Are You a Cost Center or a Profit Center

No matter what your role or function in your organization, it boils down to this: are you a cost center or a profit center? That is, do you cost the company money or do you make the company money?

And as anyone who’s involved in a cost-center role will tell you, everything’s easier on the profit center side of the fence. Funding, support, visibility, adoption, even individual career potential all seem to come easier and in greater abundance on the profit center side.

In my day-today job, I talk to lots of cost center folks -- IT, information governance, records management, e-discovery, information security, financial compliance (SOx, anti-money laundering, foreign corrupt practices act), regulatory compliance (DOI, FINRA, FTC) -- and in my pre-consulting life I spent years in cost-center and profit-center roles inside and outside of IT. Both experiences have taught me a great deal about the nature of cost centers versus profit centers.

The most important thing I've learned is that in reality there are no cost-center functions -- every single activity of an organization is a profit-center activity … otherwise the organization wouldn’t be doing it. Does that mean that HR or records management drives revenue as directly as sales? Of course not. But HR and records management support sales in ways that not only make sales revenue possible, but can increase them, if executed properly.

In practice, I’ve come to see that the distinction between cost center and profit center is a function of our own perception of the work we do and that so-called cost-center functions keep themselves in that category through the way they organize their work, execute it and communicate its value to the organization.

And I’ve found that once these so-called cost center folks change the way they organize, execute and communicate the value of their work, the larger organization begins to view them less and less as a cost center and associates them more and more with the profit center activities they enable and optimize.

And while doing so is easier said than done, I’ve found that asking five questions helps so-called cost centers begin the transformation to a profit center:

  1. What does our company do for a living?
  2. How does our work make our company different from our competitors?
  3. How does our work deepen our company’s relationship with our customers and partners?
  4. How does our work make our company’s operations more effective?
  5. How does our work change our company’s risk/value profile?

Let’s take a look at each of these in more detail.

What Does Our Company Do for a Living?

This is where it starts. If you don’t know how your organization makes money, i.e., what the value chain is, you can’t maximize your role’s contribution to that or communicate that contribution effectively to the larger organization.

Think of the so-called profit center functions like sales and marketing, product development, operations: do you think anyone in those organizations would have any difficulty drawing out the value chain on a whiteboard, sketching out your key customer segments, or laying out your product portfolio? Of course they wouldn’t. And beyond that, they could very likely articulate in detail and with great accuracy your three-year corporate vision and strategy along with the main operational initiatives in place to support them.

If you can’t do the same, you need to begin developing the skills and knowledge to do so now. Otherwise, how will you be able to figure out how your work contributes to the success of these activities and articulate that contribution to the wider world? And if you don’t, you will always be seen as a cost center and administrative overhead, with all the lack of support and adoption that entails.

How Does Our Work Make Our Company Different from Our Competitors?

Once you understand what it is your company does for a living, you need to figure out how the work you do in your role fits into it.

The first way it could do this is by making your company different from its competitors.

For example, doing customer service not only extremely well but also using innovative methods (integrated social media, mobile apps), developing industry leading compliance capabilities, or rolling out more agile and sustainable IT platforms are all ways to go beyond being a cost center to deliver profit center value.

How Does Our Work Deepen Our Company’s Relationship with Our Customers and Partners?

Another way to fit into the value chain is by deepening your company’s relationships with customers or partners (vendors, suppliers, regulators, JV partners, etc.).

For example, making your top-notch compliance framework available to customers and partners as a value add to your core service or product, evolving internal IT applications into self-service apps to empower end-users and speed time to value for them, or coordinating customer and partner information to facilitate an increasingly 360 view of them and their activity, allowing your company to target services and products to their needs.

How Does Our Work Make Our Company’s Operations More Effective?

Efficient operations are at the heart of the value chain, so showing how your work contributes to this is a big win.

For example, by curbing over-retention of documents, findability increases, leading to shortened time to execute business processes, better e-discovery capabilities reduce the time and effort required from end-users to respond to litigation, keeping them on task more of the time, and the workflow required to enforce financial controls on business processes can also help automate and streamline those same processes.

How Does Our Work Change Our Company’s Risk/Value Profile?

Finally, and I think most importantly, you can consider how your work changes the company’s risk/value profile, i.e., what is the cost and risk of doing nothing, what is the cost and risk of doing something, and which of these is the right option for the company?

This is the hardest of the questions for so-called cost center folks to answer, because it represents a 180 degree shift in how they see their work.

Typically, someone in IT, HR, customer service or compliance views work as something we have to do or face the consequences. And so they think very little, if at all, about why the organization should do the work, which would include answering the questions we asked above.

But what these groups fail to realize is that all the work at an organization must be done or face consequences. Sales, marketing, product development, operations -- all of it must be done to stay in business. But none of these functions adopts a “do it or else” mentality. Quite the opposite. These functions all work tirelessly to justify their existence to the larger organization and demonstrate the value they deliver … and they get rewarded with funding and support in proportion to their ability to articulate their value.

It should be no different with compliance, IT, customer service, HR. All of us so-called cost centers need to take a page out of the profit center book and justify our existence just like sales or operations would. If we did so, we would be amazed at the support the larger organization would give us … as well as at the increased impact our work would have.

The Final Word

That’s my take on the cost center vs. profit center issue. Would love to hear what folks out there think: are you a cost center or a profit center? Or do you agree that the distinction is a false one and that there’s nothing but profit centers? Either way, jump in and let's get the conversation started.

Title image by Alexander Tihonov / Shutterstock