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Is the relationship between chief financial and human resource executives destined to be tense? After all, CFOs focus on the numbers and HR leaders focus on the people. Despite differing perspectives, many leaders in both functions have found common ground in the fact that people are organizations' most important resources and the knowledge that both sides play roles in ensuring the financial future of their companies.
In fact, a close HR and CFO working relationship can be tremendously helpful to both functions and their companies. "One of the closest relationships I have is with HR," says Susan Lynch, CFO of Hitachi Data Systems, a Santa Clara, Calif., technology company with about 4,000 employees. "Our company culture is highly collaborative and entrepreneurial, so we tend to seek others' advice quite often." Moreover, in Silicon Valley, employees are highly regarded and sought after. Hence, HR issues—finding ways to fund retention bonuses, for example—take on greater importance.
Lynch's collaboration with HR professionals includes designing variable pay programs that drive desired performance and enable a company to meet financial objectives. Lynch also works with HR to determine the appropriate metrics and their weighting for the incentive plan. For example, if profitability emerges as a concern, corporate leaders can adjust metrics and weightings to encourage improvement in that area. "This is a natural intersection for finance and HR," Lynch explains.
Overcome Past Assumptions
To develop this type of relationship, peers on both sides should let go of past assumptions about their counterparts. When HR and finance leaders use words like "rigid" and "unimaginative" to describe each other, a collegial and functional working relationship is not likely to flourish.
Overcoming past negative experiences and bias requires concerted effort on both sides. Staying focused on the big picture can help.
"Everyone is working toward the same goal," says Regina Donohue, director of human resources for Leo Pharma Inc., a Danish company with 4,000 employees worldwide and about 175 employees in U.S. operations based in Parsippany, N.J. "When everybody remembers that, there is no reason for there to be any friction or a bad relationship." Donohue credits her company's cross-functional approach for the strong working relationship she has developed with the director of finance. She emphasizes the need for open, honest and transparent communication for the relationship to work. "There must absolutely be no hidden agenda," she says.
Still, issues remain. "I know CFOs who don't respect their HR peers," says Jeff Rooney, CFO of St. Agnes Medical Center, a Fresno, Calif.-based hospital with 3,000 employees. However, Rooney notes that CFOs may not realize how many ways HR can contribute—and even help finance officers do their jobs better. "CFOs may not understand how HR can help them until they sit down and start working with HR professionals," he says.
Rooney notes, for example, that talent development represents one of his department's critical needs. "Hospitals have a lot of turnover in general and in the finance area in particular," he says. "It's a problem because the work is specialized and the demands are increasing, and it takes a lot of time to train people. A lot of CFOs are discovering the need to bring in good people." He depends on the HR department to locate, screen and assess candidates with the special skill sets the hospital needs.
Rooney also relies on HR's growing organizational development capability to attract and retain talent. For instance, the hospital offers training programs that focus on relevant skills for finance professionals.
"People skills have been undervalued in many finance departments, but those skills will become more important in the future," he adds. "When behavioral interviewing made me more successful in getting top-quality employees, it made me a believer in HR's value."
CFO Ed Hughes admits to having some issues with HR professionals in past positions but says he has built stronger relationships at his current company, Shepley Bulfinch, a Boston-based architecture firm with 130 employees.
He notes that physical proximity has helped strengthen collaboration among HR and finance employees. Since the company moved to an open-office environment with the two functions next to each other, communication and interaction has increased significantly. Hughes works with HR specialists on health benefits and 401(k) plan issues, including managing renewal processes and implementing changes for insurance programs.
Building Stronger Relationships
To find out how senior HR and finance executives can forge stronger relationships, Sibson Consulting conducted an interview-based survey in late 2010. Researchers asked 10 finance and six HR leaders about the relationship between the two functions. The survey identified three trends:
Business needs drive greater collaboration. HR and finance professionals report that they are both more willing to step out of their silos in response to business needs. With greater competition and globalization, a strong HR and finance partnership can be a significant source of competitive advantage. Myrna Hellerman, a Sibson Consulting senior vice president who conducted the interviews, suggests that HR and finance leaders build on the connections they were forced to forge during the recession when most decisions were driven by economics.
Collaboration requires a strong foundation. Open communication, lack of competition, mutual respect and clarity of purpose are essential elements of a strong HR and finance relationship. "In some cases, there seems to be a competition between HR and finance for the attention of the CEO," Hellerman says. Leaders of "both functions need to understand that if they work together collaboratively to create a successful organization, those results will be greater than what they could achieve separately."
Collaboration occurs in a variety of situations. HR and finance executives work together in a number of different scenarios. Incentive design is a natural intersection, but mergers and acquisitions also present opportunities.
Focus on Business Needs
Clearly, the best way to forge a stronger CFO and HR partnership is to collaborate on pressing business issues. Move Inc., a Campbell, Calif.-based online real estate company with about 1,000 employees, brought in a management team in 2008 with the expectation that the HR and finance departments would work together closely. Company leaders want to foster "cultural change and new values, such as teamwork, commitment and excellence," says CFO Rob Krolik. With the real estate industry still struggling, "We have to figure out how to do it cost-effectively."
Krolik says half the company's performance is grounded in its industry's economic trends, so he and his colleagues are focusing on the half that is more in their control. To that end, Krolik and HR leaders work together on annual planning and budgeting, including critical decisions from merit increases to vacation policies to bonus plans.
Krolik says HR leaders must be prepared to make their business cases effectively when discussing strategic issues. For example, Move did not have merit increases last year. But rather than HR leaders simply stating, "We have to do merit increases because we always do," Krolik says they used data to make the case. The result was a decision-making process that was more collaborative than in the past.
Such situations underscore the value of a strategic HR partner. "Take the overall health of the company into consideration when discussing issues like merit increase budgets," Krolik advises. "A number of HR folks are missing this type of strategic approach when it comes to defining people strategies." For example, a strategic approach might require that HR leaders think about hiring and retention in terms of the types of talent the organization needs during the next few years to achieve its strategic goals, or that HR think about training investments in terms of the skills people will need to execute the desired strategy.
Find Common Ground
HR leaders who show a strategic mind-set and an organizational development orientation are particularly valued as colleagues by finance executives. "We want to feel that we can go to HR leaders to get help in solving our problems or finding ways to work around" the problems, says Joan Varrone, a San Francisco-based executive who serves as CFO for startup and early-stage technology companies. The importance of a good relationship with HR is self-evident, she says. "People are such a large cost for most companies. Controlling those costs and optimizing that asset is very important."
In many cases, opportunities for collaboration are driven by specific needs. Tony Blasco, CFO of the Zeno Group, a public relations firm based in Chicago with 75 employees, has been involved in efforts to make about a dozen strategic senior hires. "I worked closely with HR in identifying talent and making sure the talent is the right fit," he says. "We are trying to look ahead to determine the potential [return on investment] for these hires and how they will further our ambitious growth goals."
Given their role in managing the financial side of a business, CFOs want assurances that investments in training and other initiatives cost appropriate amounts and achieve objectives. The "relationship is not just a matter of the CFO working well with HR, but HR finding ways to work with the financial objectives of the company," Blasco says.
Rooney works with HR peers to identify the most appropriate number of full-time employees while making sure salary growth is controlled. At St. Agnes Medical Center, "Most HR people are pretty clued into how decisions affect finances because hospitals have been under labor cost pressure for some time," he says. HR leaders may not "be able to present your financial statements, but [they] understand the important drivers around salary costs and benefits costs."
Thus, a strong bond between HR and finance isn't only about having personalities that mesh. A company's circumstances, culture and goals figure in. If a company is reliably profitable, operating in a stable environment and doesn't have a lot of retention risks, it may be more difficult to have a tighter bond between HR and the CFO, Lynch says. "Whereas in an entrepreneurial relationship where company sales have been depressed, profitability has not met expectations or employee turnover is high, there are more opportunities for HR and finance to collaborate and to ensure adequate funding for what HR needs to do to build employee morale and increase retention."
Speak the Same Language
When working with the CFO, it helps if HR professionals can frame issues in ways that resonate with finance. "The CFO is often all about metrics, objective measurable things and running the company from that perspective," says Santa Clara, Calif.-based John Beck, who serves as a part-time and interim CFO to startups and venture capital-backed companies.
Speaking that language means tracking quantitative measures that show how an organization is performing at a particular time. HR leaders should provide the quantitative context—including insights into problems and the costs of and return on solutions—to enable better decision-making.
"This can mean understanding the relationship between employee satisfaction scores and employee actions and the related cost in terms of quality and customer satisfaction," explains Glenn Dalton, managing partner of RKD Group in St. Louis. "By building that relationship, you can make a compelling case for spending $X million to do something about the situation or to make choices between spending $2 million on one solution or $8 million on another based on the potential return."
Using this approach, an HR executive at one company pushed back on plans to reduce training at contact centers from 12 weeks to eight weeks, and made a compelling case that increasing training to 16 weeks would generate more revenue through more-productive employees, Dalton says.
"You cannot be a good partner if you do not understand the CFO's language," says Janet Parker, SPHR, the Society for Human Resource Management's chief global membership officer. To start speaking that language and forge ties with finance, HR professionals would be well-served to focus on and provide metrics to evaluate HR functions and drive improvements. For example, a proposed program to reduce turnover should include metrics that gauge turnover and related data.
HR leaders should also recognize the parameters within which finance officers operate. For example, the CFO is focused on the costs of running an organization, how to generate revenue and forecasting financial performance. "We need to craft cost-effective policies," Hughes says. "If I was the head of HR, I would want to understand how the initiatives I am proposing will impact finances of the company and understand the company's ability to absorb those costs in the future whenever initiatives are going to be implemented."
Gathering information from HR peers in other organizations can help make an effective case with the CFO. HR leaders can use data and information showing how other companies are dealing with specific issues and the results of those efforts. This approach reduces the number of unknowns about a proposed program or action, which is likely to appeal to CFOs, who "tend to be more controlling and risk-averse," Beck says. A new idea that no one has tried could be a harder sell. "Avoid making assumptions," he says. Instead, show how an action was applied at three different companies with similar problems, and describe the results.
Getting involved in professional associations and industry groups can also help because it often turns up leads on new developments and trends. "We want to make sure we are not making decisions in a vacuum," Varrone says.
Make a Connection
HR leaders who want stronger relationships with their CFOs can take a number of steps to establish them. One of the most straightforward ways: "Ask the CFO if he or she needs HR's help," Varrone says.
In a growing company, strong communication between HR and finance is essential. "If you don't communicate enough and you don't know what is going on, you can't do your job effectively," says Tony Stevens, vice president of operations and HR for Genghis Grill Franchise Concepts, a restaurant franchising company based in Dallas with about 1,400 employees.
Stevens, who is currently working to develop streamlined HR processes and systems to support the company's growth, continually seeks input from the CFO.
Blasco of the Zeno Group regularly works with his HR colleagues to help key employees understand the financial impact of their decisions and to guide how they handle contract discussions with clients. "We're looking for ways to transfer that kind of knowledge to the staff so that they can see their impact on our bottom line," he says.
Lynch agrees that seeking out the CFO as a resource can be helpful from a relationship standpoint. "The best way to connect with the CFO is to ask for his or her opinion," she says. "Everyone likes to be asked for their opinion, and they like it even more when you take their advice. It's amazing how quickly that can become a two-way street."
Krolik suggests that HR leaders reach out to the CFO and schedule a weekly or biweekly one-on-one meeting to discuss overall business issues, not necessarily just what is going on in finance and HR. Through a stronger relationship with the CFO, HR professionals can share ideas and problems more freely and create benefits for the overall executive team. "Don't be afraid to bring up even inflammatory issues to the executive team," Krolik advises.
"Make sure executives are aware of problems."
The author is a New Jersey-based business and financial writer.
How did you forge positive working relations?What projects or programs do you work on together and what accomplishments have you achieved?
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