HR AS A PROFIT CENTER

Human resource management is a function in organizations designed to maximize

employee performance in service of their employer’s strategic objectives. HR is primarily
concerned with how people are managed within organizations, focusing on policies and systems.
HR departments and units in organizations are typically responsible for a number of activities,
including employee recruitment, training and development, performance appraisal, and
rewarding (e.g., managing pay and benefit systems). HR is also concerned with industrial
relations, that is, the balancing of organizational practices with regulations arising from
collective bargaining and governmental laws.

Profit Center is a section of a company treated as a separate business. Thus profits or

losses for a profit center are calculated separately. A profit center manager is held accountable
for both revenues, and costs (expenses), and therefore, profits. What this means in terms of
managerial responsibilities is that the manager has to drive the revenue generating activities
which leads to cash inflows and at the same time control the cost (cash outflows) causing
activities. This makes the profit center management more challenging than cost center
management. Profit center management is equivalent to running an independent business
because a profit center business unit or department is treated as a distinct entity enabling
revenues and expenses to be determined and its profitability to be measured.

The human resources function is often considered a cost centre, because technically it
does not directly generate revenue. However, remove the HR department and see how quickly
critical services like hiring, retention and staff training are challenged. No matter how strongly
other so-called profit centers are performing, without the core functions of departments like HR,
they would rapidly cease to do so. Yet due to a habit in accounting terminology that requires
certain business functions to be categorized as revenue producing, while others are revenue
consuming, HR is still considered a cost centre. As a result, despite the fact that everyone is on
the same team when it comes to the overall success of the business and everyone plays a critical
role in improving the financial performance of the company, departments like HR are often
overshadowed by the ghost of misperception.

The HR department was seen mainly as an overhead that did not directly generate revenue in
the past. Back then, HR professionals had to justify their budget needs to their executives.
However, things have changed dramatically since then. Today, HR’s budget is given.
Management has come to realize the importance of human capital management and its overall
value in driving business profitability. HR is now no longer considered to be a cost centre. In
fact, its role has evolved into one of a profit centre, where it now makes strategic decisions that
drive company’s growth and profit. Here are three key factors that have driven this change:

1. Realizing that it’s all about the people:

A company needs people, no matter what the business is. Human capital is the driving
profitability force behind any business. Without passionate employees working for the right job,
a company is practically nonexistent. HR plays an important role in keeping employees
positively engaged. Practices such as helping new employees to adapt, celebrating high
achievers, and training low performers are some of the ways HR has helped improve the
effectiveness of the company. By doing all of this and more, HR creates an opportunity for the
company to seek out new business opportunities and grow its revenue.

2. Knowing that a well-developed employee is a profitable employee:

A business is only as strong as its employees. Hence, employee development is crucial in

driving company growth and profitability. There are various positive outcomes to the different
types of employee training out there. For example, training programmes in service can lead to
better customer service for a company in the hospitality industry. Another type, leadership and
management workshops, can help employees to grow and move up within an organization,
resulting in time and money saved from looking externally. Training in the ever-evolving IT
technology equips employees with the knowledge and capability to stay on top of the industry,
leading to better productivity and increased revenue. A company that doesn’t believe in training
and growing its employees runs the risk of losing out in the long run. Not only does training
increase morale and productivity, it also positions the organization well in the industry, which
leads to profitability and attracts higher quality people in return. HR plays a vital role as direct
managers of a company’s human capital by keeping employees positively engaged through
strategic learning programmes. A company with access to the very best talent enjoys the benefits
of the direct impact on business profits and growth. This profit generation comes from the
innovative management of human capital.

3. Acknowledging HR’s transformation and influence in a company’s bottom line:

HR transformation is happening. Organizations are heading towards a lean workforce.

Essentially, this is a situation with a smaller core workforce supported by a larger remote (or
virtual) workforce. Technology has created new ways for employees to work and contribute to
the business’ bottom line. As technology guides us towards a re-imagined workforce, HR will be
a key player in successfully managing this transformation to ensure a company’s continued
growth and profitability. With a technology-receptive and social-ready mindset, HR helps
generate value by lowering business costs while hiring the right talent who can generate profit
for the organization. Instead of being seen as a cost of doing business, HR now holds a vital seat
at the management table, one that directly influences the profitability of any business.

Guidelines to transform HR Department into a Profit Center

The way it's traditionally structured, HR is a cost center, not a revenue driver. It's
viewed as a necessary part of the business that is equipped to handle difficult personnel tasks
including employee benefits, compliance, recruiting and policy enforcement. While these tasks
are vital to an organization's operation, there is a way to shift the perception. HR can transform
from a cost center to a department that actually drives a financial return for the organization. Of
course, that can only happen by streamlining processes and creating more efficiencies.

1. Master strategist You’ll need a consultant with a rich background and extensive experience
to help you with your big-picture and how it’s affected by specific challenges. That necessitates
someone who stays current in best practices, and who will provide the best service, and who will
share concepts with you and your employees for your organization’s long-term benefit – not just
for the short-term.

2. Time savings It costs organizations money to delay improvements. It’s in your best interests
to implement the right strategies and metrics for business profits. So hire someone who can
generate results in a timely fashion to save you valuable time and money.

3. Cost vis-à-vis investment If you have any kind of human resource concerns, such as
developing non-financial incentives to motivate employees, hire a consultant who can advise you
on staff and operational costs and implement strategies. The time you spend on human resources
is usually better spent dealing with your marketplace challenges. Make sure it’s someone who
will deliver results – so it’s an investment in your future – not just an expense.

4. Adaptability In this dynamic marketplace, you can always count on change. Proverbially
speaking, employees are where the tire meets the road. Savvy consultants know how their clients
can profit from human capital to motivate employees to offer profitable ideas. Such knowledge is
a powerful weapon for high performance in a competitive marketplace. Furthermore, there’s a
correlation among excellent sales, happy customers, and high employee morale. Often, change is
rapid. You need a consultant who will anticipate a looming tsunami – someone who is flexible
with changing conditions that obstruct your profits – to help you realize your vision for success.

5. Legal considerations Perhaps you need to prevent problems, have a need for internal
investigations, to prevent unnecessary employee complaints, mediate employee concerns or to
avoid Equal Employment Opportunity Commission discrimination suits. Often, there’s a simple
strategy to prevent legal issues. When companies implement outstanding employee-engagement
programs, they’re more successful.

6. Objectivity Some challenges are difficult to solve and require an outside participant,
especially in sensitive matters. Employees sometimes fear consultants. However, an experienced
consultant handles situations adroitly and soon employees are very accepting. That’s especially
true when the employees begin to see and enjoy positive developments.

In conclusion, to get the best out of HR Department, companies need to use best
practices. When done well, these programs can have a dramatic impact on the organization.
Employees will be healthier, contribute more to the organization, lower costs, and drive more
revenue. Employers who automate their employee benefits administration will be better able to
manage their plan's complex details, deliver value to employees and reduce the demands on their
HR staff. Human Resource professionals who drive this initiative emerge as heroes in their
organizations and clear contributors to bottom line success, ultimately transforming HR from
cost center to profit center.