Enterprise Architecture And Profit Centers

Business Architecture is about the use of 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 serve a given 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. Competition is a characteristic that you could use to design an organization.

Before designing a new organizational structure (build to fit features), you should also think about the main purpose. For (business) units the purpose is to serve a group of different customers. Measures of profitability 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 profit center problem is concentrated in other “units” such as ICT, finance, human resources, etc. In the literature you will find objections to turning these organizational parts into profit centers because the gains (rather than the costs) cannot be easily measured.

Another aspect why profit centers do not adapt to this TYPE of (inter) organizations tends to be less well attended. A profit center, like a business unit, requires a competitive organization. And solidarity-type organizations such as ICT, administration and Human Resources are not competitive (that is why they are called solidarity).

The rule of thumb for a competitive organization is that more resources should help produce more output. For the same reason, incentives are possible for this type of organization, where they do not drive the supporting organization.

To give an example: if you ask four people to lift a car, and they succeed, it is useless to ask four other people to help them. The cart is raised (supporting) and that’s it. More support is useless.

The implementation of a profit center requires a prior analysis. An architectural view of your business could help solve bottlenecks. Be careful not to change organizational structures too soon.

© 2006 Hans Bool