Organizations have begun to
modify their business models owing to change in the business environment.
Companies are happy by doing what they are good at (i.e., their core
competency) and leave the rest to third parties, commonly referred to as
outsourcing partners, vendors or ancillaries, depending on the industry and the
nature of services provided. However, this does not mean that such
services are always provided by an external party. Multinational companies
are also trying to realign their internal structure and delivery model by
setting up country-specific operations, matching with the strategic
advantages of the respective nations. For example, a manufacturing
giant would be happy to outsource its back office support to India and
actual production to China, owing to the respective competitive advantages
offered by these two countries. As these overseas operations play a
supporting function, much of the time they are only cost centers and are not
directly engaged in revenue and profit generation. However,
strategic changes may compel an organization to revisit the existing
organizational set up across its global operations. Stiff competition,
reducing profit margins and higher customer expectations may compel even
the best-planned organizations to take a re-look at their organization
structure and metamorphose their cost centers into profit centers.
An organization may have both cost centers and profit centers in
their business model. It is important for strategic managers to understand
the difference between the two, as the management styles differ
significantly from one to the other. Strategies for recruitment, target
fixation, work process finalization, training and development, and
remuneration can vary from a cost center to a
profit center. "One size fits all" is a
strict no-no as the purpose of existence for the two entities are as different
as chalk and cheese. Cost centers play more of a
supporting role for the organization, whereas
profit centers are more into proactive roles. Profit
centers being the revenue generators for the organization, set
the pace for the cost centers. This, however, does
not mean that cost centers always crawl vis-à-vis the profit centers. After a
period of time, a cost center has to do the catching up with the profit
center, mainly because the performances of both the entities are interrelated.
For example, if the Indian developmental center of Microsoft is unable to
provide requisite products and services in time and with the desired
quality, the business development team in Redmond, USA, would not be able
to generate revenues from its global operations.
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