Is L&D a profit centre?

I got inadvertently drawn into a Twitter chat today where this question was posed:

Tricia Ransom responded with the following:

Which I responded to by saying that I don’t think this will ever happen as long as L&D remains an internal function. The only way it could become a profit centre is if it directly sells its services to external clients of the company.

I could end this post right here, cos that’s pretty much my whole argument. But, well, it’s my blog and I’ll carry on if I want to. So here’s the longer version of the answer.

What I’m not arguing is that L&D doesn’t add value to the business. It very much can and does. I wrote about this some while ago about how the perception of thinking of L&D as being about ‘soft skills’ is a fallacy.

I understand the intent behind Tricia’s message. It’s about saying we need to look at ourselves differently as a function. We need to stop thinking of ourselves as as support function, and start thinking of ourselves as a business critical function. It’s about saying that without L&D happening well, a company won’t survive and won’t innovate. I get all that. None of that, though, means we become a profit centre, because none of that is about bringing in revenue.

As much as I might want it to be the case, nothing I do actually brings in revenue. Not directly. When I facilitate a training session or a workshop or team building event or other learning event, I am using people’s time to develop their skills in some way. That activity will not bring in revenue. It will help make someone different and new happen, but bringing in the cash isn’t an intended outcome.

This is the prime reason why this function is often the first to get cut when times are hard in a business. As I said above, the only way an internal L&D function becomes revenue generating is by selling its services to external clients of the business. But that’s often not the purpose of the function, and if it was, it would require a different business and operation model.

Indeed an internal function can operate like a mini business by logging its activity. You simply log how much time you spend on various activities over a period of a month and by doing so gain some hard information. That information will tell you where you’re spending your time and if it’s value adding or not. It also means you can tighten up certain processes where needed and you make better use of resources because of what you identify. Again, though, none of that means you become revenue generating, you just become a true value adding function.

Your thoughts, arguments and counter-arguments are very welcome.

Advertisements

Published by

Sukh Pabial

I'm an occupational psychologist by profession and am passionate about all things learning and development, creating holistic learning solutions and using positive psychology in the workforce.

4 thoughts on “Is L&D a profit centre?”

  1. Sukh,

    I would definitely disagree, we operate as a profit centre on two fronts shall we say. One, we charge business units for the training that we deliver to them, we operate as a business within the business. The other thing that we do is we sell our niche training products, suicide prevention and other community services style training, to external stakeholders, generating income to assist in offsetting any costs associated with the internal delivery.

  2. Thanks Sukh. Good question and I agree with your argument.
    In general terms, a profit centre is primarily concerned with generating its own profits. L&D (being a support function) is primarily concerned with helping those profit centres to generate profits. As you say, L&D therefore has an impact on profit, but actually measuring and attributing that in financial terms is just guessing. And whilst you can push paper around to create internal charging, that doesn’t really alter those primary objectives.

    As a secondary objective for an L&D function, there is a lot of sense in monetising its IP and selling courses externally – not least, to protect it from the axe in tighter periods. Where that becomes so successful that the balance swings and L&D becomes an actual profit centre, I’d argue that whilst that’s great, it’s primary purpose has then also switched and it’s no longer an L&D function as such,
    James Lizars
    insideoutbp.co.uk

  3. May I offer a parallel.

    In my corporate life, I used to be an Engineering Director providing maintenance and project engineering support to production operations in a pharmaceutical manufacturing plant.

    We were a pure service function. We had some legal requirements that required critical maintenance activities to plant and machinery and that was easy to measure. Had our maintenance routines been completed on time and was the plant of the required operating standard?
    What was more difficult was how we measured our performance. Our work varied from outright firefighting to planned and preventative work, but actually much of our work was advisory. Helping production and quality departments make decisions that supported the primary task of getting quality product to customers by the agreed date.

    Interestingly I was measured to some degree on what we did, the task, but actually the bulk of my measure of success and therefore my team was of our perception in the plant. Did we add value, were we responsive, did we stand our ground when our principles were being compromised (safety, quality and good engineering practise). Very subjective, but actually it was fair, and meant we did not waste our time concocting a range of kpi’s.
    Being of production stock, I very much follow lean principles of value, and that value must be through the eyes of the customer. My measures were through the eyes of my customers, and I was required to have regular meetings to review our service with my customers. Did we improve things, yes!

    So L&D, Im really not sure about measuring. If there is a measure then its about behaviour for me. What behaviours/skills have changed and whats the impact of that.
    Came across a nice formula recently that was looking at trying to measure the ROI of coaching.
    In essence the questions went like this…

    What are the benefits have you have achieved since the coaching began?
    What % (1-100) do you think of the results achieved is a direct result of the coaching?
    Therfore the ROI is the benefit x % attributable to the intervention.

    That works for me. Maybe thats part of the issue, we are not always good at the discussion around quantifying the benefit?

    A ramble I know, hope it helps!!!

Say something...

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s