Dear Members,
On one of the WA groups, Administrator of the forum had brought a topic for discussion on "Is HR cost centre or profit centre?" Following are the questions that he has raised:
Is HR cost centre or profit centre?
If it is cost centre, what HR leaders should do to convert into profit centre?
Do organizations need to provide HR leaders to actively take part in strategic decision making process and help them develop as business leaders?
This discussion is not today's discussion but little old. I have given replies to his questions. My replies are as below:
+++++
Dear Rajaram,
The replies are as below:
Q. 1 Is HR cost centre or profit centre?
Reply: - It depends on the type of company. If company continues to dismiss HR manager as erstwhile personnel manager then obviously HR will remain cost centre.
Q. 2 If it is cost centre, what HR leaders should do to convert into profit centre?
Reply: - Till it is proved otherwise, HR is a cost centre. Therefore, it is HR's duty to show it is a profit centre. To prove how HR is a profit centre, HR should measure business impact of their interventions like competency mapping, talent management etc and show how these interventions have given profit to the company.
Q. 3 Do organizations need to provide HR leaders to actively take part in strategic decision making process and help them develop as business leaders?
Reply: - Forget about strategic decisions, HR will be involved in the tactical decisions provided they are mature enough for this involvement. For their involvement, HR must understand how the business takes place. How many HRs understand the ratios mentioned in the balance sheet of the company? If few HRs openly profess that they are not good in numbers then do they deserve to be involved in the strategic decisions? Few HRs plainly demonstrate their ignorance on the costs associated with the business. Do they deserve to be involved in the decision making process?
Final comments: - On the one hand HR tells that it is no longer HR but it is HR Business Partner. If it is business partner, then why it is haunted by a basic question like whether it is profit centre or cost centre? For HR, there is lot of learning from this contradiction!
Thanks,
Dinesh Divekar
From India, Bangalore
7879On one of the WA groups, Administrator of the forum had brought a topic for discussion on "Is HR cost centre or profit centre?" Following are the questions that he has raised:
Is HR cost centre or profit centre?
If it is cost centre, what HR leaders should do to convert into profit centre?
Do organizations need to provide HR leaders to actively take part in strategic decision making process and help them develop as business leaders?
This discussion is not today's discussion but little old. I have given replies to his questions. My replies are as below:
+++++
Dear Rajaram,
The replies are as below:
Q. 1 Is HR cost centre or profit centre?
Reply: - It depends on the type of company. If company continues to dismiss HR manager as erstwhile personnel manager then obviously HR will remain cost centre.
Q. 2 If it is cost centre, what HR leaders should do to convert into profit centre?
Reply: - Till it is proved otherwise, HR is a cost centre. Therefore, it is HR's duty to show it is a profit centre. To prove how HR is a profit centre, HR should measure business impact of their interventions like competency mapping, talent management etc and show how these interventions have given profit to the company.
Q. 3 Do organizations need to provide HR leaders to actively take part in strategic decision making process and help them develop as business leaders?
Reply: - Forget about strategic decisions, HR will be involved in the tactical decisions provided they are mature enough for this involvement. For their involvement, HR must understand how the business takes place. How many HRs understand the ratios mentioned in the balance sheet of the company? If few HRs openly profess that they are not good in numbers then do they deserve to be involved in the strategic decisions? Few HRs plainly demonstrate their ignorance on the costs associated with the business. Do they deserve to be involved in the decision making process?
Final comments: - On the one hand HR tells that it is no longer HR but it is HR Business Partner. If it is business partner, then why it is haunted by a basic question like whether it is profit centre or cost centre? For HR, there is lot of learning from this contradiction!
Thanks,
Dinesh Divekar
From India, Bangalore
I agree with Dinesh Divekar Sir, The traditional view was that HR was a service or staff function rendering supply of the required hands to carry out the tasks. So these tasks anybody with some flair for human dealing could handle. With unionisation and consequently IR issues cropping up every now and then, the human side of enterprises got some attention. Coupled with this was the compliance of various statutory requirements. All this required some knowledge and expertise, so some semblance of professionalism crept in. Towards the second half of last century, the realisation dawned on many business and industry leaders that HR is the only resources that can multiply output and human factor is the central pin of the organisation. So started the concern for talent management and various tools and techniques took shape aimed to channelise the creative energies of employees into productive areas of the business unit. This signified the change from the traditional Personnel Department - cost centre approach to the modern Human Resource Approach which is profit centre oriented. Now the question depends as to whether the HR departments are really positioned so, is to be answered by the respective HR functionaries as to where they see themselves to be, as mere dispenser of certain services like recruiter, wage & salary administrator, or welfare administrator or sensible professionals as business partners. In deed the situation is exemplified by the typical answer given by the three people who were into constructing a building, to the question put to each one of them as to what they were doing, the first one saw only the task he was performing that is placing brick over brick with cement, while second one saw the result that is building a temple, while the third saw his action wholistically with a purpose and answered that we are building the finest temple of the world to serve the needs of the people. So, if the HR functionaries are able to view themselves as business partner, they have to have clear precept of their role and functions and for this it is the HR group which has to take the onus and prove themselves to be competent and capable to do so.
From India, Mumbai
From India, Mumbai
A cost center is a subunit of a company that is responsible only for its costs. Often a division of a company is a profit center because it has control over its revenues, costs, and the resulting profits. Cost centers and profit centers are usually associated with planning and control in a decentralized company.
The cost centre and profit centre are two different aspect of the revenue generation. Whereas, the HR department is seen mainly as an overhead that did not directly generate revenue, but having the hypotheitcal contribution to the profit of any organisation.
Nowdays a trend is imerging to consider HR’s as profit centre. The consideration of HR Management as profit centre will be paradoxical nature. Can any expenses under welfare (canteen, hospital, housing, guest houses, transport and others) is considered against profit? Only thing can be done comaparative gain can be brought-up between projected expenditure aginst actual expenditure.
The HR will loose is essence when to be considered as a profit centre than of a cost centre. Infact, this profit centre concept will not be for all types of establishments but for few those who are of different natures & cultures
From India, Mumbai
The cost centre and profit centre are two different aspect of the revenue generation. Whereas, the HR department is seen mainly as an overhead that did not directly generate revenue, but having the hypotheitcal contribution to the profit of any organisation.
Nowdays a trend is imerging to consider HR’s as profit centre. The consideration of HR Management as profit centre will be paradoxical nature. Can any expenses under welfare (canteen, hospital, housing, guest houses, transport and others) is considered against profit? Only thing can be done comaparative gain can be brought-up between projected expenditure aginst actual expenditure.
The HR will loose is essence when to be considered as a profit centre than of a cost centre. Infact, this profit centre concept will not be for all types of establishments but for few those who are of different natures & cultures
From India, Mumbai
Every job or profile is a cost center to the company. The only thing is that the employee should prove him self or employer should give such roles to make his job profit center.
From India, Hyderabad
From India, Hyderabad
Dear colleague,
It depends on which side HR wants to belong.
If he/she is driven by inner strength of grit and determination to make a difference by wanting to contribute to bottom lines by employing innovative ideas in achieving substantial cost reduction through reducing talent turnover, hiring time cost absenteeism, productive time wastages, self-paying incentive schemes , productivity enhancing wage settlements and many other such possible areas, then he/she is surely not a cost centre but a profit centre.
Regards
Vinayak Nagarkar
HR-Consultant
From India, Mumbai
It depends on which side HR wants to belong.
If he/she is driven by inner strength of grit and determination to make a difference by wanting to contribute to bottom lines by employing innovative ideas in achieving substantial cost reduction through reducing talent turnover, hiring time cost absenteeism, productive time wastages, self-paying incentive schemes , productivity enhancing wage settlements and many other such possible areas, then he/she is surely not a cost centre but a profit centre.
Regards
Vinayak Nagarkar
HR-Consultant
From India, Mumbai
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