Details on P & L Concept

Periodically I like (need) to get off the soapbox and deliver some tactical approaches to the strategic material I discuss. One of the most common questions I get is “What do you mean by recruiting must be a P&L function?” Specifically, how to do you take a corporate function like recruiting (or IT, or facilities, etc.) and operate it like a separate business. So rather than a director of recruiting (or VP of HR) you have a CEO of the corporate recruiting department.

This is not such a stretch. Any company that uses a charge-back model for internal cost accounting of its corporate functions has taken the first step towards treating those functions like a business. But it is only the first step. Next is to be held accountable by a detailed Service Level Agreement (SLA), including charge relief for failure to provide a specific level of deliverables to the client. Third, you have to have a client-service model, just like your competitors / suppliers in the agency world. Having an end-to-end, one-person-does-it-all recruiting model does allow for specialization in client management that is required in the full P&L model. Fourth, you have to be able to market and sell to your internal client base. This includes being able to specify a product set that the business feels they need at a competitive price. Fifth, you must be credible as a business. The only way to build this credibility is to actively encourage your customers to use services outside of your control. Without this all the rest is window dressing. And if you can’t beat the competition you are not a business and you should be outsourced.

As you are successful with this model you need to get agreement from your boss that you are outside direct managerial and budgetary oversight. Once you solve the initial cash flow problem with an “investment” from your corporate HR / Admin function (which you can repay with interest out of a budgetary allocation back to the originating account on an agreed-upon schedule), you will be running like a business. The function is accountable to its clients, not it boss. There is a simple measure of success: your ability to provide a service that your clients buy. You can invest in new ways to solve client problems without having to go through the political jungle of control and budget allocation. Your business will have a board (consisting of a chairman, who is the next step in the hierarchy, and a board consisting of other line executives). The function leaders get reviewed by the board, with a significant portion of their compensation being a bonus based on your profit from the year.

360 reviews go away. Either clients buy from you or they don’t. If the business is growing the workers get paid well and the organization grows. If not… you get outsourced. (By the way – if you really want credibility show a three year baseline P & L statement to your potential board that includes a plan to outsource the function if you are not successful in hitting your goals.) This model will always be more successful than a captured corporate model. Of course this model assumes a certain level of rationality in the client base: that given an equal level of guaranteed results the buyer will pick the better service at a lower price. Everyone becomes a winner in this case: the supported divisions (the “clients”) spend less money on talent services and get better, more predictable services in return. The shareholders spend less on non-revenue producing services, as well as build shareholder equity by being able to develop the intellectual capital that can be harvested in this model.

And here is the best part: if the recruiting business is successful, it can start to sell its services to other members of the corporate value chain. Your paper supplier can’t get you what you need because they can’t hire delivery people? Maybe they can turn to your business to help them solve the problem. The enterprise gets upside from better delivery and the likely discounts from the supplier. Then the recruiting organization is really a business. It makes a true profit from outside capital and returns direct value to shareholders that can be measured.

That’s what I mean by “recruiting should be a P & L function.” Please let me know if you know of examples similar to this.

Comments

[Jeremy Langhans]

RIGHT ON THE $$$ Jeff !!

Keep it coming,

Jeremy Langhans
Principal Consultant
Jeremy Langhans & Associates
www.jeremylanghans.com
jeremy@jeremylanghans.com
Direct: 949-872-2328

[Dave Lefkow]

A lot of elements of your model - resellable services they can offer to partners, a zero-based budget, and a client-service model - are things that Wachovia has been doing actively for the last few years. You may have seen their former VP of Staffing, Denny Clark, speak about it at one of the ERE shows. Was a fascinating presentation!