Zip Learning Technologies (Zip)was founded by Colin Hay, who had a background in education. The company has grown from a small company developing educational videos for instructors, to a significant company in the online technology market. Originally employing two educators and three technology experts, Zip now employs around two-hundred staff in a range of roles including: customer-facing, research and technology development, as well as support functions. Revenue is generated by advertising on the platform, as well as a growing subscription service that offers 'premium-content'.

Changes at Zip

Colin has identified some new opportunities, particularly around digital technologies and education. He has been working with a digital designer and programmer to develop a platform application that can complement existing online teaching technologies. There is increasing interest in the products and services of Zip. The number of queries from advertising agents is increasing and quarterly sales revenue is growing rapidly.

Colin has decided to restructure and establish three small separate divisional work-units of Zip (see Exhibit 1 for a first draft of the new structure). TheTechnology Unitwould focus on the adoption of innovative technology for the Zip platform, as well as assisting with the production of videos. Colin is hoping that theTechnology Unitwould be able to sell its services externally to other organisations as well as important collaborative work internally. TheEducation Unitwould focus on developing content both in-house and in collaboration with teachers and educational professionals. TheDigital Online Platform Unitwould work on the development of the new online learning application, which would also require collaboration with the other two divisions.

At a recent [online] industry event, after Colin had outlined the dramatic growth at Zip, an industry colleague advised: "...you are going to need a sound managerial control system to manage that organisation." Following some accounting advice, Colin decided that each of the divisions would be classified as investment centres with a focus on key financial-based performance metrics.

Is transfer pricing likely to be an issue for Zip? Briefly explain