According to Sayed, Mushfique, and Lento, organizations have created sub-units also known as responsibility centers, which serve as an easy way to analyze and monitor the effectiveness of a segment of a complex business (58). A responsibility center is an organizational unit, which is responsible for a specific set of usually related activities or functions (Sayed, Mushique and Lento 58). They are believed to be a cost effective mechanism, which leads to management efficiency and provides information for the decision-making process. They “are classified as cost centers, revenue centers, profit centers and investment centers” (Sayed, Mushfique and Lento 59).
In both revenue and expense centers, control tends to be one dimensional which means that either output or input is not measured or cannot be translated into comparable terms. Profit centers require the contribution of individual units to corporate profitability. Non-profit organizations use the concept of profit centers to enhance control and performance issues.
Identification of opportunity and change champion
Establishing a viable entity
Process reengineering
Creating awareness
Message reinforcement
Finding a competitive advantage
Managing employee transition and buy-in
Communication
Direct involvement
Training
Incentives
Redefining the environment
Coping with expansion
Managing suppliers and logistics
Adjusting to consumer demands
Restructuring performance measurement mechanisms
Individual level
Corporate level
It is believed that the use of a profit center in an organization is limited by circumstances. However, organizations can improvise to reap their benefits. If a business decides to convert from a cost center into a profit center, they need to consider the key processes if they are in their favor. The shift can cause disruptions in the organization but at the same time can also cause a smooth flow of the business operations of the organization.
Work Cited
Sayed, Naqi, Naureen Mushfique and Lento Camillo. Successful Conversion of a Cost Center to a Profit Center: A Case Study of a United Arab Emirates Company’s Experience. Middle East Journal, 15.1 (2016): 58-68.
