plato

Quote: Aristotle

Quote: Oswald Chambers

Strategy tools: Effective transfer pricing