Ngurjar
Management Consulting, Management Development,
Pon1965
Construction
Nalina.k
Trainer & Od Consultant
+2 Others

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There have been numerous posts on this topic in citeHR like the following:
1. https://www.citehr.com/183192-help-hr-cost-center.html
2. <link outdated-removed>
3. <link outdated-removed>
4. https://www.citehr.com/37296-differe...it-center.html
What is essential is to understand the following:
Which action of yours drives profitability and by how much?
If you don't have the answer to that, you will be leaning towards a cost center!!!
My second question for this post, what are the actions that you are taking, that indicate your function is NOT a mere cost center.
Reg,

Much water has flown under the subject of discussion and it will be of no use rattling ourselves over exploring avenues to convert HR from cost centre to profit centre. The functions of HR are unique unlike those of operations which are concerned directly with revenue generation. As blood runs through every part of the body supplying oxygen to them to make them functional,and the head,hands and legs cannot claim all credit for working hard to earn livelihood, so also,HR pervades every department in the organisation by providing manpower support to them to make them functional.Not only that it takes care of their maintenance through various initiatives of training, motivation, employee engagement and other welfare activities.Without HR's support, the other departments become too week to stand on their legs.This apart, there will be intangible factors like "feel good factors" among employees that are generated by HR initiatives that drive performance which in turn results in profits. How to quantify them?.Therefore to label HR's contributions as cost in accounting terms and then decide what is due to it will be a flawed accounting perception. If HR is to earn profits, it should sell it's services to internal customers (other departments) for providing talented manpower , for retaining talent, for developing talent etc and if so whether the other departments can afford it or appreciate it.It looks strange Therefore the perception of cost and profit centre shall yield to the perception of treating HR as HUMAN CAPITAL that is invested in the company and HR shall get what is legitimately due to it.

B.Saikumar

In-House HR & IR Advisor

.

It is akin to ask a question - In a family, wife is a cost center and husband a profit center??
both cost centers are quintessence of a system and process. Without the one, the other can't function.
Pon

Pon and Sai,
In any family, wife and husband can both be profit centers as well. If a wife is able to manage the household and save money for the future, she is still an implicit profit center!
So, I guess the question is more on the actions that are taken and the resultant impact of those actions.
There are ways to help the HR understand how to transform into a profit center. In fact, we are offering a training program on this topic: Transforming HR to a Profit Center!
But it is important to understand that there is a categorization possible.
Regards,
Nikhil

Hi Nikhil,

There has been enough discussed about HR - a profit center or a cost center.

My views are,

1. Do we question any organization when technology updation is required for growth, which is clearly an expense?

2. Do we question the endless expenditures on R&D, to survive in the highly competitive market and still keep growing?

3. Do we question when there is a need to change the machines which are old or change a process to improve productivity?

----------NOT AT ALL.

We all know growth is a part of survival today.

But we all question, when there is expenditures towards human front, especially in keeping their environment clean, on food expenditures, on travel expenditures, on uniform and other safety expenditures.

Worst of all, technical needs or skill needs are fulfilled by recruiting fresh graduates or those with experience and occasionally harnessed through training the existing employees.

We debate on ROI of several moving and non-moving assets on investments made, for all lifeless objects, and we want the same to be emulated for human assets failing to realize, that the living assets are the ones responsible for all the benefits realized as a society through the machines and processes.

We are the most powerful assets and we can either make or break. We need a good HRM to multiply the capacities hidden within every individual and not fuel catastrophe.

Hence making it a profit center is in our own hands.

Nalina.R

HR consultant - Trainer & OD consultant

09952419530

Dear Nikhil

Thanks for the response. Respecting your views, what I strenuously try to point out is to avoid assigning value to the contributions made by the component parts of an organization in purely accounting terms because an organization though, is run for commercial considerations, is nevertheless a social institution like a family since itís structure is not built by bricks and mortar but by people who bring the faculties of their mind like creativity, intelligence, learning ability, adaptability and morale to bear on their performance and consequently on the profits. HR is entrusted not only with the significant responsibility of recruiting people and managing their physical requirements, like proper furniture, lighting, right temperature, conveyance, health, training, laying down systems and procedures so as to make them work without hasles but also is entrusted with the most sensitive and onerous responsibility of managing their minds (morale, motivation, satisfaction and ownership etc) to keep them constantly and consistently upbeat about their job and the workplace so that they can return to their workplace every morning with renewed energy and enthusiasm to deliver services at the desired quality standards. Thus HR may have to invest in creating an external environment in the organization as well as internal environment in the minds of employee that is conducive to quality performance.

Now, one can dub HR as cost centre for incurring expenses on recruitment, for investing in learning and training initiatives and for engaging employees to sustain their motivation, morale, satisfaction and zeal for performance and may suggest that HR can save costs on all these accounts. However they forget that it is the quality of people who ultimately set a company as a brand apart from other companies in the current stiflingly competitive market driven business environment and these people not only work with their hands but with their emotions, feelings and sentiments which needs to be skillfully managed by HR. If so, whether the brand value will be transferred to HR? The recruitment of right talent would avoid the entry of a bad hire who would have caused not only financial loss to the company but damage to itís good will and brand image. How to quantify such loss thus avoided? Maintaining right environment and culture to promote feelings of ownership and bonding among employees, would have significantly reduced attrition. Then how to quantify the value of such Ďfeel good factorsí? By linking it to probable reduction in attrition? What about the efficient customer service rendered by a thoroughly satisfied employee? How to quantify the profit resulting from peaceful industrial climate without strikes and demonstrations which permits un-interrupted industrial production?. Unlike material assets whose value depreciates with time, the value of human assets increases with increase in their experience i.e with advance in time? How to quantify the value of total human assets in the company? Will it go to HR's account?.

There is no issue if HR is kept on the expenses side in the balance sheet for accounting compliances but to stick a label on it as a cost centre that does not add value to business will be a flawed perception. If all the hidden benefits are quantified, the HR will always be a profit centre. I therefore would like to even view a business organization as a biological organism which exists as a system as a whole with component parts perfectly complementing each other but without competing each other, to sustain the organism as a whole.

B.Saikumar

In-house HR & IR Advisor


Hi Nikhil,

HR, like Admin, Finance / Accounts, IT, etc. are considered 'support' functions and hence traditionally termed 'cost-centres' unlike Sales & Marketing functions which are considered profit-centres of an organization. I disagree with categorization in principle. While I agree that sales & mkgt staff are directly responsible for generating revenue for the organization, all other functions are equally important and must be respected for their contributions towards the success of the entire organization. Also, Sales & Mktg. don't operate in a vacuum and do need valuable inputs and support from other functions to achieve their business objectives. Saying S&M is the 'profit-centre' and rest are 'cost-centres' is like saying the hands and legs are the most important parts of the body, and rest of the organs (particularly the invisible ones like heart, lungs, stomach, intestines, etc.) are only playing a 'supporting' role. Nothing could be father than this oft-sited analogy, as one can live without hands & legs, but can't live without many of the internal organs which quietly work 'behind-the-scene', if you will.

Yet, I have rarely, if ever seen any organization treat all the functions as equally important. It takes a strong unbiased leader to do so, and we have very few of them around.

Regards,

Ramesh

I am sorry I couldn't login for a long time due to some network issues.

I find this debate rather interesting for the following reasons:

1. The argument is that the role is intrinsically focused on things that cannot 'fall within' such a categorization while everything else can!!! This is far from the truth in the knowledge economy.

2. It is not possible to derive 'numbers' in terms of costs and profits... Well, the question is why not?

And all along the focus has never been on the things that can be done to make it intrinsically profitable.

Ask yourselves, does the size of the HR TEAM in the organization not give you some indication of the realized/perceived benefits? For if everything was only costs, organizations would have struck the HR folks first...

Nalini, your experiences are great to note. So, when you hit upon a road block when it comes to HR expenses, how do you actually justify the need?

Now, let me ask the question in a different way:

All of you have HR in your organization and let us say their budget is X. Now, if someone were to change the budget from X to 2X or 0.5X, would it increase the profit of the company?

Please let me know your views.

Dear Mr. Nikhil,

Your question is not something new. It has been debated, several times with many Directors and HR teams in several organizations.

Now,from my experience with organizations, with whom i have been associated with and who look forward to increasing profits through good HR practices, the following observations have been experienced;

Those that work wonders,

1. A simple good food and a clean canteen which is subsidized can make a good difference in the employees being more loyal and committed. - This is a small additional expense when compared to the regular expenses of providing a humble lunch in a slipshod manner.

2. Skill training and job rotation to improve the skills of existing labour can be extremely useful for technology driven companies. - Training is an expense, but we have avoided two major costs, one that of recruiting new people for the additional skills and the other is maintaining a huge labour strength, not knowing what to do. - retrenchment is the answer for many, but the repercussions are hardly realized. primarily the job insecurity and a bad culture that may settle in.

3. A good performance management system will bring excellent employee engagement, and if it is both intrinsic and extrinsically motivated, then the profits are very high - this additional HR cost is truly not a cost in my view. it is like the maintenance cost of the machines

There are many more ........

Those which need attention but often neglected are,

1. Behavioral skills training - this needs to be repetitive, primarily because given a chance most of us would react and not respond to any situation. We have been so much tuned to receive replies and justifications for wrong outcomes, and we don't look for solutions with a good system in place - This is a cost but essential for the well being of the organization - The nutrients required for smooth functioning. The compromise taken is either no training or training given through weak resources as a check on cost.

2. There is no focus on building a climate and culture with right values - A small reinforced cost which is often neglected

3. Poor quality recruitment, which incurs so much of recurring cost and hidden expenses - left unexplained

There are many more, ......

I have just come up with what just came to my mind. It is not whether the cost / expenses when increased to 2X or brought down to 0.5X that matters in the knowledge and competitive skill development era. It is whether the cost / expenses are justified and essentially focuses on the physical and mental well being of people,

As, in case of the IT sector the major knowledge reserve is their employees, & in case of the manufacturing sector with a huge skilled, semi-skilled and unskilled labour requirement which is depleting, a major threat for even survival today - Cost behind these operations which ensure harmony at work should not be magnified.

No one complains when they have made excess profits. which happens when there is harmony, peace at work and respect for, Human resources. This purely my view.

Thanks,

Nalina.R

HR consultant

09952419530

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