Why Finance & HR Must Work Closely Together

By: S.K Dutt, Group CHRO – Ampersand Group
Senior HR professional & Post Graduate Alumnus of University of Oxford – Said Business School

Both Finance and HR professionals share one common goal –  achieving higher level of performance and profitability. While CFOs are responsible for allocating resources required to deliver the company’s strategy, CHROs’ responsibilities include ensuring that right people are hired at the right time for the right job, with necessary support and effective incentives.

Employees – Cost or Asset?

Physical assets are easier to measure and manage, people assets, on the other hand can be difficult to predict and manage. Employees not only need top-notch treatment but also a comfortable pay that assists multiple aspects of their lives. Though HR and Finance departments can often be seen as diametrically opposite, there are significant advantages to be had via the establishment of a mutual working relationship here.

According to an Ernst & Young survey of more than 550 CFOs and CHROs around the world, companies where the Finance and HR relationship has become more collaborative over the past years report average higher EBITDA growth and stronger improvement across a range of human capital metrics, including employee engagement and productivity.

Finance department stands to benefit by working with HR to understand how perceiving employees as ‘assets’ rather than ‘costs’ can positively impact an organization’s long-term performance and is more likely to lower costs, streamline operations, increase productivity and improve talent management.

Certain ‘CFO-CHRO’ characteristics that sets apart high-performing companies from their low-performing peers include:

• Acknowledging the implementation of shared services as a critical enabler of collaboration.
• Deeper involvement in strategic planning and decision-making. Both departments adopt a forward-looking approach to get the most out of people and capital based on identifying the right opportunities and solution
• Wider adoption of Analytics to focus on broader metrics for tracking the health of the company and not just the finances

Experts involved in the study done by EY have identified few key drivers of collaboration between these two forces:

• Increasing labour cost and scarcity of talent: Increasing labour cost and scarcity of talent can lead to costly rates of attrition and impact the viability of investments. Companies need a better understanding of the relationship between cost and performance.

• Elevation and acknowledgement of HR in the corporate hierarchy: Known for being a support function, HR has been far removed from strategic decision-making. Rich Postler, HR VP of Global Business Services, P&G is quoted as saying “It is fundamental that the finance head and the HR head are in lockstep with the line business head. The relationship between the three should be symbiotic. When we have a strategy, as a business, it has both human capital and financial implications that must be in sync. When they’re not in sync, we make bad decisions and we confuse people.”
  
  
• Addressing financial and people impact of decisions: Involving both the CFO and the CHRO in the strategic decision-making process and creating new products and services keep the financial and people impact of decisions

• Changes to operating models: Next journey for companies would be to have a global data knowledge and oversight that will give HR and finance business partners the insight they need to better enable business success.

There’s a much larger influx of data in organizations seen today than ever before. This data, with the help of Analytics, can be leveraged and used by both departments to integrate the idea of finances and human assets even deeper and optimize critical decision-making processes. Well-articulated in an article by Nakisa.com, some of the key questions that CFOs are looking to answer through HR metrics include the following:

• Do we have a clear picture of the current organization?
• Do we know where talent and organization vulnerabilities lie?
• Do the actions of our organization align with our business strategy?
• Are we building a sustainable talent roadmap?
• Can we maximize retention and reduce the cost of turnover?
• Does our HR technology facilitate a smooth, fast way to manage end-to-end HCM?
• Are we engaging all key stakeholders from front-lines to boardroom in our HR strategies?

The Finance department can estimate value addition by employees and provide inputs on the financial impact of the processes and HR is available to determine whether training and nurturing is required. Succession planning, managing salaries, bonuses, expenses and purchase orders all trackback to the expectations and culture nurtured by HR and with Finance providing a support, the dual goal of maximizing profit and minimizing cost can be easily achieved.

Creating Synergies

A functional company is a product of functional employees and can be improved by managing monetary and non-monetary benefits in balance, together. Working together, the Finance department can improve the bottom line by weighing the human capital of the business and building a perspective that extends beyond just returns on investments. HR managers better understand how every decision the company makes affects the bottom line and roll out policies that reduce employee turnover cost.

The two functions can design financial wellness programs such as retirement plan funds, credit education/enablement, skill upgradation for future growth etc. that organizations can embed and use as regular practice to attract and retain talent. Overall, as companies scale, the biggest impediment, yet a determinant of success, will remain its workforce. It is therefore critical to consistently optimise for a highly competitive and dynamic global business environment. The key to generating maximum output is to work in accord and let the counting bots in Finance play with the HR’s focus lens.

About the author: Senior HR professional & Post Graduate Alumnus of University of Oxford – Said Business School. The author has earlier worked in leadership positions in an erstwhile subsidiary of Brooke Bond, L&T, Welspun Group, ABG Group, ASB (Nissei) and others
*Views expressed in the article are personal views of the author and does not represent any company or organization.