Tuesday, November 13, 2018

The Advantage of Compartmentalizing Non-Core Business

Businesses change and adjust over time. Sometimes we know a section of our business is not our core business and could be managed in-house or through outsourcing. There are other times the function may become irrelevant in the market (i.e. dvds in the age of streaming) and be sold or closed in the future. Compartmentalizing these business aspects may be helpful.

If they are integrated into your other core operations it will become increasingly complex to untangle as the business adjust course. There is a fundamental difference between having these non-core operations responsive to business needs and integrating them fully.

This means they have management that works within a particular cost center that nearly functions as a separate entity except for at the very top of the organization. It is the creation of an intentional silo so that decision making and expenses are different from the rest of the organization.

Sometimes it is helpful to bill different departments so that there is an expense associated with the transaction. The entity pays rent and has profits and expenses that help to ensure that it is cost effective for the business. If expenses get too much outsource, if they become cheap it is possible to add business from outside sources.

One can determine these rates by determining what it would cost to have these services offered from the outside of the organization. Essentially, you are out sourcing your business to yourself.

Compartmentalization has the advantage of easy breaking off of the business while putting the mindset in place what the "core" business is. Financially and legally you are preparing to separate except you are not forced to do this. The level of separate will depend on the current state of affairs and can be furthered as the core business changes. As an additional bonus the "core" business concept will stick in the minds of workers leading to greater focus.

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