Description
It explains the basics of Profit Centre, advantages and disadvantages of profit centre. It also compares the business units and profit centre. It also takes up 2 cases of AMAX Automobiles and Indus Corporation.
Profit Center Problems
Management Control Systems
Presentation Outline
• Theory Background
• • • • • • Profit Center –Preliminary Conditions for delegating Profit Responsibility Advantages and Disadvantages of Profit Center Business Units Vs Profit Center Different Profit Centers Measure of Profitability
• Cases
• AMAX Automobiles • INDUS Corporation
Profit Center Basics
• Definition
Inputs are related with outputs Input Output Busines s Unit
Work
• Simplicity in Use • Business unit Vs. Profit Center
• Functional Organization • Divisional Organization
Conditions for Delegating Profit Responsibility
• Manager should have relevant information • Some way to measure effectiveness of trade off
• E.g.
• Chemical Bank • Nokia Corporation
Advantages of Profit Center
• • • • • • • • Quality of Decisions may improve Speed of Decisions may improve Head Office can be relived from day-to-day decision making Managers less restrained Excellent training ground for General Managers Profit Consciousness enhance Readymade profit information Pressure to perform
Disadvantages of Profit Centers
• • • • • • Loss of Control Decisions may be taken by less qualified manager Increase in friction Contradictory interests Additional overhead costs High emphasis on short run profitability
Business Units Vs. Profit Center
Business Units
Decision Making From Other Business Units Corporate Management Constraints
Profit Centers
Independent Unit
Other Profit Centers
• Functional Units
• Marketing • Manufacturing • Service and Support Units
• Other Organizations
Measure of Profitability
• • • • • Contribution margin Direct Profit Controllable Profit Income before taxes Net Income
Cases
AMAX Automobiles INDUS Corporation
AMAX Automobiles Description and Class Discussion
Division A
Segment Brand Name Distribution System Production Marketing Luxury Different Different Different Different
Division B
Up Scale Different Different Different Different
Division C
Mass Market Different Different Different Different
Common Component
Product Innovation Flow Process Innovation Flow
Either Externally Purchased or Internally Manufactured
INDUS Corporation Description and Class Discussion
• Diversified company with niche markets • Independent Markets • Competitive advantage- First mover and leadership in innovation
Case A
Performance Sensitive, No Price Sensitive
Case B
Performance Sensitive, No Price Sensitive
Case C
Equally Sensitive
Case D
Equally Sensitive
Customer Behavior
Synergy
Little Synergy
Considerable Synergy
Little Synergy
Considerable Synergy
doc_325312655.ppt
It explains the basics of Profit Centre, advantages and disadvantages of profit centre. It also compares the business units and profit centre. It also takes up 2 cases of AMAX Automobiles and Indus Corporation.
Profit Center Problems
Management Control Systems
Presentation Outline
• Theory Background
• • • • • • Profit Center –Preliminary Conditions for delegating Profit Responsibility Advantages and Disadvantages of Profit Center Business Units Vs Profit Center Different Profit Centers Measure of Profitability
• Cases
• AMAX Automobiles • INDUS Corporation
Profit Center Basics
• Definition
Inputs are related with outputs Input Output Busines s Unit
Work
• Simplicity in Use • Business unit Vs. Profit Center
• Functional Organization • Divisional Organization
Conditions for Delegating Profit Responsibility
• Manager should have relevant information • Some way to measure effectiveness of trade off
• E.g.
• Chemical Bank • Nokia Corporation
Advantages of Profit Center
• • • • • • • • Quality of Decisions may improve Speed of Decisions may improve Head Office can be relived from day-to-day decision making Managers less restrained Excellent training ground for General Managers Profit Consciousness enhance Readymade profit information Pressure to perform
Disadvantages of Profit Centers
• • • • • • Loss of Control Decisions may be taken by less qualified manager Increase in friction Contradictory interests Additional overhead costs High emphasis on short run profitability
Business Units Vs. Profit Center
Business Units
Decision Making From Other Business Units Corporate Management Constraints
Profit Centers
Independent Unit
Other Profit Centers
• Functional Units
• Marketing • Manufacturing • Service and Support Units
• Other Organizations
Measure of Profitability
• • • • • Contribution margin Direct Profit Controllable Profit Income before taxes Net Income
Cases
AMAX Automobiles INDUS Corporation
AMAX Automobiles Description and Class Discussion
Division A
Segment Brand Name Distribution System Production Marketing Luxury Different Different Different Different
Division B
Up Scale Different Different Different Different
Division C
Mass Market Different Different Different Different
Common Component
Product Innovation Flow Process Innovation Flow
Either Externally Purchased or Internally Manufactured
INDUS Corporation Description and Class Discussion
• Diversified company with niche markets • Independent Markets • Competitive advantage- First mover and leadership in innovation
Case A
Performance Sensitive, No Price Sensitive
Case B
Performance Sensitive, No Price Sensitive
Case C
Equally Sensitive
Case D
Equally Sensitive
Customer Behavior
Synergy
Little Synergy
Considerable Synergy
Little Synergy
Considerable Synergy
doc_325312655.ppt