Symptom: Costs are reasonable, but pricing makes the organization appear too expensive.
Overall, costs may be reasonable. But if a product must bear an unreasonable share of the organization's costs, its price will be too high.
For example, if a staff function does some activities for the "corporate good," it incurs costs that its competitors don't have to bear. Examples may include setting policy and participating in corporate "citizenship" programs.
If the staff function must break even, it must recoup these costs through its product pricing, and it will be put at an unfair competitive disadvantage. Meanwhile, the cost of such programs will be invisible to those who demand them, and hence demands may be greater than is economic. These activities should be funded by corporate "subsidies," not imbedded in the price of its products (i.e., its chargebacks).
A similar problem occurs when an internal staff function is not given access to "equity" funding for new business ventures. While updating the current product line may be funded by the cash flow of chargebacks, starting a new line of business generally requires special funding.
In an internal staff function, this takes the form of corporate budget that is not recovered through chargebacks. This investment in growing the "business within a business" pays off later with a new set of products and services that add value to internal clients. Again, if the staff function must imbed the cost of start-ups in its chargebacks for current products and services, its prices will be distorted upward and it will appear uncompetitive.
In either case, a redesign of the costs-and-prices matrix is needed, along with a channel for corporate budgets outside of chargebacks. Both of these are aspects of the internal economy.
