HR and business acumen

by Michael Haberman on March 17, 2016 · 2 comments

increase-profit[1]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 definition

Drucker, in his book The Practice of Management says that profit serves three purposes. These are:

  1. It measures the net effectiveness and soundness of a business’s efforts.
  2. It is the “risk premium” that covers the cost of staying in business.
  3. 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.


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{ 2 comments… read them below or add one }

Sayward March 17, 2016 at 9:24 am

Maybe take it one step further and make sure that your colleagues know how the business is run as well-how they fit into the “cog” so to speak. This is easier for an HR professional in a smaller company, but if you take this on, the company and your boss will see the benefit.


Michael Haberman March 29, 2016 at 12:21 pm

Sayward, thanks for you comment. Yes, it is very important for all employees to have a much better understanding of where they fit in to the scheme of things.


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