HR and Finance: Working Better Together
Reviewed by: Fibe Research Team
- Updated on: 10 Apr 2023
- Published on: 22 Jun 2021
Reviewed by: Fibe Research Team
The conventional function of HR, being people-centric, makes it more of a front-office function juggling with minds and ideas. While separated from HR, Finance controls the figures and numbers at the back-office end. This divorce between two essential functions in an organisation slows down processes impacting the business’s ability for growth and adaptation. Peter Spence, associate technical director at the Association of International Certified Professional Accountants comments, “The way that most firms are structured are along silo lines, so you are starting from a bad place.”
For a considerable time, HR and Finance have been two very distinct strategic functions vying for the same set of organisational goals. Finance seeks to allocate resources for such goals, while HR helps recruit, hire and educate people towards achieving such goals by utilizing the allocated resources. It is, therefore, critical for any organisation to understand that the motivation behind the two functions is the same. Several factors including competition, the complexity of operations, and automation in businesses have brought in opportunities for the two departments to sync their efforts and statistics into an incentive-focused working across HR and Finance teams.
Currently, the wind seems to be blowing in the right direction. A Research from Oracle and MIT Technology Review, Finance and HR: The Cloud’s New Power Partnership stated that 35% of the respondents surveyed were planning to form a shared Finance and HR function within a year while 46% of the respondents felt that the collaboration between the two departments had improved significantly. There has never been a more favourable time for the two to work towards a robust strategic alliance as businesses evolve and automation sets in.
A firm before employing a collaborative solution for HR and Finance needs to ask itself a few questions to decide the scale and scope of shared activities:
It is important for the departments to first understand how the organisation earns its revenues and how the money moves within the organisation, especially for HR. Once HR and Finance understand where and how they contribute to these activities, they would be able to develop a more effective collaboration. Jerry Curtin, director of human resources for Standard Process Inc., confirms the same, “When human capital is the single-largest spend, it takes the collective effort of HR and Finance to balance cost management with attractive programming.”
For HR it is important to understand the financial aspects involved to run a business and to have a grasp on areas such as:
For Finance the areas worth investigating include:
The overlapping functionalities are the areas where HR and Finance need to work on. The senior leadership must lay emphasis on coordinating data with each other before taking policy decisions. HR decision-makers well aware of the real-time financial reports are able to quickly determine the number of sales professionals they can afford to hire, with what skill-set and what compensation package.
Traditional business firms still tend to stick to the obsolete systems where HR and payroll records are considered a separate function from Finance. Finance is forward-looking and HR looks at the past trends and their impact. Both of them use different systems. HR professionals and CFOs need to determine whether their current system requires a complete overhaul, or whether minor changes in the setup would be enough to bring in the required agility in business processes.
Whether or not the employees are ready to accept this change is another important issue. Once reconciled, the employees need to be trained to employ the new practices and technologies put into place for HR-Finance integration within the organisation.
The workforce of any organisation is its greatest asset and HR’s role in managing it is quite an expense. Therefore, the collaboration between the one managing the expense (Finance) and the one incurring it (HR) is quintessential for better performance. The collaboration can be worked upon in a number of functions such as payroll management, human capital forecasting, recruitment and training, skill assessment, employee turnover risks, and finally, developing shared analytics and resources to make plans in the short and long term.
HR and Finance Integration can strategically transform businesses in a two-way equilibrium once they start speaking the same language. While the firm earns a return on investment, it saves on valuable resources via useful insights and better productivity. HR can analyse the past trends and compare them to the current stats to evaluate and revise its decisions. Data sharing eliminates duplication of work and mismanagement issues like HR hiring employees without informing Finance or else, Finance planning budget cuts without discussing the case with HR.
Also, as employee turnover and absenteeism decline, employee morale is boosted and the goodwill of the firm is ensured. Financial Wellness programmes being employed by organisations these days are a direct attempt where HR and Finance come together for the workforce. Employee morale, profit maximisation, and customer satisfaction can be the long term pros of HR-Finance integration.
HR and Finance need to focus on workforce engagement as the key indicator of performance. Disengaged employees add to costs, lessen productivity and push up turnover stats. HR-Finance integration can solely be achieved by an in-depth understanding of the shared financial metrics to facilitate sound communication between the two. At the given rate of technological development and automation, it is only feasible for HR and Finance to sort their differences and move together in the same direction to give their best to the organisation.
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