Why create “business units”? (Paul Tap

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Why create “business units”?
By Paul Tap (Renault Trucks Skills)
(April 2004)

Many businesses are organized around profit centers or “business units”. This movement is not new and responds to an urgent need of organizations: to rationalize their operations to help increase profitability. It is about optimizing the added value created for customers at all levels of the company.

In fact, operational managers are no longer only responsible for cost centers, they are responsible for a small business with an income statement to keep. Internal entrepreneurship is becoming more democratic, autonomy and responsibility are being deployed, here is a smart way to make the organization flexible, adaptable and responsive. Internal (or external) transfer prices versus internal costs, material purchase costs and participation in key costs … the financial mechanism is now well established for many companies.

The Volvo Group, which has 75,700 employees, is thus organized into business units (BU) and business areas (BA). The business units correspond to cross-cutting companies (Volvo IT for information systems, Volvo Powertrain for kinematic chains, Volvo 3P for truck surveys and procurement, for example). Business areas are those whose business is centered around the end product sold to customers (Volvo Construction Equipment for construction machinery, Renault Trucks for the Renault truck series, for example).

These organizations, transnational, make corporate readability complex because they can free themselves from national legal levels to gather “small chunks” of each entity to form a whole with its own management and significant autonomy. This generated complexity is at the core of the activity of Renault Trucks Skills, which is to support managers in their skills and far beyond in the implementation of their strategies and their visions. Coaching, internal and external, has found its rightful place there and reveals its relevance at all levels of the company.

The originality of the creation of the Renault Trucks Skills business unit is at least twofold:
its size, Renault Trucks Skills (RTC) is very small in the Volvo Group. Almost 33 people for a turnover of 7.3 million euros.
its nature, the RTC is centered around the accompaniment of change and the development of skills.

But why complicate life by creating a business unit?
First to meet the challenges of a complex organization. If everyone is to manage an income statement, they also expect to be managers of their human investments and not be subject to any central policy. Each BU or BA wants to be independent in its training and consulting expenses. RTC has therefore put itself in the fight to give everyone an optimal and valued response at the level of the service provided.

Then it is a response to a latent and often implicit request: “Are we a profitable organization?” Is our last contribution positive for the band? Assessing the return on investment of competency development is a big “sea snake”. The organization in BU is a fairly simple and practical way to respond. The “Education Department” is no longer the master of the keys, and awards education points here and there. We have become service providers. The only decision maker here is the manager, accompanied by his HR partner. It is up to him to calculate his return on investment, he has everything at hand: the cost and what he expects as a result of our service.

Finally, Renault Trucks has decided to retain a real advantage and guarantee its “agility”. Thus is immediately accessible, an organization imbued with the culture of the company and surrounded by a network of very important partner consultants.

A logical and assumed evolution: opening to the outside world
Renault Trucks Skills is in a competitive market, even internally! The leader can put us in competition with external organizations and … sometimes we lose! These rare moments are so real sources of motivation (we do not like to lose) and of learning because we visualize the areas to be developed, our inadequate skills or our excessive costs.

Like all BUs, we seek to increase our customer base. We were quickly asked to leverage our expertise for other companies. This allows us to strengthen our professionalism through contact with other cultures, other stories. We have therefore worked proactively and controlled for the past two years to open up our services to external customers. On this topic, I recommend a Harvard Business Review Case Study on the Benefits and Difficulties of Creating Business Units: “The Cost Center That Paid Its Way” by Julia Kirby, April 2002.

There are many companies that trust us that are “big” (Laboratoire Roche Nicholas (74), which has entrusted us with the design and animation of their “Management and Performance” course for eg 200 managers), but also several SMEs using our “catalog” of training between companies (more than 100 sessions opened in 2004 in the Lyon region). We have just signed a partnership agreement with Grenoble Ecole de Management to develop education at a very high level, open to all companies, for “business developer” managers, their special profile is to lead a business unit.

Recognized today as an essential center of competencies to support the business units and business areas of our group, and after experiencing these changes from within, we can testify to it: the business units, we believe in it!

Renault Trucks skills

TRIP

Paul Tap, an Insa 91 engineer, was head of the research and research department and then project manager. He is now responsible for the development of Management at Renault Trucks Competences.

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