Crunching HR’s numbers

by 13 Nov 2006

Finance and HR are often at odds in business. Craig Donaldson speaks with a roundtable of CFOs about the effectiveness of HR, areas for improvement and how HR can best work with finance

What are your impressions about the business effectiveness of HR?

John Coates, CFO, Sensis: If we go right back to basics, the three things that drive a business model are labour, capital and markets. The basics haven’t changed since the year dot, but everything has just got so much more sophisticated. The labour force in particular has become much more specialised and segmented and HR professionals have the challenging role of selecting the right people to succeed in the right roles for their organisation. With competition generally becoming more and more intense, organisations that succeed must be able to not only select the right people, but retain them in an atmosphere that breeds success for those people – understanding that different groups of people will have different versions and meanings of success.

Robert Parker, CFO, IBM Australia and New Zealand: I’ve spent most of my career within IBM, and I think HR is acutely aware of cost management, profit concerns and the constraints that businesses work under. HR has generally had to go through a transformation around driving efficient outcomes from their own function. This has liberated HR professionals and allowed them to partner with line management, and I think this is one of the ways that HR has added a lot of value to the business.

Wayne Twomey, CFO, PricewaterhouseCoopers:Being a professional services firm, people are our only asset. So we call our human resources function here human capital. In terms of effectiveness, human capital is an intricate part of the business. They have a seat at the table on any decision we make. They’re part of the strategic strategy development as well as execution.

Richard Boggon, vice president Asia Pacific, Saba:HR are so often caught in resolving day-to-day issues and, as a result, are sometimes not visible in priorities that are hot on the executive agenda. HR deals with this challenge on a daily basis, and so where this issue is front of mind and dealt with effectively, HR then has the bandwidth to contribute strategically.

Where could HR make a more strategic contribution?

Boggon: The CFO is most usually charged with managing organisational risk, compliance, governance and also the delivery of key projects within the organisation that affect cross functional and cross group silos. HR is ideally positioned to contribute in all these areas, from risk mitigation through compliance to ensuring effective delivery of key projects – including the management of change and impact. I have seen HR operate effectively where they are engaged in the execution of these corporate issues, as well as line and group priorities. HR can assist greatly in weaving the management of risk and compliance through the priorities being dealt with at group level. This is not to say that HR should be corporately focused, but it does require a business understanding to extend beyond the line and into general business management understanding also.

Coates: For a start, it’s important that HR is involved in the process of identifying the key business priorities. HR is often not invited to participate in operational discussions, which is surprising when we consider that labour and labour-related issues are usually at the forefront of many of these discussions.

In a competitive environment, organisations must run as cost efficiently as possible. HR professionals can tend to be more reactive than proactive when it comes to tackling the issue of labour costs. For example, if there’s pressure on costs, it’s often the business unit manager or finance manager who’ll work towards a strategy around labour cost efficiencies. The HR person will then become involved and execute the strategy in an efficient and professional manner. I’d like to see HR professionals in general become more proactive in contributing ideas and approaches around improving organisational efficiencies.

What could HR do in order to effectively business partner with you?

Twomey: HR needs to be able to talk the same language as the CEO and the CFO. What we do here is the head of technology, the head of people and myself meet once a month and make sure that we’re all delivering on the strategy and executing and making sure we’re aligned as the three key functional areas that help deliver the strategy to the organisation. Here, it’s not an issue, but overall the biggest challenge facing HR as a functional group in the business community is being able to speak the same language as management.

What any HR professional needs is some sort of basic financial skill set, as well an ability to be able to articulate and help measure the value they bring. If the individual doesn’t have the skill set, they need to seek out someone – probably in finance – to help them articulate their message.

Parker: In IBM, we use the term HR partner. They actually align to each of the executives in the organisation to help them manage various challenges around retention, workforce planning, workforce competition, work practices, recruitment and employee development. So in finance, I have a HR partner who understands my priorities, because they participate as part of my leadership team (along with all of my other direct reports) and contribute in my sessions the same way as any of my other reports. So HR needs the skills in order to be able to contribute effectively to finance here. It’s about how to drive the best from our people within the cost constraints that we all have.

Coates: In my current role at Sensis, I’ve probably had as good a relationship with HR as I’ve ever had in my working career. That doesn’t mean we always see eye to eye – I hope that never happens or we’d have a very jaundiced organisation. What it does mean though, is that we talk through issues and lay different views on the table. We argue with our HR colleagues from time to time, but at the end of the day, when a course of action is agreed upon, we get on with it and cooperate to achieve the best outcome for the company and its people. Many issues are resolved outside the formal structure and an organisation that promotes this type of environment often benefits from a more agile decision making process.

Boggon: Often, it is the capability and skill of the individual HR professional that determines how effective they are as a business partner, and the level of acceptance by the business of HR as a partner. In the circumstance where the partnership has been most effective, the HR professional has an ongoing relationship, understands the business at line and a higher level, is able to contribute to process and outcome improvement, and communicates exceptionally well. but often there is little time for HR to break away from dealing with the day-to-day and devote resources and time to hot issues and strategic organisational business process management. This conflict in focus sometimes makes it difficult for HR to deliver.

What holds HR back from partnering with business?

Coates: I think HR professionals can sometimes find themselves in conflict with competing objectives. They are the “people’s people”. HR runs development and support programs for employees. When a staff member has a work-related issue, most often he or she will approach HR for advice and support. So when an organisation is in a position where it needs to make some hard decisions about labour cost efficiencies, these types of situations can put HR professionals between a rock and a hard place.

This might suggest that there’s a need for HR professional to be a little more aggressive in ‘getting out there’ and telling the organisation what needs to be fixed from their perspective. There are HR folk who take this approach – but it’s my observation that many don’t.

Twomey: Most businesses run their business on metrics these days. So HR needs to understand the importance of metrics in all areas of business. There can be metrics around people engagement and regrettable turnover – some of the things we measure here. The challenge is basically to marry the skill set of HR people and their ability to not only listen but also speak the same language to articulate the value they bring. They need to be able to influence management and contribute knowledge.

Without HR, we wouldn’t know what the trajectory is on remuneration in the marketplace or latest trends in delivery of training or areas to source talent or flexibility and working relationships. That’s the skill set they need to bring, but they have to deliver the message in such a way that it gets through to management, and that most often is in delivering value.

Boggon: Apart from creating the bandwidth to contribute on strategic issues, HR must also overcome the language barrier. HR practitioners are brilliant when it comes to articulating people management and related strategies, but business principles, financial management knowledge and line understanding are also really important – it makes it difficult for HR folks to participate effectively otherwise. To work effectively as a business partner – HR has to speak the business language and understand the issues such as risk and financial fundamentals. All aspects of business plan achievement require people to be aligned with priorities, and executing on goals. This gives HR a great licence to work across all areas of the business, not just on traditional HR activities of training, performance and administration. Organisational development is a key requirement and a great opportunity.

What sort of steps can HR professionals take to become effective business partners?

Twomey: I just want to say that it’s a two-way street. Finance has to reach out to HR just as HR has to reach out to finance. If one of the functional groups is just sitting back and watching and observing, you’re never going to have a successful working relationship. It’s something that I put measurable goals around, so my team makes sure it happens.

HR has to display an ability to listen, yet speak the same language, to articulate the value they bring, to influence, and to contribute value and knowledge to the organisation. If HR focuses on those four key areas, human capital will be successful in an organisation.

Boggon: HR plans and priorities should link directly with the KPIs tracked and measured by the executives. These KPIs are reviewed weekly, usually through an executive dashboard and so progress against key initiatives and also contribution to the achievement of those KPIs that they influence will be transparent and visible. HR must also learn the business language, including risk and financial management principles so that they can participate and contribute effectively. HR can take an organisational development focus, and use its licence across the business to aim for real process improvement.

Coates: At Sensis, finance and HR are already effective business partners, and if I could be permitted to give some advice to your readers it is this: sit down regularly with your finance people and understand their agendas. Debate with them and make it clear there are two (sometimes three) sides to every story. Provide ideas to help finance folk make the workplace more efficient, but take the time to help them understand the value of your HR programs. Not all finance people see the big picture and sometimes poor decisions are made without understanding the human ramifications. Senior HR managers, like senior finance managers, can see right across the organisation, a luxury that some functions just do not have. Use this opportunity and share your insights. HR people think differently to finance people. Your point of view can be both enlightening and educational.