It’s no real secret that most TA departments operate as a cost-centre.
That’s to say that the overall costs of running the team (salaries, tech, licenses, etc.) fall into the general overhead costs of the business. Each year a budget is agreed which may include operational and capital items. The TA Leader is required to stay within this budget and or source additional budget from the business if there are extraordinary expenses that have not been included. As a result, operating as a cost-centre means that the talent function generally has reduced control over spending and resources.
TA functions that operate as a cost-centre tend to re-allocate costs to the business as a regular “internal fee.” In many cases the costs and overheads of talent acquisition are distributed to various departments as part of the overall People & Culture expenses of the organisation. This means that the business either receives a charge for services over which they have no control or are not charged anything specifically for TA services. The charge for services may not be based on TA activity; it could be head count proportion, so the connection to how TA add value may not be clear.
It’s my personal belief that services that are provided at no cost are generally not valued or highly regarded. Think about it – you’re probably less likely to value a sandwich you bring into the office from home versus a take-away salad you pay $12 for at the local café. I think this about using an internal service and getting allocated an internal TA person as opposed to the business selecting an external provider who may be a specialist that they may value higher.
The perceived value of the internal TA function can be thought of in much the same way as our daily lunch; when internal fees are obscured among general “overhead costs,” organisations run the risk of the TA function not being properly valued. In addition, in some cases a business is required to use the TA function, so choice is reduced.
So, what does that mentality mean for hiring outcomes and efficiencies? Internal fees for the TA function should always be used to drive hiring manager behaviour that will support filling a position with a quality candidate in the most efficient way and, most importantly, for the least cost. But when hiring managers aren’t made aware of those fees – and do not have choice about who they use – how can we expect them to value the service accordingly?
Shifting your TA function to operate as a profit-centre
If we want hiring managers to understand the true value of the TA function, then it stands to reason that we should be applying real dollar values to our work and providing options. The TA Service provided must be better or equal to what can be purchased external to the organisation – you are effectively operating as your own internal RPO. This is where the concept of operating your TA function as a profit-centre comes in.
In this instance, hiring costs, overheads, and a margin is charged to the business for TA services. The TA team is required to operate more as an internal agency/RPO function (albeit one with a strong understanding of the company’s goals and workforce objectives) and provide value, transparency, and outcomes to the hiring manager accordingly.
Operating as a profit-centre allows for greater opportunities to continually invest in TA and stay relevant, as these teams aren’t required to justify expenditure to the same extent as those operating as a cost-centre. It also recognises and formalises the TA function as an internal “business partner” and allows it to be responsive to market forces, just as the wider business must be.
Allégra Moore, Talent Director at tech-firm Cognizant has run a profit-centre previously, for four years, in a previous role, and found that the upside of running the function as a profit-centre is it allows the team to become more customer-facing and assists with hiring managers understanding that talent isn’t something that just grows on trees,” she said.
“I’m a romantic and a dreamer!” Allégra told audiences at the 2021 Sydney Talent Day Out.
“Running as a profit-centre enables allows organisations to see the function as more of a value-add; when people realise they actually have to pay for something that they want, it becomes a very different conversation.”
The pitfalls of the profit-centre model
But with the pros, come the cons. It’s true that TA teams that operate as a profit centre have far greater control, but as many have discovered a profit-centre model may only suit a very mature business with established stakeholders.
Operating a profit-centre-based TA model requires greater accountability and attention to meeting business needs, particularly where use of TA function by the business is not mandatory.
One respondent to our recent 2021 State of Talent Acquisition Survey even told us that they were shifting their TA function back to a cost-centre after having operated as a profit-centre.
“A profit-centre provided us with far more control and spend flexibility, but the business and stakeholders weren’t ready for that level of cost transparency and chargebacks,” they said.
“Many stakeholders would rather pay for hiring in the hidden costs of increased corporate overheads.
“If the business isn’t mature enough you begin to see behaviours and work around to avoid hiring charges which ultimately hurts the business.”
Talent and workforce planning specialist Rob Papworth has led talent functions that operate as both a cost- and a profit-centre, and much prefers the cost-centre model.
“When a TA function is run as a profit-centre model, it runs the risk of operating too much as a business within a business,” says Rob.
His concern is that you can become myopic on your ‘paper profit’ and that focus can detract the team from being an internal partner.
Rob also says that running the TA team as a profit-centre can create a misalignment with other business support functions who typically operate on a cost model.
“What’s the business trying to do? What makes the business run better? How can you make optimal cost-benefit based hiring decisions? These are the key questions and having a cost-centre model allows you to focus on that, not margin.”
“TA needs to own the cost, the service, and the metrics, and improve them over time. There’s no us and you – like all business support functions we are all trying striving to balance spend, service, timeliness, and quality.”
“I personally find that a profit-centre model can put the recruitment team a little bit too much into “agency mode”. Which means that at those critical times when you do need agency support, a profit-model can confuse the business, or worse, delay that external engagement when it is needed.”
(Feature Image: Unsplash)
