In today’s highly competitive, global economy, skilled talent is often one of the distinguishing traits that separates leading companies from the rest of the pack. Organizations that excel at managing their talent enjoy important operational and performance advantages. The right talent can help drive innovation, spur business growth and improve customer retention and value.
In recent years finance departments have become a valuable resource for human capital planning and management, helping to optimize workforce performance and partnering with human resources to achieve business goals. In this post, we’ll highlight several key questions a modern CFO should be asking to help ensure the business is maximizing its return on HR investments. The questions center around four core disciplines:
- Strategic collaboration and planning
- Performance measurement
- Talent optimization
- Use of data and intelligence
First, we’ll look at the changing role of the CFO and the ramifications for HR leaders who collaborate with or support finance leaders.
The CFO as an HR advocate
One of the major areas of opportunity in many organizations today is the potential value that can be gained by leveraging the relationship between the CFO and HR function. Through their intimate involvement with corporate strategy and cost management, CFOs have developed a deep knowledge of business priorities and an understanding of each department’s needs and individual impact.
Areas where HR excels — such as recruitment, onboarding, and retention —are instrumental to the health and vitality of any business. But there’s also a growing opportunity for CFOs to add substantial value from the financial side of the business.
On the surface, talent management may not seem like an obvious component of the CFO’s role and responsibilities. In recent years, however, CFOs have increasingly become involved in driving business strategy and are becoming better equipped to take a more active role in working closely with HR to execute plans and achieve business goals.
This change has important implications for the HR function, which must work in partnership and negotiate with finance departments. While these two roles are often at odds with one another as they pursue their functional agendas, when the collaboration works, the alliance becomes a powerful engine of transformation and growth.
The CFO can provide key insights and perspectives that an HR team needs to acquire talent and drive productivity. But it requires asking the right questions from the start, and knowing the precise metrics that are relevant to an organization. Key questions to consider include:
1. How can finance and HR collaborate better?
HR understands the company’s current and potential human capital strengths as well as anyone. Closer collaboration with the finance department can help HR better leverage this insight on behalf of the company’s larger goals, and also, if needed, support changes in strategy or initiatives to help tackle the newest market challenges.
One important step a CFO can take is to integrate processes and work to improve information sharing across the two departments. CFOs need to share key metrics with HR so the best hiring choices can be determined based on the most vital needs of the company. The CFO typically has deep knowledge and insights into key business priorities that can prove instrumental in helping to shape the company’s people strategy and raise the right questions. Do our actions align with business strategy? Are we building a sustainable talent roadmap? Can we maximize retention and reduce the cost of turnover? Are we engaging all key stakeholders?
Whenever possible, seek to share performance data, long- and short-term financial goals, and vital metrics related to important business priorities. Likewise, HR can provide input about employee performance and other metrics. This information exchange can help lead the way toward identifying precise needs and employee skills needed to help the business more effectively compete in the market.
Bottom line: the more HR is engaged and integrated into the company’s strategic and financial planning initiatives, the better it is able to contribute to talent acquisition, productivity and workforce sustainability improvements.
Key actions to better collaboration:
- Seek out common ground on business issues
- Create a leadership culture that encourages collaboration
- Invest the time needed to make the relationship work
- Focus on initiatives that impact the entire organization (beyond specific functional areas)
- Ensure that HR is involved in upstream planning and decision making
2. How do we define and measure HR success?
To meet quantitative goals and keep the company competitive, HR needs to have its own clearly defined metrics that measure its success. This is where the CFO can add value.
CFOs typically have deep knowledge in analytics and metrics, which are essential to measuring performance. CFOs can assist HR leaders in defining metrics related to employee retention, engagement, training costs and more, and illustrate how those correlate to business performance.
HR performance metrics are often shaped by what is easiest to measure rather than by what is most important. Finance should work closely with HR teams to identify and monitor the key performance indicators that will support the organization’s core business objectives and strategy. Adopt a more comprehensive, longer-term system of performance indicators that include leading employee, as well as lagging finance-oriented, metrics. This might include more tactical measurements, such as employee productivity and engagement, and retention.
Make measurement a continuous, predictive process. Establishing a performance baseline is the first step in the process. In addition to sharing relevant financial data, the CFO should calculate the cost-benefit performance that weighs heavily into to overall value creation of the business. With a consistent dialogue with HR leaders and a clearer understanding of performance goals and targets, the CFO becomes an important strategist, able to influence and more effectively support the HR function.
CFOs also play an important role in determining how performance is to be rewarded based on the analysis of those metrics. This is important for both engaging workers and helping to ensure the process connects to core business strategy.
3. Are we extracting maximum return on our HR talent?
If HR isn’t tapping into the full potential of talent in your company, you’re leaving money on the table. By not capitalizing of your employees’ potential, detachment and reduced motivation quickly follow. This can lead to lower productivity and high turnover.
The CFO can advocate for employee development within the executive team to ensure that HR gets the needed resources for employee development programs and advancement paths. Because there is often no immediate return on investment, the CFO can often lend support to the initiative to get executive buy-in.
Rather than reporting on previous performance, CFOs need to consider new potential growth areas. Accomplishing that requires a solid understanding of your company’s growth patterns and the resources to research and adopt new ones if needed. Begin to see operating budgets as enablers of growth rather than control levers; start inquiring into which resources could advance the company’s competitive situation, rather than focusing on reducing or minimizing those resources.
Organizations that do an extraordinary job managing their talent are better able to distinguish themselves in the broader marketplace. By more closely exploring the relationships between costs and human capital, the unlikely alliance between HR and finance becomes a powerful engine for growth strategies, talent advancement and productivity.
4. How can we better leverage the value of big of data?
The use of big data and analytics offers a powerful collaboration tool. By applying a more analytical, data-driven approach to human capital management, management teams are able to gain greater insight into the drivers of a business’ performance.
Analytics also allow companies to model diverse scenarios, using a mix of internal and external data, to predict possible results from a range of investment options. This helps companies identify the optimum workforce management approach for the defined business strategy.
Analytics are a useful tool to not only measure retention, but to predict it as well. Through forward-looking analysis of how changes to the business will effect new talent requirements, and evaluating the market availability of those skills, companies are better able to plan ahead. They can determine the feasibility of crucial investment decisions, and any possible workforce roadblocks that need to be removed.
Workforce analytics is coming of age. Greater maturity of HR data, and the ability to apply this information to areas such as strategic workforce planning, and operational and workforce performance modeling, provides a powerful platform for understanding how people investments will affect certain key performance indicators. CFOs are ideally positioned to add value here by identifying new ways to apply analytics to workforce improvement and engagement efforts.
Today, the role of CFO encompasses more than financial reporting and financing. It has expanded to include strategic, operational, and people management responsibilities. This change has ramifications for HR leaders and professionals who collaborate with or support finance leaders.
The good news is CFOs now have a much stronger sense of the importance of human resources and the contributions it makes toward business growth. They are becoming better equipped to accept the responsibility of successfully identifying skills sets across departments. By asking the right questions, the CFO can provide the key insights needed to identify and acquire talent across different departments while helping to make their workforces more responsive to their current and future needs.
With many companies now embarking on digital and financial transformation initiatives, CFOs are at the center of exciting new technology-driven programs that are unifying operational and financial processes. By taking a proactive role in organizational transformation, CFOs are ideally positioned to help integrate and enhance human capital assets to drive higher productivity and support business growth.