Several C-Suite Managers have over the years viewed the HR Function or Department as a Cost Centre rather than a Profit Centre since in their view, HR does not contribute directly to company’s profitability but still costs money and resources to operate. HR-related costs are therefore, expensed in one year and charged against the profit/loss account.
In the circumstance, the Head of HR, when invited to the Board Room, goes to defend his share of the budget and to identify ways of cutting cost. The immediate target for such cost reduction is often Training and Development, Recruitment and Employee Right-Sizing (Redundancy).
Again, HR activities, being predominantly transactional, reactional and repetitive rather than transformational and strategic, are hardly ever subjected to the test of return on investment (RoI). As a result, HR is always on the table in the Board Room rather than being at the table.
In this write-up, we shall seek to examine developments that have influenced a gradual shift of this perception and the subtle appreciation of the critical role of the function as a strategic one, resulting in HR being seen as a profit centre. In this regard, it is expected that HR, in the final analysis will consider issuing invoices to other departments for services rendered.
As indicated above, the shift in perception has been the result of the emerging realization that Human Resource is the most precious factor in production process. Even at the national level, it is said that “the wealth of the nation is its people”. Similarly, the wealth of a company is its employees. Indeed, Professor Dave Ulrich is on record to have said:
“HR is not about HR, HR is about helping the business to win”
Indeed, it has now been realised that HR is the one function that enables Line Managers align the vision of the individual employee to that of the corporate vision through several levels and units of production. HR therefore, ensures that a line of sight is established between the individual worker, his immediate supervisor through to the Head of the organization. This way, the worker’s knowledge, skill and competencies are brought to bear on the group effort at every level in order to achieve the corporate goal. This awareness creation in itself creates value, thus making HR a strategic partner, a profit centre and not a mere cost centre.
As a result of the foregoing, HR is now being invited to join C – Suit Executives in formulating business strategy as ultimately, it is the human factor that ensures the realization of the strategic goals of the Company.
It is worth noting that from the beginning of civilization, it has been the human mind that has made every invention possible – from the Stone Age through Agricultural/Industrial Revolution, to the Information Age and now the Fourth Industrial Revolution. It is often said that resources may be limited, but innovation, attributable to the human factor, is unlimited.
Again, this gradual shift in perception has occurred as a result of the evolution of the people management function from Administration (transactional activities), through Personnel (welfare & discipline), Human Resource (alignment to strategy) and now to Human Capital Development (profit centre). The evolution has witnessed at every stage the application of a different HR Management Delivery model, including:
- Centre of Expertise (HR Service Centre)
- Business Partner
- Shared Services
- Strategic Partner
Let’s at this stage examine each of the models and the way they have helped the Human Resource Function rediscover itself.
Centre of Expertise
This is the HR Delivery Model where the HR function is primarily responsible for executing established policies and processes, supporting business units and escalating complex issues to the Centres of Expertise at the Corporate Office for assistance and resolution. HR thus provides support to employees, managers and other professionals through a centralized service delivery system. Activities tend to be routine, mundane and transactional without any reference to strategy.
The presumption is that there is a pool of experts at the HR Service Centre who would attend to all technical HR issues and advise stakeholders appropriately. The HR Function has a budget as part of the corporate budget to which all services rendered are charged to. As a matter of policy, HR does not bill any business unit for services rendered.
Per this delivery model, HR experts are assigned to business units to provide HR services. They serve more or less, as consultants on HR related matters in the units to which they are assigned. The HR Business Partners work as Relationship Managers in the Business Units.
It is important to note that Business Partners, in this situation, still report to the Corporate Office for guidance and compliance and so the cost of HR services is charged to the Corporate Office and later shared among all departments of the Company.
To my mind this is an innovative way of feeing up the residual HR Team in the corporate office to focus on policy and strategy.
In this operating model, a hub is created in the company to render a range of HR services to all Business Units on recurring basis. The rest of the company is seen as a customer of the HR Shared Services Unit. Information Technology is the driving force behind the creation of the shared services platform, ensuring seamless integration of all end-users.
Here, end-users of the HR Shared services are invoiced by the HR Department, even though this may only be a paper transaction, without more. End-users therefore, determine the standard of service required.
At this stage, HR is seen as a Profit Centre rather than a Cost Centre, and like the Business Partner Model, HR is freed to focus on strategic issues and to work closely with the Corporate Office in shaping Corporate Strategy. HR then becomes a critical factor in driving performance through strategy mapping (Balanced Scorecard).
This model draws the HR Function from the peripheries of strategy formulation to the very centre of strategic planning. HR role in achieving business growth and success is acknowledged and factored in the strategic planning process.
At the end of the day, strategic objectives that have direct impact on the HR Function are extracted and channelled into the HR Strategy of the Company and cascaded down to the various levels of the company.
In the final analysis, meaning is given to the view that the three most important positions in every company should be a) the Chief Executive Officer, b) the Chief Finance Officer and c) the Chief HR Officer.
In conclusion, one may say that with the evolution of HR from Administration through to Human Capital Management, the view that it is just a cost centre has been eroded and is now seen as a profit centre whether directly or indirectly and therefore a strategic partner.
HR may now bill other departments for recruitment services, training and development, mentoring and payroll administration, just to mention a few.
Edward Kwapong (Dr)
Fellow and President of the IHRMP (Gh)