The best innovations often arise when challenges are greatest. For smart ideas on how to improve organizational effectiveness and maximize the bottom line, look for inspiration in industries that are hard-pressed.
American universities have seen major changes over the last decade that have forced many of them to search for smarter approaches to budget efficiency and profitability. Many universities are facing a double-bind: increased competition on the one hand, and declining state support on the other.
As resources have dwindled and the market has shifted across a larger network of education providers, savvy administrators are starting to support individual departments to act more independently. Called Responsibility Center Management, the model proposes to decentralize the overall budget, so that each unit within an organization becomes financially autonomous.
In the university setting, control over income and expenses means that each department behaves like a distinct profit center, setting its own tuition and fees. It also allows them to decide which resources, goods and services to use, without going through a central administration.
While Responsibility Center Management hasn’t been widely implemented until recently, the model has existed for several decades, and research has proven that RCM increases budget efficiency and promotes long-term planning at academic institutions. So why should you use it with your company’s sales organization?
Sales incentives are a form of empowerment. They give salespeople control over their income: the better they sell, the better their commissions. Responsibility Centre Management empowers salespeople in a new way.
Salespeople are already responsible for company revenues. They are the primary—though not the only—means of profitability. It makes sense that they should also be responsible for indirect costs associated with their department. By treating the sales department as a responsibility center, overhead costs are likely to go down.
Not only does the Responsibility Center Management model give salespeople a clearer understanding of how expenses enable revenues, but it also helps sales teams respond more flexibly to the insights they gain from analytics. And in both cases, RCM simplifies the process by which budget decisions are made, enabling flexible and responsive profit optimization.
To see how you can use detailed analytics to empower your sales team to take more responsibility for both profits and expenses, try a free demo of Obero SPM.