A Fundamental Misunderstanding

Whilst personal accountability for a profit or cost centre is to be encouraged, one can have too much of a good thing. For example, one group with a turnover of about £60 million and 1,000 employees was organised into over 30 profit centres and some 200 cost centres.

Because of the large number of different entities, there was a huge amount of transferred charges on an allocated cost basis. Managers complained that most of their costs were merely a transfer to them from a different cost centre, so they were not really accountable for costs. Worse still, few of the profit centres received adequate attention from the board. Needless to say, a large staff of accountants and data-processing people was employed to cope with the monthly management reporting.

Reorganisation of this group created five strategic businesses, with a total of nine divisions. The number of cost centres was reduced dramatically, the accountants and data-processing staff were redeployed, frustration caused by the old structure was reduced and morale improved all round.

Profit-centre accountability

The creation of individual profit centres offers the following advantages:
personal accountability is increased
more management-development opportunities are created
a greater sense of local identification with the business by all staff is encou



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