Why HR need to work better with Finance
Historically HR and finance have not been the best of friends mainly due to a perception that one cares about people and the other about money. Yet, like those two mutual friends you just want to shut in a room until they sort their differences, together they actually have the potential to thrive.
The good news is that while a disconnect between HR and Finance used to be a common issue, more businesses are catching on to the benefits of the departments collaborating, with 35% planning to create a shared Finance and HR function within a year and 46% of Finance and HR saying collaboration between them has significantly improved. That said, a problem halved is not yet a problem solved, so here are some great reasons HR need to work better with Finance and why to incentivise connected working across HR and Finance teams. We’ve also included some compelling statistics and success stories to help you drive home the point at your next meeting.
Your relationship impacts business performance
According to an EY global survey, 80% of Chief Finance Officers (CFOs) and HR leaders believe that they work together better and that high-performing companies tend to spend 50% more time on this relationship, and report better overall integration between finance and HR.
This is a not a new concept with a 2009 CIMA report surmising that ‘the closer the co-operation between finance departments and human resources (HR) departments on areas like bonus schemes, the better the organisational performance will be’. CIPD research data also suggests that ‘organisations integrating HR and finance systems and building people data dashboards are also characterised by stronger organisation performance’. The same study found that 73% strong performance business respondents agreed or strongly agreed that they have access to a dashboard of people data, in comparison with 50% of those who indicated their business is of average performance.
However, a more recent study revealed some compelling statistics from C-level, IT, Finance and HR. Key findings included:
- 35% plan to create a shared finance and HR function within a year
- 42% are motivated by improvements in productivity and performance
- 46% of respondents from finance and HR say that their collaboration with each other has significantly improved
No matter your view on the link between HR and Finance, the statistics reveal that business who are improving the relationship between the departments are performing better.
Common ground: You both want to improve retention
58% of organisations have trouble retaining employees, with estimated losses falling between 30% to 200% of an employee’s annual salary for replacing employees. These are financial losses that not only impact the Finance department but also HR with the additional pressure to recruit a replacement, not to mention the knock on effect throughout the business impacting employee morale and productivity. HR will likely also be asked some tough questions by senior management, with recent findings that 80% of employee turnover can be attributed to bad hiring decisions and 36% of businesses believing that the main reason for a failed hire is a bad skills match.
The desire and pressure to reduce employee turnover is a common ground for HR and Finance, which means it’s also a great place to start if you want enhance connection between the departments. To drive home this point Head of Human Resources at worldwide tech company Harris Corp Jeff Shuman shared his story of creating an innovative healthcare project in collaboration with Finance: 12 years ago they built an onsite medical imaging centre to reduce increasing healthcare costs, he said:
“It has saved us millions of dollars… and it’s given the company greater control over its health care spending because they can evaluate how the facilities are used to customize their offerings.”
In this case HR and Finance collaborating led to a radical investment that simply wouldn’t have happened previously, he added:
“When human capital is the single-largest spend, it takes the collective effort of HR and Finance to balance cost management with attractive programming.”
High turnover is a big problem for many businesses and the marriment of HR and Finance has the potential to drive change in that area. Together they can improve employee retention or tackle the indirect costs involved in replacing employees include the recruiting, hiring, and training for new employees.
Your data belongs together and will bring you closer
For both Finance and HR teams to succeed, both need to have governance over employee data, enabling both departments to understand key factors that impact their capabilities, including absence, payroll, employee start and end dates and engagement in business-wide systems. If HR and Finance have disparate data sources then they are likely to miss key opportunities which can help both of them meet their objectives. Not only that, they will likely both have conflicting views on the best approach to improve objectives like retention, engagement and recruitment.
If you want to encourage collaboration across departments then bringing the data together is the most powerful step business can take to do that. For example, HR expert Cristine Sauter points out that when they share financial and employee performance data:
"HR and finance can create incentives that reward exemplary work while increasing morale, production and customer satisfaction… all of which have a huge effect on the bottom line and profit."
If HR are able to access real-time financial data and analytics they will also be able to offer competitive salaries and benefits packages. For example, writes HCM professional Nancy Estell Zoder, if data indicates a need to hire more salespeople to increase new product sales:
"HR decision makers who are privy to real-time financial reports can quickly determine how many sales professionals they can afford to hire, with what skills, and at what salary range."
Tension between departments is just bad for business
No matter the reason for conflict, both HR and Finance want the same things at the end of the day: To help the business grow and the most efficient and effective way possible. It doesn’t have to be complicated either. If you think about it, the key to any good relationship is communication and remaining connected. That means open doors, open minds and sharing data to help you both come to a mutual understanding of the role your departments play in meeting those shared goals.
84% of the value of your business will be intangible assets, which invariably is your people and their ideas. HR are best positioned to manage those assets from a people perspective and Finance in a position to facilitate progress on those areas.
If you are not working together on shared goals then you are working against each other and that just isn’t good for you or the business. At best, this could result in duplication of work, or time spent unpicking reports trying to understand insight built on different data. At worse, a disconnect could result in conflict and will likely impact morale, resulting in low engagement and poor productivity.
Getting Finance on side is only going to help your cause, not hinder it.
Together you can stay ahead of the competition
“Without HR and Finance openly communicating and providing the other with expertise and detailed on going data; a business will struggle to compete in today’s market. As a modern business in our ever evolving economy it is imperative to have full support between HR and Finance. The benefits are extensive, bringing production, customer satisfaction and profit to maximum potential.” Cristine Sauter, HR expert
A HUB survey found that collaboration between Finance and HR was nowhere near where it should be, with 93% concerned about HR missteps with executive liability and 33% of finance executives expect HR to go over budget.
The good news is that many businesses are now embracing the opportunity for both departments to work closer together and seeing progress. Xerox, for example, shared their successful HR and Finance collaboration story working together to produce significant benefits. The Personnel Today article read:
HR and finance working together at Xerox has brought significant benefits.Through sharing people data and the skill sets required to derive actionable insights from it, Xerox has been able to build predictive models for identifying the employees at greatest risk of leaving.
Harnessing these predictive analytics has helped cut labour turnover at the organisation by 20%. And there are now datasets on average labour costs by role and country, enabling it to target future talent investments on the areas generating most revenue.
The prospect of HR working with finance is outside of HR’s comfort zone, but Xavier Heiss, Vice President of finance at Xerox says we should not be nervous about making the first move:
“Don’t be shy. Go in to see the CFO. They will be pleased to see you.”
Ready to start the conversation? Download our connected business guide for advice and evidence based arguments for collaboration to take to your Finance, IT and Executive teams.
