Understanding HR's objectives and providing the performance measurement data to help them achieve those goals can improve your company's bottom line.
Quick — think of two adjectives that describe the human resources professionals in your organization. Do the words unnecessary and mathematically impaired leap to mind? Then read on, for you're stuck in yesterday's mindset. Today's HR department is becoming a sophisticated bottom-line business partner that requires more input and collaboration from the finance department than ever before. From sharing relevant employment data to maintaining joint responsibility for projects, HR and finance should be great pals, not warring adversaries.
Unfortunately, in far too many organizations, warring adversaries is exactly what the departments have become. Separated by sky-high functional silos, finance people typically think HR folks take up space that should be reserved for more valuable professionals. As Stephen Paladino, CFO for Fala Direct Marketing Inc., in Melville, N.Y., says: Finance typically looks down on HR. Human resources specialists, on the other hand, think the finance department is filled with a bunch of pencil-necked bean counters whose sole enjoyment in life comes from saying no to every requested project.
Like many contentious relationships, the problem between the departments stems from a lack of understanding and appreciation. If you're struggling with ways to improve the relationship between finance and HR at your company, take the time to learn where HR is heading and how finance can help it get there.
Communicating Performance Measurement Data
Today's HR department is concerned with the acquisition, development and deployment of a superior workforce, explains David Axson, vice president of The Hackett Group, a management consulting firm based in Hudson, Ohio. If Axson's description sounds pretty broad, it's because the role of HR is so all-encompassing. HR not only needs to make sure there are enough employees available to do a company's work, but that those people have the right skills, are placed in the right jobs, are paid competitively, and receive the proper motivation and rewards.
Finance, more than any other function, is in a key position to help HR achieve its objectives. Why? Because in many organizations, finance is becoming the primary source of performance measurement data. The information finance gathers on earnings, productivity and customer satisfaction provides tremendous insight into the staffing and development needs of an organization. Unless this information is shared with HR, HR can't do its job.
Take productivity, for example. If your company normally produces 5,000 mousetraps a month, and last month, the numbers indicate only about 4,000 mousetraps were produced, the problem could very well be HR-related. Perhaps absenteeism was up and there weren't any provisions made for temporary help. Maybe training of new employees was inadequate, or the wrong people were hired in the first place. The numbers provided by finance are early warning signs that help HR detect and avert problems, says Axson.
But productivity is not the only thing HR is interested in. A decline in customer satisfaction may point to the need for more employees on the company's consumer information lines. An increase in product returns may signify that production employees are overworked and in need of a few new hires. Or, if the company is spending a lot of money in overtime, maybe a second or third shift is required. HR needs this kind of information because it does the diagnostics for management, Axson explains.
Breaking Down Barriers
Even when HR isn't diagnosing a problem, the department relies on a lot of financial data. Labor and benefits, after all, make up the largest expense in most companies. In fact, there is so much overlap between the two departments — or there should be anyway — that in many smaller companies, HR activities are actually managed by the accounting department.
Take Fala Direct Marketing, for example, a 300-employee direct-mail service provider. Here, because the controller heads up the HR function, finance and HR activities are so interrelated that CFO Stephen Paladino has a difficult time classifying which tasks are solely HR-related. Payroll is an accounting issue, for instance, but it's also an HR activity, he says. It's hard to divide the responsibilities.
This isn't the only area of overlap. The company is in the process of implementing a cost accounting system that will be used not only to identify profit measures but to develop financial incentives for the company's hourly employees. Clearly, the project offers both financial and HR benefits. The finance department also is responsible for developing competitive compensation plans, crafting overtime policies and purchasing benefits — all of which are typically found in HR's domain.
National Education Corporation, based in Irvine, Calif., also discovered a lot of overlap between HR and accounting, particularly in the area of payroll. Thanks to a recent reengineering project, payroll and HR activities have been merged into one six-person department. Before, it wasn't clear who should take ownership of the payroll process, explains Lori Grigg, manager of HR and Payroll. Because we were dealing with the same group of employees, the same data and the same system, a lot of things fell through the cracks. HR would hire someone and forget to tell payroll, or they'd fire someone and we'd continue to cut paychecks.
Merging the two departments has not only improved the payroll process, it has allowed for better financial management of HR activities. For example, financial managers in the new hybrid department discovered the company had paid $750,000 too much for health insurance because of poor administration. By working together, these kinds of mistakes are avoided. Today, all HR professionals know how to read spreadsheets and conduct financial analyses before making major financial decisions, Grigg says.
The experiences of NEC and Fala Direct Marketing aren't intended to be an argument for joining the finance and HR functions, but rather to illustrate how closely they must work together to make good business decisions. Unfortunately, in companies with rigid functional boundaries, employees in both departments have acquired the mind-set that a task should be either finance or HR's responsibility. In reality, a lot of HR decisions should be the responsibility of both departments.
Best Practices in HR
So how do controllers begin to work more closely with HR, particularly if the relationship between the two departments has been strained? Going to HR and saying, 'Hi, I'm here to help' probably won't work, says Axson. A better way to start would be by benchmarking. Look at HR practices in your company that touch the finance department and compare them with best-practice companies, he says. Then work together with HR to uncover ways to improve the whole process ... collaboration is the key.
A simple way to get started may be to help HR make more financially sound business decisions. How? By helping the department calculate the return-on-investment for HR programs, practices and increasingly, technology. Finance is critical in helping HR make sound purchasing decisions, especially in the area of software and systems, says Dave O'Hara, vice president of sales and marketing at ICONtrol Inc., a business management software firm based in Watertown, S.D. The controller's role is to help HR determine where cost savings will be. If software doesn't save a company more than it costs, you shouldn't buy it.
Another way to improve the relationship between the two departments is to take a look at companies where the departments do work together well. At Cowles Media Company, a periodicals publisher based in Minneapolis, the HR and finance departments have an unusually good relationship, explains Kurt Betcher, corporate controller. Why? Because they collaborate in the way Axson suggests. Whether it's payroll, pension plan management, administration of the company's self-funded medical plan or design of a long-term incentive plan, the two departments work closely together.
We don't just respond to requests for numbers, says Betcher. We help HR analyze and understand the ramifications of those numbers. We take joint responsibility for major financial decisions.
Develop HR/Financial Liaisons
To keep the process running smoothly, finance at Cowles Media treats HR like an internal client. In fact, a finance department employee is appointed to serve as HR liaison. This way, whenever HR initiates a project, there is always someone standing by in finance to assist. The service is not just one-way, however. There also are two people in HR who serve as primary contacts for finance. We use HR as a resource on everything from conducting brainstorming sessions to team building to employee communication, says Betcher.
Which brings up a good point: HR is a service provider to the organization much like finance. By working more closely with HR, finance can begin to understand and take advantage of HR's expertise in areas such as recruitment, training and development, communication, motivation, dispute resolution, termination — you name it. We call up HR anytime we think they have expertise we can use, Betcher says.
In the end, perhaps the best way to build your relationship with HR — and thus improve service to the organization as a whole — is to start talking. Find opportunities for frequent communication. Pursue joint projects, such as working together on a business case evaluation. If your company is considering the purchase of another company, for example, bring HR into the discussion by asking them to evaluate the quality of the existing workforce. By taking the time to understand what HR brings to the table, controllers can begin to uncover ways to improve service to the function — and gain a greater appreciation for HR activities.
As Lori Grigg from NEC explains: In our company, merging the two departments was extremely enlightening. When I worked in finance, I wondered what the people in HR did all day. Now I know that just because they don't produce spreadsheets like we do doesn't mean they aren't busy. The amount of work they do is incredible.