Can HR Be Profit-Driven Without Losing Ethics and Human Values? Let's Discuss

Dear All
Here I would like to invite you for an open discussion on “Profit Based HR”
What makes HR as a profit centered function?
Is this ethically a right one?
Why should we make profit? While concentrating on profit we may have chances to forget or deny basic professional ethics and human values. Is that right?
On what ways we can get profit?
Is it indirectly cost cutting?
I also encourage questions from your side. I hope this will deliver fruitful information.
Regards
Jeyaseelan.A
+91-9994629950
[Login to view]

Hello Jeyaseelan. Can I ask: Who is it that is saying that HR needs to be a profit center? This is new to me.

There is a lot of talk from Ulrich and others saying that HR needs to be outcome-focused and add value to the organization. I agree with this; however, this is very different from saying that HR needs to generate a profit for the company.

Vicki Heath
Human Resources Software and Resources: [http://www.businessperform.com](http://www.businessperform.com)

Hi Jeyaseelan,

You have raised a good point. In order to be profit-based, one needs to look at the cost center concept and evaluate the same on an internal basis. HR should also be given the opportunity to extend services to outside companies. Today, it may not be feasible or allowed by companies due to various factors as Vicki mentioned Dave Ulrich's model for HR. However, this may happen tomorrow.

Regards,
Rajat

Dear Vicki & Rajat
Thank you for your replies.
Vicki,I am not sticking to Profit Based HR.I would like to start a discussion on that.
My questions are:
1.Is it Possible?
2.If so then how?
3.Is that ethically good?
4.What are all the impacts?
5.The ways and means for the profit – As Rajat came out with an excellent idea. (Why don't we outsource an activity of other company and do it with our HR team, we can very well make profit out of that, let us use that money for the development of HR/HR budgets etc.,) Tell me pros and corns of this idea.
6.Does it evolve a new model/frame?
COME ON MEMEBRS …… ADD VALUES TO THIS DISCUSSION
Regards
Jeyaseelan.A
+91-9994629950
[Login to view]

Hi,

This topic is very interesting indeed. To analyze the topic itself "Profit-Based HR."

Well, from the way I see it, the bottom line of every business is growth and profit, and every action of the company is a step to achieve that mission.

What I mean is, the vision might be as simple as "IBM means service," but will the company survive without profits? The fact is we are not talking about Non-profit Org, and every CEO is under pressure today to show immediate returns.

In this scenario, are we not talking about the ROI of departments? If HR does not add to the bottom line of the business, it will only be seen as a cost center, which is what is happening in most organizations; that is how HR is viewed.

I think it is up to us HR professionals to change this image of HR to one that adds to the growth of the business.

In his book, Dave Ulrich has mentioned that HR has to add to the bottom line of the business.

It is not just about being ethical. There was a period of Personnel Management in which the voice of the employees was the loudest (at least in the eyes of the law). It was in this era that most of the decisions given by the court were in favor of the employee, and the personnel manager was to look after the well-being of the employees.

But today, in the HR era, we have to balance the benefit to employees and the company. Aren't we talking about the growth of individuals being related to the growth of the organization, so how can the two be unrelated?

I think HR has to and should calculate ROI on every activity: Recruitment, Performance Appraisal, Training & Development, etc.

It would be unethical to demand benefits from the company for the employee without ensuring that the employee would bring returns to the company. It would mean we have only done part of our duty.

So yes, HR should work with a profit motive; it is there to do business, but that does not mean it becomes unprincipled. The challenge for HR has just begun.

If a department does not add to the growth of the business, it has no business being in the business.

I would like to hear from you as to what you think about it, as a general view that I got was that you did not support the idea of HR being a profit center.

Thanks & Regards,

Puja

Dear All,

It has been very interesting reading various insights on HR generating profits for the business. I cannot really mention the name of the organization, but we did have a team target of generating revenue and adding value to the business. We conducted a training program, and our sales and marketing team helped us get people who would be interested in the program (mind you, they were very senior officials of brands like TATA's/ABN Ambro/NTPC, etc.). We did especially well last year and got a few interested people from the US/Greece as well, and generated a profit of 17-19 lakhs, which was, of course, handed over to the management. The task kept us on our toes but was a refreshing experience and learning.

Hope this helps.

Regards,
Sunaina

Hi,

It's an interesting topic to discuss. The reason why managers don't concentrate on HR is because it's not generating money for them. But I believe that this perception needs to be changed; it's the HR department that is instrumental in increasing the profitability of other departments, or should I say it should be instrumental. We can conduct small tasks by taking a particular section, understanding their working, providing necessary training and development, or other process revamps to augment the profit from that section. This can be done to emphasize the importance of the different HR functionalities in an organization.

HR may not be directly responsible for profitability, but it plays a substantial role in it. There has to be a means to segregate the efforts put forth by the HR department into generating the bottom line.

Regards

Dear All,

I have earlier posted two similar topics as per the links given below:

- [Link 1 - no longer exists]
- [Link 2 - no longer exists]

I personally feel that unless HR can become a profit center, it will never be integrated into the mainstream (like the Unilever case). It is up to us to determine and ascertain the value in monetary terms of our efforts. We should remember that the prime objective of business is to create and retain customers, thereby maximizing profit. Similarly, as long as we can create and maintain customers, we will remain relevant. It must be mentioned that, as with everything else, we will have to adapt and change as per customers' needs and not sit back and expect the other way around.

I was trying to develop a rating system which sadly did not get much response from CiteHR members.

- [Link 3 - no longer exists]

The main problem also lies in the fact that a majority of us are not concerned about changing the current status, as is evident from the responses received in these kinds of posts.

Regards,

SC

I appreciate the contribution of Puja and other fellow members.

I didn't expect this. People have started thinking differently. This is quite interesting, and I hope the new model of HR is nearer to us.

Regards,
Jeyaseelan.A

Well, as far as HR as a profit center is concerned, I would like to say that HR is not a profit center, but it does play a strategic role in generating profits for the company by extracting work from people.

Regards,

Srishti

Well, I think we can put it another way. Instead of focusing on profit, we can save money in different areas. For example:

- Post the jobs internally and recruit from within the company to avoid external recruiting costs.
- Utilize retired workers on a project or part-time basis.
- Consider reorganizing the department to potentially eliminate the need for hiring a new person.
- Establish a performance-based pay system.
- Implement a goal-based performance appraisal system to identify and remove unproductive workers.

I believe that by exploring these options, we can significantly reduce costs.

Regards,
Mashamsi

Dear Mashamsi,

Cost saving is not related to a Profit Centre. A Profit Centre is a unit that can generate profit by itself. The whole debate is about where HR can generate profit, not where HR can save costs, which we all do all the time.

Regards,
SC

Hello all! The issue of HR being a profit center excites me. Is it not too early, I feel? Traditionally, HR used to be a Cost Center, like other support functions. Now, other functions have taken the road of being a profit center like MM, Maintenance, etc. However, HR, dealing with imponderables, continues to be viewed as a cost center. In the days to come, with outsourcing, globalization, and competition set to increase day by day, many managements would be tempted to go for options that can enhance the bottom line. What Puja says can be prophetic - if you do not add to the profits, then you have no reason to exist. In this mad rush to pocket more and more moolah, can HR be left behind? Indeed, the trend is already seen. Many small-scale organizations have offloaded their entire HR function, although it is essentially man maintenance. Nowadays, most organizations have started offloading recruitment activities. It saves the organization many hassles besides being cost-saving. Thus, the trend towards partial offloading of the function is catching up almost all over. But where do we see HR as a function contributing? Is it limited to the age-old view of being a basket of techniques/skills or is it being a strategic partner? If we look at being a strategist in the organization, then we cannot look at the function as a mere expenditure point. We cannot just add the personal expenses in an organization vis-a-vis the share of the HR in the bottom line. As Mr. Rajat says, looking after the HR needs of other organizations is too naive. Getting into another organization partly for a defined project would be withering your competencies and spreading it too thin. Even offering consultancies is not likely to be very productive. See the experiment many leading organizations did trying to merchandise their HRD programs to other organizations. Ultimately, wisdom dawned that such approaches are not likely to benefit in the long run. There is a feeling of disquiet among employees that many welfare facilities voluntarily undertaken by the companies are being curtailed. For instance, many organizations have highly subsidized their canteens. Now, to garner money and make it self-sustaining, the canteen can be converted to be a self-financed one. Will it not result in employee morale going for a six? Well, the point I am trying to make is that although there is a general leaning to make HR function and activities more cost-oriented, treating it as a profit center is going to result in more problems than the solution it offers. Yet, when the way business is being done is getting rewritten almost every day with newer and better techniques and skills coming out every now and then, which definitely impacts the bottom line positively, can HR be left behind? Definitely not. While the hardware aspects (machinery/technology) can be changed overnight, the softer aspects (people/systems) cannot be changed so rapidly. It needs to be consciously formulated, strategically designed, and thoughtfully executed; otherwise, such changes can mar an organization forever. I agree with Vicki that being cost-conscious and working towards value addition is very different from being a profit center. We need to be more sensitive to humans. Ms. Puja.

This is what I thought about the issue.

Dear Friends,

I think I can also contribute to this topic. When we were at an informal meet of Bangalore CiteHR members, I came to know about this topic from Ramya. So, I decided to contribute something.

How is HR profit-based?

1) Recruitment: Who arranges it? Answer - HR. Why is there always a need for recruitment for a similar position? Because we don't recruit needy people. We recruit high-profile individuals with excellent communication skills. Is this correct? We frame a policy that we will hire only MSW or MBA HR graduates for HR positions, and as they are high-profile, we are facing a problem of high turnover. Instead of high-profile individuals, if we recruit B.Com/M.Com graduates, I think we will save something for the company because they will not leave the job easily, and their pay package is also lower than that of high-profile individuals. If we adopt this practice, the demand for high-profile candidates will decrease, and the supply will increase. Now, all high-profile candidates will accept our terms and conditions and perform well for a longer period. If we adopt this practice, in my opinion, we will save the company a lot, which is the basis of profit for HR.

I will come up with another point in due course because I am going somewhere, and time does not permit me to sit and write. Sorry. I will be back with another point.

Regards,

Sidheshwar

Hi Jaya,

I am looking for both quality and cost. How to handle the high turnover rate? This is the only solution in the present scenario. This is a practical approach. I did this when I was in Coca-Cola in Bhopal, and I succeeded greatly. This is my approach to work and balancing demand and supply.

I will provide another input. I have plenty of work, so I am unable to contribute much, despite my efforts to contribute.

Regards,
Sidhehshwar

I'd like to make some more observations on this discussion about HR generating a profit.

1. ROI is not the same as profit. In HR, ROI is calculated for specific programs. It is not a reflection of profit. ROI does not typically take account of shared costs, such as rent, capital equipment, electricity, etc. These shared costs are taken account of in calculating profit.

2. Calculating profit requires sales (profit = sales ¬– cost of goods sold). Unless the HR department is selling its services, profit cannot be calculated.

3. And if the HR Department were to sell its services as a profit center, why single out HR? For any company seriously considering turning the HR Department into a profit center, it will need to do the same for the Purchasing Department, Quality Department, Warehouse, Engineering Department, and so on. (There is nothing *special* about these other departments, over and above the HR Department.)

4. Setting up the various departments as independent profit centers goes against everything we know about the systems nature of organizations. Organizations achieve their mission and objectives through each function working collaboratively towards a common goal. This requires high levels of co-operation. Setting departments up as profit centers will put departments in competition with each other (more so than they are now). Each will be competing to reach their own individual profit targets, often at the expense of the organization's overall mission.

Vicki Heath

Human Resources Software and Resources

http://www.businessperform.com

Dear Friends,

I strongly believe that HR should also be profit-oriented.

I am citing a simple example.

How to run the family???

Suppose we are three brothers:

1) Elder brother - He is the backbone of the family, the earner.

2) 2nd - Doing a job far away from home.

3) 3rd - Sitting idle at home.

4) 4th - Getting an education.

Now the question is, is it only the elder's duty to earn to run such a big family?

Answer: No.

The 2nd brother should also contribute as per his earning capacity.

The 3rd brother: If he is sitting idle (Like HR Dept), it is his duty to take home responsibility to reduce the burden on the elder brother. If the 3rd brother starts contributing, he will certainly be helping to run the family despite sitting idle.

The 4th brother: He is also supposed to share with all while getting an education. He should not demand more and more money for his expenses and enjoyment. Similarly, if we travel somewhere for company work, we should not waste the company's money. This means that if we act like this, we are certainly contributing (not saving) something to the company.

As HR professionals, we can save in every aspect and demonstrate that we are profit-oriented rather than cost-oriented.

I will elaborate on this with each and every HR function. For example, I have given an example of RECRUITMENT.

Dear friends, we should consider the company's profit; otherwise, there is no question of the HR Department.

Regards,

Sidhehshwar

Hi All,

It is interesting to see so many views on the topic.

First of all, let me clarify one thing. I did not mean to say that we as HR have to be harsh on humans to make a profit. But what I am saying is HR has to contribute to the bottom line of the business.

It's like this: if all the departments do their share to contribute, the business is bound to succeed.

Like Vicky said, there is nothing special about the HR department (why should HR be pointed out over other departments like Manufacturing, Production, etc.).

As HR professionals, isn't it the main challenge to keep employee morale high while also contributing to the business? Let me provide an example (without naming the company). The HR department had a number of training programs and concerts every other weekend, justifying it by saying it keeps employee morale high. However, no survey was done to find out if employees are actually happy with this kind of initiative by the HR department.

Employees complained that due to concerts every other weekend, they had less time with their family. So, whose responsibility is it to act on such feedback?

What I am saying is that many times HR hides behind the veneer of Training & Development, Recruitment & Selection, etc., without understanding or trying to find the impact of every activity on the organization. If the initiatives don't yield the intended results, HR fails in its duty, thereby adding to the cost.

In the above case, costs of concerts, training, and a case of the cost involved in reduced/no improvement in employee morale are considered. On the other hand, if initiatives taken were such that they improved morale, or the employees benefited from the training, it would add to the profit of the company in the long run. These are the kind of figures HR should be able to predict, if it aims to add value to the business.

I don't think it's an easy task, but I believe it's one we need to take up seriously.

Regards,

Puja

Hi,

This is a very interesting topic. I completely agree that HR should have a profit motive.

But, here we need to keep one thing in mind. I think it is not prudent on our part to restrict the word "profit" to mere currency figures. In the context of the fast-changing dynamics of the present world with all its complexities, HR plays a vital role. The strength of a company lies solely in its human capital, and it is HR that plays a vital role here.

Take the example of Google; they have their own brand, their work culture is excellent - the best I know of, and it is HR that plays a vital role in coming up with innovative ideas. So, I feel HR is always making profits for the organization by taking care of its human capital.