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Learning and Development: Profit Center or Cost Sink?

Submitted by  on June 9th, 2011

Hand passing dollar billWe sometimes hear the call to turn the learning and development function in an organization into a “profit center”. By moving to a profit center approach, the argument goes, the L&D function will become more business focused and so of considerably more benefit to the organization.

Now, I have no quarrel with doing the best we can to make L&D more business focused. I have been arguing the case for a number of years in my own books and articles. I can also appreciate that if you are running a training business as an external provider or as a consultancy receiving fees from clients you would want to run your business as a business and at a profit.

But I don’t buy the argument when it comes to internal training departments serving internal clients. Yes, an internal training department needs to be business focused. However, that’s quite different from running it as a “profit center”.

Profit is what is left over from income received once all expenses are deducted. So, to take up some of the possible points of difference, oftentimes there is no income stream to plug into the profit formula. Where is the income stream for induction training or MS Office skills training? Yes, there may be some efficiency gains that will show as costs saved, but there is no revenue gain that you can point to. And what about anti-bullying training? Here, there is a saving in litigation costs, but no gain in revenue. Some of these programs will have demonstrable ROI and I’m all for that when it can be measured. In one of my books, Training Evaluation Toolkit, I deal at length with how and when to measure ROI. But here again, ROI is not the same as profit.

Some proponents conjure up an “internal revenue” from the savings made when employees are trained in-house compared with sending them on an external course. Firstly, a cost saving is still not “profit” as there is no income to offset the expense. A cost saving is just that, a cost saving. Others say what they really mean is “cost recovery”. Well, if that’s what you want, then why not just call it that without leading us down the path of confusion?

Secondly, if the “profit center” motive is to reduce training costs as much as possible, then we are doing a disservice to our organization by promoting training as a “profit center”. A particular training program may cost more to run in-house compared with using the services of an external vendor, but in some cases there may be a greater benefit to the organization in keeping it in-house. Running it externally may lead to a loss of in-house skills, it may tempt some good instructional designers to leave the organization, it may result in a lower quality course, etc. There is a range of factors to consider in deciding whether to outsource a program. Dollar cost should be just one of them.

Yes, let’s make the training function more business focused. And yes, let’s measure the effectiveness of our mission critical training programs. However, at the end of the day, I want my training function to deliver employee capability when and where it is needed promptly and efficiently. Talk of turning it into a “profit center” seems to me to shift the focus of the training function away from this core mission.

If we are going to make L&D a “profit center”, what does this mean in operational terms? How will expenses be cross charged? What will the KPIs look like? Consider this also. What other departments should we turn into profit centers? If we are going to turn the training department into a “profit center”, why stop there? Should we not turn the quality department into a “profit center”? And what about the engineering department, and finance, and so on?

Perhaps this highlights the biggest problem associated with the push to turn a support department into a cost center. And that is that it treats each department as a self-contained entity, responsible for its own income and expenses. A single-minded focus on profit diverts focus from the end game; all departments pulling together to achieve the organization’s aims. Profit center thinking results in a zero-sum game, where individuals compete for success to the detriment of the whole organization. What the profit center protagonists end up with is the very opposite of what they set out to achieve. They blow the trumpet of greater business focus but end up with fiefdoms competing for the biggest dollar bill.


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Posted in Training | Comments (2)

2 Responses to “Learning and Development: Profit Center or Cost Sink?”

  1. JoAnn Corley Says:

    Leslie – this is a critical piece of knowledge that every decision maker need to have and use.

    I use a simple example of a time management seminar as a way of explaining… here’s the post to the explanation. It’s entitled – Can 1 Time Management Tip Save Your Company Moola –

  2. Leslie Allan Says:

    Thanks JoAnn. Yes, I see that training programs save money. And many save more money than they cost; they give us a positive ROI. My comments go to the heart of the purpose of the training function. Is it to make a profit for the function itself, or to give the organization and its people the capability to make a profit as a whole? Not for Profits are not profit focused at all. How do you see the purpose of the training department as a whole?

    Regards, Les Allan

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