Business Architecture And Profit Centers

Business Architecture is about using architectural concepts in organizations. It is not only about design, but also about filling the organizational space with constructions; the various forms that you have chosen to implement a functional need in order to serve a certain purpose.

There are many functions in a company. A general function that is not specific to a certain purpose is the organizing activity itself. So besides having the function of Sales, Production, ICT and administration, there is also the function of organizing general activities. This could apply for any type of organizational unit within the company. Competition is a characteristic you could use to design an organization.

Before you design a new organizational structure (the construction to fit the characteristics) you also need to think about the main purpose. For (business) units the purpose is to serve a group of different clients. Profitability measures are needed to analyze the performance of each group. If the market circumstances change, the unit could shift its focus or increase incentives. Increase the competitiveness.

So far so good. The profit center issue is concentrated around other “units” like ICT, finance, Human Resources, etc. In literature you will find objections to convert these organizational parts to profit centers because the profits (more than the costs) can not easily be measured.

Another aspect why profit centers do not fit for these TYPE of (inter) organizations is often less attended. A profit center, like a business unit, requires a competitive organization. And supportive types of organizations like ICT, administration and Human resources are not competitive (that’s why they are called supportive).

The rule for a competitive organization is that more resources should help to produce more output. For the same reason, incentives are possible for such kind of organization, where they are not driving the supportive organization.

To give an example: if you would ask four people to lift a car, and they manage, it is of no use to ask another four people to help them. The car is lifted (supporting) and that’s it. More support is of no use.

Implementing a profit center requires a previous analysis. An Architectural view on your business might help solving bottlenecks. Be careful not to change organizational structures too soon.

© 2006 Hans Bool