4 Ways HR Can Operate More Like a Profit Center

*Sharing one from the dusty archives that is still relevant today…

**Disclaimer** I am not an accountant and don’t even play one on tv.  That said, I am not implying that ideas in my post meet the generally accepted accounting principles.  You’d have to talk to your accountant for that kind of advice.  The post is intended to explore ways HR can communicate the value of services in a way that is understood by the leadership team in terms of ROI by considering ways to operate more like a profit center and less like a cost center.

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How much would you pay for a real competitive advantage when it comes to the people knowledge of your company? 

That is a question we should be asking the business leaders in the departments we support both as HR generalists and recruiters. Honestly, I am tired of hearing that the human resources department is just a cost center.  Why?  Because we add value, we support our internal clients, we are often proactive on business strategies to help the “real” profit centers succeed, we make sure you get paid, get your benefits, are able to relocate, provide your training, and more. Why aren’t we treated like the internal consultants that we are?

Now let me tell you that I talked to an accountant about this and had an hour long debate (ok, borderline argument) on why companies are not able to treat the HR department as a profit center.  In layman’s terms, it’s because a company cannot generate revenue from itself, however, it can offset expenses or offsetting revenue.  I realize that for those who are familiar with accounting this is greatly oversimplified, but it gets the point across.  Revenue and profit can come from external sources.  So, being internal, HR does not turn a profit.

Got it.

I’m not saying we throw all the accepted accounting principles and practices out the window.  My idea revolves around the way we “sell” HR and recruiting services internally.  Even though it technically does not turn a profit, why can’t we set up the way the profit centers use HR in a way that “charges” (ie. distributes the share of the expense for the HR department) out to the profit center based on the type of HR usage they have?

What if HR departments set up a fee schedule for all the ways that HR departments and recruiting teams add value to the company, then “charge” our internal clients by tracking our time spent on projects like external consultants would.  Maybe then they would place more value on the services they receive.  Here are some ways I think the department could operate more like a profit center:

1.  Charge back other departments for their use on:

• Training courses offered
• Recruiting and sourcing
• Succession planning for their team
• Conflict resolution
• Coaching services
• Compensation analysis
• Employee surveys

2. Focus on expense reduction. Since HR cannot actually make revenue, the biggest impact they can have is to creatively reduce expenses.

3.  Review how vendor procurement is handled. This is an area where the HR department can take steps to being more involved.  It is usually handled by the finance department, so why not help in those business decisions if you are a recruiter or HR generalist?

4.  Use social media to aid in reducing external recruiting costs. Bring the knowledge and leadership of the sourcing process internal.

So, tell me what you think.  Should we take steps to operate more like a profit center and less like a cost center?  Share your views in the comments.