[LudwigNagasena]

I think it’s a nonsensical model. Every department is ideally responsible for both revenues and costs. If you can’t measure it, it is a problem of your KPIs. So the KPIs may be cost-oriented (and thus badly aligned), it doesn’t make the department itself a cost center.

[Kudos]

Which department are you talking about? If your department doesn't drive revenue, then the business leaders will see it as a cost center. It doesn't matter if you disagree with that perspective unless you can change their minds. How have you done that in the past, or hypothetically how do you think that might work?

[LudwigNagasena]

It doesn't become any less nonsencial just because some business leaders who are still stuck in 1980s believe in it.

Both profit centers and cost centers are supposed to increase profit, otherwise you wouldn't hire those people. If a department doesn't drive profit, then just axe it and stop wasting money on it. If you can't [1], then it actually drives profit, you just have no idea how. The fact that you can't set proper KPIs to measure impact doesn't imply absence of impact, and of course it doesn't imply that you should treat it as if it has no impact.

Departments are engaged either in primary or support activities. And those activities are either efficient and optimal or not. Your competitive advantage doesn't even have to be your primary activity. If you are successful at making fidgets because you hire, plan and budget better than others in your industry; what insight can talking about profit centers and cost centers provide to you?

[1] How is someone supposed to run a company without HR or accounting?

[esafak]

Thank you! I think I'd disqualify a candidate manager who earnestly referred to cost/profit centers. The framing is misleading and betrays a broken understanding of value creation.

Everything the company does should generate value.

[grecy]

> It doesn't become any less nonsencial just because some business leaders who are still stuck in 1980s believe in it.

Of course it does.

Whatever your business leaders believe is reality in that company. It makes no difference what you or the outside world believe.

You're either OK with it, or you need to get out ASAP.

[feoren]

"Business leaders" are almost universally short-sighted, narrow-minded parasites focused on trying to fatten up their own division so they can suck more of its blood for 2 or 3 years before the next Musical Chairs game when they'll compete with all the other psychopathic mouth-breathers for the best seat, regardless of whether they know a damn thing about whatever division or company they end up in and subsequently pretend to "lead". It's an entire societal caste of pathetic, worthless, ambivalent assholes cosplaying as Business Magicians in order to compete in their own corrupt feudalistic games against each other to win the fattest host to parasitize. It's the modern day Priest Caste. If you "get out ASAP" from such companies, you will have nowhere to work.

[grecy]

I agree with everything you said, right up until the end.

I do believe there are still organizations (or at least teams within) that have not been taken over by the parasites you describe. It takes hard work and a lot of looking, but they can be found.

[Gormo]

The cost center vs. profit center concept has some utility for accounting, but overall it makes more sense to model the business as a modular system seeking a global optimum, a la Goldratt, rather than a set of separate sub-organizations each to be optimized separately.

In other words the business as a whole should be viewed as a singular profit center, and each department or project should be evaluated in terms of how much it contributes to optimizing the overall performance.

[count]

You redefined cost / profit center as 'primary' or 'support'. This is a circular argument.

[CRConrad]

> You redefined cost / profit center

Well, those are rather funny categories in the first place. Cost and profit aren't complementary categories; cost and revenue are. Profit consists of them both (i.e. the difference between their sums across all departments).

Just as there are no pure revenue centers -- every department has costs! -- it could be argued that there are no pure cost centers: Every department contributes to revenue in its own way. Without maintenance, you'd soon have no services to sell; without R&D you'd soon have no new products to sell... Heck, even HR -- without it, you'd soon have no personnel to staff the other departments.

Seems a bit skewed that some departments get to hog the "profit" label all to themselves while others are -- pejoratively, in MBA-speak -- condemned to the "cost" category.

[anticorporate]

This has been my experience as well.

It doesn't matter how many presentations and case studies and financial models you build, whether you're a cost center or not is basically entirely determined by what a few people in the c-suite believe. This became blatantly clear over the past year or so of layoffs, when the same people who nodded and thanked teams for showing them how they generate revenue for the business immediately turned around and put them on the chopping block.

[marcosdumay]

It is a completely nonsensical model, and leads to completely stupid decisions if applied.

But management uses it for every decision anyway.