Shifting The Paradigm
Five Ways For HR To Change
From Cost To Profit Centre
An Adecco Asia Pacific White Paper
Quarter 4, 2015
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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 centres are performing, without the
core functions of departments like HR, they would rapidly cease to do so. Yet due
to a quirk in accounting terminology that requires certain business functions to be
categorised 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 fact is, however, that by monetising various aspects of the HR function within
the company, and showing how those functions impact and add to the bottom line
financial outcome of an organisation, HR can easily turn from being a cost centre
to a profit centre. Here are some ideas as to how.
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USE THE TOOLS ALREADY AVAILABLE
One of the issues with any department trying to do more is the constant lack
of resources. For HR however, a little investigation can unearth a vast amount
of resources in the form of existing employees.
HR departments can tap on existing employees to streamline human capital
management and organisational development. There are two aspects to this
principle. Firstly, when recruiting for new talent, utilise an employee referral system
to help identify and attract top talent.
The other aspect harnesses employees’ hidden talents. The fact is that every
employee harbours some lesser known strengths and talents - and sometimes
these talents can be enormously useful to the organisation.
SHOW YOUR WORTH
So how does this process begin?
Firstly, it starts with demonstrating the
department’s return on investment
to the company. For the uninitiated,
Return on Investment, or ROI, refers
to how much the company gets back
versus how much it is spending. For
example, by spending $1,000 on a
training programme, HR has provided
new skills to an existing employee, and
removed the need to spend $3,000 to
hire another headcount, thus gaining a
$2,000 ROI.
That’s a very basic example but
the idea is there. By providing hard
evidence that HR is adding value to the
company, not only is the department
protected during hard times, it may
even result in higher budgets for
future projects.
However, one of the issues with
demonstrating ROIs is that very often
the proof is built on correlations rather
than direct cause and effect. It can be
hard to prove that HR interventions
definitely caused increases in
productivity, which is why this is only
one of the ways to demonstrate the
value of this critical function.
Taking a little time to conduct an employee skills and interest survey can actually
yield a significant amount of promise. HR will actually have a resource catalogue
from which all departments or assets can draw on for cost-effective and efficient
help as needed. This is also something that benefits the employees by offering them
an opportunity to learn new skills and to hone abilities that had previously been
undeveloped and enhance their employability and visibility within the company.
RETENTION THROUGH RETRAINING
One facet that needs to be made clear is that employee training and
professional development may have a cost associated to it, but it also ‘gives
back’. It is generally acknowledged that employee satisfaction and engagement
lead to customer satisfaction. Now more than ever, an employee’s loyalty to an
organisation, as well as their performance, is dependent on their perceived job
security and future employability; two crucial variables that training and coaching
initiatives serve.
By coordinating and conducting in-house training, HR is providing a positive
incentive that is meaningful for employees while removing the cost of bringing
in external coaching experts. This can take the form of a simple mentoring
programme or even a media training session conducted by the company’s
communications department.
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INVENT REVENUE
If a so-called cost centre is able to offset some of their
expenses by creatively generating unexpected revenue,
it would no longer be a cost centre. One way to do this is to
charge back other departments for services. The trick is to
be creative, think about what functions HR is providing that
would otherwise cost the company money and then ‘charge’
your departments at a significantly lower rate than what they
would have to pay to outsourced firms/partners. This way
the departments get what they need while spending less
budget than expected.
The above could work in areas such as training course,
succession planning for different departments, conflict
resolution, compensation analysis and employee surveys.
While this demonstrates that In-house HR is a better option
than outsourcing in this area, it more importantly shows that
the HR team is cost neutral or, arguably, profitable. While in
most cases this is all virtual revenue, as it would involve the
transferring of budget allocation from one department to
another rather than actual cash payments, it is still income.
If you can cover all your costs with offsetting revenue,
you’re not a cost centre anymore!
SLASH THE OVERHEAD
One way in which HR can make a significant impact on
the bottom line is by cutting down on overheads. Now
this may sound like a typical austerity measure, but it
does not have to effect staff. Impacts can be made by
streamlining a process, renegotiating terms with a supplier,
or simply by adopting a more efficient method of operation.
Every saving increases the value of the department.
One of the many advantages of a HR department is that
it can utilise social media to fulfil functions that would
otherwise cost money. HR practitioners can bring value to
the work being performed by their external staffing and
recruitment partners by turning to social media to ensure
that they ‘look good’ to potential hires.
While social media recruiting requires time and effort,
it is an investment in longer-term benefits for the company.
Using social media platforms like Twitter, Facebook
and LinkedIn, takes recruiting back to its grass roots of
networking, but for a digital age.
These are just five ways in which HR can turn the corner and
go from being a cost centre to a profit centre for. It really is
about shifting the perception of the department to show that
it fulfils a crucial role and is capable of generating revenue.
The Adecco Asia Pacific Network:
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