The concept of HR as a profit centre is so innovative and challenging to the mindset of many in HR and senior leadership teams, it often needs to be introduced to them by someone outside of the organization.
Whether an HR (Human Resources) function is considered a cost or profit center can vary depending on how it is managed and the organization’s strategic approach to HR.
Here’s an explanation of both perspectives:
In many organizations, HR is primarily seen as a cost center. This means that the HR department is responsible for managing expenses related to hiring, training, payroll, benefits administration, compliance, and other HR-related activities.
The main goal of an HR cost center is to ensure that the organization’s human resources are managed efficiently while controlling costs.
HR activities are considered essential for running the organization, but they are not directly tied to generating revenue.
Some organizations have adopted a more strategic approach to HR and view it as a profit center. In this case, HR is seen as contributing directly to the company’s profitability and success.
HR can become a profit center by focusing on initiatives that directly impact revenue generation and growth. For example, HR may be involved in talent acquisition strategies that bring in top-performing employees who enhance the company’s competitiveness.
HR can also play a role in employee development and retention, which can lead to increased productivity and reduced turnover costs, contributing to profitability.
Ultimately, whether HR is considered a cost or profit center can depend on the organization’s industry, size, and strategic priorities. Some organizations may fall somewhere in between, viewing HR as a hybrid function that balances cost control with revenue-generating activities. The perception of HR’s role may also evolve over time as organizations adapt to changing business environments and market conditions.
How quickly can organisations benefit from a changing HR function?
Producing a significant cultural transformation across a whole large organization to totally change mindsets can take a number of years but incremental small steps start the journey and create the initial momentum.
This transformation in theory can happen anywhere, but inevitably organisations that are more open to change, are likely to be more receptive and more able to make this transformation. And the role interims play in making this possible via being a catalyst and providing insight is critical and only set to increase.