In companies where HR and Finance work together successfully, it is often because HR is taking a more analytical approach to people-related business issues. This is a key message in "Transformative HR: How Great Companies Use Evidence-Based Change for Sustainable Advantage" (Jossey-Bass, 2011) by Ravin Jesuthasan and John Boudreau. Jesuthasan notes the reason the senior HR executive and the CFO in many companies are able to work closely is because they focus on business issues first rather than on people issues first.
This is not as easy as it sounds. First of all, many organizations have a long history of making key HR decisions based on instinct and prevailing best practices but without any real rigor. In addition, the issues related to HR are not as clear cut as financial issues. "If you ask 10 CEOs how they define free cash flow, you will get one answer because there is a common nomenclature, methodology, and so on for that free cash flow," says Jesuthasan. "If you ask the same 10 CEOs how to define employee engagement or what drives employee turnover, you will get somewhere north of 10 answers" because of the number of variables involved.
To address these issues, HR needs to step out of its comfort zone and work across the functions both within HR and across the company, including finance, risk management, and strategic planning. For example, when it comes to managing and leveraging risk, HR has been hampered because the conventional tools for managing risk have traditionally resided within the risk management and finance departments and not HR. When PNC Financial Services Group Inc.'s HR leaders wanted to analyze the risks associated with the company's incentive plans, it did so in collaboration with the risk management and finance functions in order to incorporate those groups' tools and practices. "This is more than just about replicating their capability and tools," says Jesuthasan. "It is about leveraging which is already in the organization."
This is just one example of how things are changing in some companies as HR begins transforming and developing more analytical capabilities. Using logic-driven analytics in this environment, HR is able to focus on business problems and hypotheses first and then tie them to the people implications, rather than focusing only on addressing people issues.
This is not just about developing and implementing new metrics. In many organizations, the quest to become analytical and data driven often begins and ends with the development of new metrics. However, very few of those metrics stimulate the right types of efficiencies and behavior because they focus on a particular problem, says Jesuthasan.
Next time, we will focus on the five guiding principles Jesuthasan and Boudreau have identified to help companies to move toward this more analytical approach to HR.