Making friends with finance

by 29 May 2007

HR has traditionally been at odds with finance. Craig Donaldson speaks with Fairfax Digital CFO Nimesh Shah about how HR can work effectively as a business partner with finance

What are your impressions about the business effectiveness of HR?

I have very good impressions of HR. It plays a critical part in achieving the desired outcomes of the business. The staff in any business execute on strategy, so HR can play a big role from both a strategic and operational perspective when it comes to staff.

The HR department in Fairfax Digital in completely involved in both the operational and strategic facets of the business. They’re very good with the nuts and bolts of the operational side of the business, and act as a very good support service to managers. HR is embedded in the business here, as opposed to sitting in one part of the business and not interacting with it.

On the strategic side, HR provides valuable advice and service around issues such as recruiting, managing and retaining critical talent. Managing the channel of risk is always an issue too, especially for high-growth companies. HR assists a lot in that area with succession planning and managing expectations.

Generally speaking, HR has traditionally been a very functional area. I don’t think businesses have really optimised opportunities for HR to deliver service that provide value, especially with regard to the path of information in a business. HR is in a unique position to provide insightful information on the performance of the business with regard to its people. That could be a weakness, where HR does not fully understand this link. That’s an element which has been missing in the past.

What can HR do to become a more effective business partner?

HR has to deliver value to the business if it’s to be taken seriously. The CEO needs to endorse HR and accept it into key areas within business units. If HR can deliver the value that’s needed at both strategic and operational levels, then it definitely deserves the attention and visibility that comes with a mandate from the CEO. Without that mandate, oftentimes HR and the value it can add just kind of fizzles away.

From an HR perspective, it needs to be able to communicate the value it can add. HR is also a great enabler. It needs to make it easier for managers and staff to do their work, delivering good tools to the frontlines. We conduct a quarterly staff survey, which provides us with a wealth of information. That’s such a powerful tool which Jack Matthews, our CEO, relies on heavily. It’s examples like this which will really continue to increase the significance of HR in an organisation.

What holds HR back from becoming an effective business partner?

There are a couple of things. The first thing, I think, is where HR does not have a mandate from the CEO of the company to develop initiatives for implementing real change. HR can come up with all these good ideas, but they need to be mandated or ratified by the CEO if any real change is to occur.

Effective communication between HR and other departments is another stumbling block. It’s similar to finance departments sometimes. Understanding the business is one thing, but sometimes there’s a lack of understanding around business drivers or a lack of understanding of how individual business units operate.

HR and finance are both subject matter experts in their own fields and they often don’t understand what drives business mandates. That’s where the disconnect comes. So what HR really needs to do is to work collaboratively with the business and say, “We understand your priorities. We understand your initiatives. We understand your business plan. This is where we can help. This is what we can do to help mitigate your issues.”

This is more productive than the heavy-handed approach of saying, “This is the way it is. This is the policy it is. It is set in stone. There’s no compromise with these policies.”

How well do you think HR understands the drivers for finance?

HR often struggles when it comes to understanding the financial side of the business. There is a lack of comprehension around profit and loss, particularly when it comes to costs and how this affects the business. There’s definitely a lack of financial understanding, but it’s not entirely HR’s fault.

Finance also has to work collaboratively with HR. Traditionally, there are costs around recruitment, training, staff development and the like. From a financial perspective, there is always discretionary spending for HR, but sometimes the taps need to be turned off if targets are not being met.

From an HR perspective, sometimes initiatives are business-critical and finance is a necessity. That’s where both parties need to have an understanding of each other’s priorities. HR and finance should sit down and go through these priorities with each other.

That’s what I do in Fairfax Digital. I sit down with HR and we both talk about the targets for the business. We go through these and what we both have planned for next year. Through both working collaboratively, we put a very good HR budget together for the entire business. It has taken some time in the past I think, but now we have effective communication on both sides and it works well. HR has an understanding of financial targets and the need to be lean, mean and quite nimble as a business.

HR also needs to be cognisant of the costing-impact of any of HR initiatives and the return on the investment. HR can work with finance to do this, and that’s why it’s important for HR to build that relationship.

Sometimes it is an issue of how you measure the return. How do you measure things like succession planning? There is usually a solution to these kinds of things and the first step is for HR to sit down with finance and look at priorities, how we can make things work effectively and measure success rates.

In Fairfax Digital, for example, our corporate HR team has identified some key drivers and put some really good measurements behind their processes. On retention, we look at factors such as why people leave, how many people have left in a year and who has been in the company for more than a year. We can have a meaningful discussion around measures like those.