One of the prime competencies that SHRM says all HR professionals should have is business acumen. That is we need to understand how our businesses operate and we should be able to talk in terms of the business. We should know what it means to make a profit. With that in mind I offer you an alternative view of what “profit” is.
Drucker, in his book The Practice of Management says that profit serves three purposes. These are:
- It measures the net effectiveness and soundness of a business’s efforts.
- It is the “risk premium” that covers the cost of staying in business.
- Lastly it ensures the supply of future capital for innovation and expansion.
Interestingly if you look at #2 Drucker says there is no such thing as “profit.” To him there is only the “costs of being in business” and “the costs of staying in business.” He says the task of business is to provide adequately for these costs of staying business by earning an adequate profit.
The role of HR
Since much of the profit a company makes involves the people that work for the company HR plays more than a small part in the profit picture of the company. Are you aware how your company makes its money and covers the cost of staying in business? In today’s HR competency model you should.