Ask any HR Officer what they believe makes a company tick, and you can expect them to answer confidently: ‘people’. But ask a Chief Financial Officer the same question and they will point to the financial muscle that a company has. Both HR and Finance departments are critical in any enterprise, but while they can seem to be at loggerheads, a partnership between them is widely recognized as the most beneficial strategy.
People are a hugely important asset for a company. After all, it is people that make up the workforce, and it is the workforce that manufactures and sells products, that drives innovation, and provides the personal skills to build customer relations. But of course, the financial clout of a company plays no small part in a company’s drive forward. Without adequate cash reserves, how can these people be properly compensated?
It’s obvious then that an efficient collaboration between HR and Finance departments is not only preferred but necessary to promote business success.
Indeed, in a 2014 survey carried out by Ernst & Young, titled ‘Partnering for Performance’, the Chief Financial Officer of SuperValu, Bruce Besanko, highlighted the importance of both departments sharing a balanced approach.
“The most important thing for a CFO or CHRO is that they think broadly and have credibility and strategic vision,” he said. “That requires them to look beyond their functional roles. As CFO, I consider myself to be first an executive of the corporation, and then, secondly, a leader of the financial organization. I would expect the same kind of outlook from the CHRO.”
Real Benefits of Collaboration
There was a time when it would have been difficult to get the two to work very closely together. Typically, HR would fight tooth and nail to preserve their own priorities, and company Finance managers would have seen them as a thorn in the side with perfectly sound financial decisions that were good for business being blocked unnecessarily.
But increasingly, HR and Finance collaboration is being viewed as necessary in the best interests of both concerned. Research carried out by SHRM in 2006 estimated that total human capital costs in a company can average as much as almost 70% of total operating expenses, highlighting the financial significance that the workforce has.
There are genuine benefits to be enjoyed by having strong HR and Finance collaboration. According to one survey, it positively impacts a range of critical operational and business factors, including productivity, employee engagement, and higher corporate earnings.
In fact, 41% of the Chief Financial Officers and Chief Human Resource Officers surveyed said they recorded greater than 10% growth in earnings before income tax, depreciation and amortization (EBITDA) in the last year, compared to only 14% of other companies. It also revealed that 43% of those surveyed saw a significant improvement in workforce performance, compared to only 10% of other companies.
Real Benefits of Collaboration
But in practical terms, there are several key benefits that a collaboration involving shared information and teamwork can bring.
- Cross Purposes – Since HR’s principal purpose is to hire, train and delegate a production force, it has to run a large number of programs. In order to achieve this, it needs deep enough pockets to finance investment in personnel. Finance, meanwhile, requires sufficiently skilled, trained and talented personnel to ensure the sales and revenue necessary to keep the ship sailing.
- Maintaining Performance – HR needs a wealth of financial information to ensure they perform their job as efficiently as possible. For example, production rates may be higher than expected but if customer satisfaction is low that suggests quality is low. This might be down to low worker morale, which may be caused by overwork suggesting that more staff is needed.
- Greater Financial Efficiency – Knowing the right amount of workforce to maintain performance and product quality is important to Finance if they are to balance the books properly. Funds are needed for staff, but this may affect pricing and output volume. Waiting until after problems arise bring with it the risk of significant initial losses.
- Accurate Data Sourcing – Finance collects key real-time data that HR needs to guide them in their own financial decisions. Without it, HR would have to rely on projections, which are (at best) shots in the dark, which in turn weakens their position when it comes to requesting funds for their programs.
Like any healthy relationship between two individuals, there needs to be a little give and take. But with real benefits of a HR and Finance collaboration to enjoy, the efforts made on the part of both should be more than justified.
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