Enterprise architecture and profit centers

Enterprise 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 ways you have chosen to implement a functional need in order to fulfill a particular purpose.

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

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

So far so good. The issue of the profit center is concentrated in other “units” such as ICT, finance, Human Resources, and so on. In the literature you will find objections to turning these organizational parts into profit centers because profits (rather than costs) cannot be easily measured.

Another aspect for which profit centers do not fit this TYPE of (inter) organizations is usually less crowded. A profit center, like a business unit, requires a competitive organization. And the types of support organizations such as ICT, administration and human resources are not competitive (that’s why they are called support).

The rule for a competitive organization is that more resources should help produce more results. For the same reason, incentives are possible for this type of organization, where you are not driving the supporting organization.

For example: if you ask four people to lift a car and they manage, there is no use asking four other people for help. The car is raised (supporting) and ready. More support is useless.

Implementing a profit center requires prior analysis. An architectural view of your business can help resolve bottlenecks. Be careful not to change organizational structures too soon.

© 2006 Hans Bool

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