Dean Meyer attacks the very fabric of corporate existence by questioning the structure and ivory towers that exist within corporations. 

He takes us back to the basics of activity based budgeting that makes it practical for an organisation to price its entire product line.

The notion of an organisation within an organisation is introduced in an easily approachable manner. Every resource in the organisation is there to service a client. A majority of resources within an organisation serve internal clients. There are very few that serve external clients directly, like Sales and Customer services.

He argues that the internal clients need to receive value from their internal supplier. Corporations must apply market economics within the company to design their resource management processes.

This approach breaks down the historical “always been done that way” to a zero based budgeting approach.

This sounds like a drastic and frightful approach but with the external economy at its most competitive, organisations must ensure that their internal organisation are in harmony with each other and delivering a value for money service.

He provides a toolkit to identify and implement the Internal Economy model.

There are four components within the Internal Economy:

• Budgeting.

This is the yardstick by which the corporation will decide how much the corporation will spend on each function

• Pricing

Determining unit costs by identifying the right units, assigning direct costs and amortising indirect costs.

• Purchase Decisions

Project approval that assign budget to projects and services, adjusting priorities dynamically throughout the year.

• Tracking

Accounting processes that provide information for decision-making and evaluation.

He argues that the above process allows strategic alignment by allowing the internal buyers (client pursers) to make decisions about to what to buy from internal suppliers and not those products and services which aren’t relevant to their success.

The book concludes with sections on the impact of this approach on Shareholder value, Corporate governance and leadership style.

This is a thought provoking book which will probably raise many questions about an organisation and covers some of the issues that have tackled before in various guises including corporate re-engineering and Sigma six, but here the focus is firmly on controllable (internal) factors and not on uncontrollable (external) factors.

A recommended read for those executives responsible for the management of change within an organisation and those who oppose it or fear it.

Reviewed by Bob K

Chairman

Thought-it

As a main board director Bob gained experience both at operational and strategic levels in the service industry. His main involvement has been in the management of change via corporate re-engineering, CRM, systems oriented management information systems and training of staff.

• He ran the internal audit department of a 1billion turnover Tour operator

• As Group Finance Director prepared an outdoor advertising company for a float on the Stock Exchange

• Has raised Venture Capital for the BIMBO of a sales promotional agency with one partner and worked within the target as MD to deliver the agreed business plan and exit goals very successfully.

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