How does a division of a company spinning off from it's 'parent' company change it from a cost center to a profit center? Reading an article about how many IT divisions of big companies in Japan, became seperate companies. The motivation is apparently to turn them in profit centers. Can anyone explain how becoming a seperate company would be profitable for the original company?

Extract from article:

"Software development is a critically important part of the Japanese IT sector.  The software developers can be categorized into three groups – Maker, User, and Independent System Integrator (so-called SIer). The Maker group consists of computer manufacturers and their subsidiary companies which provide total system solutions including software development and support as well as hardware. Representative companies are Fujitsu, NEC, Hitachi and IBM.  Companies in the User group are former IT divisions which were spun off from parent “user” companies in order to transform themselves into profit centers from cost centers. Most of the large players in financial, manufacturing, and trading sectors keep vertical relationships with their IT subsidiary companies. "

Source: Evaluating The Strategic Implications
Of Japanese IT Offshore Outsourcing
In China And India
The parent company pays (roughly) the same amount for IT services as it did before, but those payments are now counted as income for the spinoff company.  It's mostly an accounting trick, although as Aidan O'Gara pointed out, the new spinoff may take on other clients and start to generate additional income that way.

Note that some companies use a form of internal currency to track inter-departmental services.  In such situations, departments providing critical infrastructure (such as IT) can often build up a hefty surplus of this internal currency, which can sometimes be spent by managers on internal "perks" for employees (free meals in the company cafeteria, free transportation home from work in a company limo, etc.)  I enjoyed such perks (working in a software support department as an otherwise low-paid intern) at a Wall Street firm in the 1990s.  However, if such internal accounting is denominated in actual currency &mdash; as it was when I worked at a public university &mdash; then it can lead to flawed apples-to-oranges comparisons by some departments, in which they (incorrectly) believe it is cheaper to use an outside vendor rather than the institution's internal department, due to local optimization that ignores economies of scale or the needs of other departments.