Mindy
Honcoop
Published on
July 27, 2023
Welcome to the exploration of the dynamic relationship between two powerhouses within the corporate realm - Finance and Human Resources (HR). Traditionally, these functions existed in separate silos, each with their unique responsibilities and objectives. Finance Officers tirelessly manage the organization's financial health. While Chief People Officers (CPOs) passionately dedicate themselves to nurturing and developing the workforce. The gulf between HR & Finance led to a disconnect, with HR often perceived as a mere cost center and administrative arm. A paradigm shift is underway, where organizations recognize the value of collaboration between Finance and HR.
This article will unlock the secrets to enhanced business effectiveness and bolstered employee retention. Through the voices of experienced CFOs and HR leaders, I will talk about the:
(1) Pivotal role of headcount in the overall cost structure
(2) Shared goal of crafting impeccable wellness & benefits programs
(3) Transformative impact of culture on driving employee retention
We continue the recurring theme of "One Vision, One-Team, One Employee Experience." Central to advancing the digital employee experience is to develop a budgeting process that balances the organization's strategic goals with employee well-being and development. This collaboration ensures that financial decisions consider the impact on its people and vice versa.
The concept of "shared value" is key. When considering an organization's needs, whether compensation & benefit plans, culture, or community impact, decisions should bring value to all key stakeholders (customers, investors, and employees). If investment plans leave one out, it is unlikely to be successful and a budget waste. Thinking through budgeting decisions in this way can be helpful.
Emily Couey, a fractional CPO, noted in her experience that workforce planning was separate from the budgeting process. It did not require the CFO to finalize a budget. Emily found this resulted in negative downstream effects when approved head counts, hire dates, and budgeted salaries were disconnected from salary bands and recruiter bandwidth. By creating a partnership with her CFO, she was able to include a step in the budgeting process for HR to provide feedback on the budgeted salary and hire dates before the budget is finalized and approved.
In Emily's example of workforce planning, finance is the domain expert on operating expenses. Yet, the Chief People Officer better forecasts replacement hires based on attrition trends and the current makeup of the workforce. Finance may "forecast" attrition by qualitative input from department heads on what they expect from attrition, or they may average prior years' trends and assume it will replicate. In bringing together the knowledge of the two departments, Nick Jesteadt, analytics leader, found it was better to model attrition likelihood based on:
(1) An employee's tenure;
(2) The department or cost center that they are in;
(3) The employee's level; and
(4) Their compensation versus the market.
Ultimately, simulating the most likely attrition outcome for each group. This gave the team a more realistic picture of replacement attrition for finance to use in their modeling alongside any new budgeted positions or hiring.
Through effective teamwork, HR can collaborate with finance to be creative with the budget. With a common understanding of the company's business and financial objectives, HR and finance agree on what is allotted for items like benefits and payroll. If a survey of the current workplace environment has been conducted, there may be waste areas (like unnecessary technology, unused software, or inefficient procedures), that could be streamlined to lower costs. Additionally, a review that includes feedback from staff can offer additional information and ideas for savings.
Alternatively, you can redistribute budgets or discover shared investments that benefit several departments. Finance could look to HR for advice on which type of talent is needed to fill a skill gap. And instead of requesting money, you might be able to find it. For example, hiring a fractional worker provide the needed expertise while investing in and training your current employees and reducing expenses.
There is lingering resistance to bringing HR into forecasting and budget conversations. CPOs noted the burden of earning credibility and building trust with their CFO partners. Both sides noted a lack of acumen and access to data has "hampered" HR from being able to speak with authority on this topic.
In my conversations, speaking the language of ROI was key to building credibility. Then maintaining trust was accomplished through regular, consistent communication. Many suggested a recurring meeting between the CEO, CFO, and HR leader to discuss progress against investments and success measures tied to business objectives. The first step towards speaking to ROI is clarity of alignment on business priorities. HR leaders, in partnership with the CFO and CEO, can then identify the people-related expenditures that tie to business outcomes through the lens of ROI. To do this,
HR leaders can partner with finance to understand the current and future desired state of the company's financial position. Start by understanding the overall company expenses, budget, and relative % department costs. Also, it is important to know how the budget is built. CFOs build budgets differently depending on the business and how the company matures financially.
Ken Wong | Fractional CFO
Emily Couey mentioned her favorite questions to CFOs: Is the budget built bottom up? Does each department have a target spend as a percent of revenue? These questions inform the "pool of money" you must work within. Working closely with your finance partner to take that data and convert it into ROI and then set the KPIs to manage to that would be a good outcome.
Menaka Chang, a fractional CPO, uses the RICE (Reach, Impact, Confidence, and Effort) framework to show potential ROI.
(1) Reach: involves assessing how many people the initiative will affect
(2) Impact: the level of potential benefit,
(3) Confidence: the certainty of achieving this benefit
(4) Effort: the resources required.
Nick Jesteadt finds that utilizing a cost/benefit analysis to show ROI is helpful. Since retention, engagement, diversity, performance, and productivity can be abstract, it is important to try and assign a monetary value to show what investments will cost and likely yield.
- Monthly strategic alignment meetings between CFO and CPO
- Quarterly business reviews including workforce metrics
- Annual strategic planning sessions with integrated financial and people strategies
- Employee lifetime value calculations
- Cost per hire and time to productivity metrics
- Turnover cost analysis and retention ROI
- Training investment returns and skill gap assessments
- Workforce planning aligned with financial forecasting
- Scenario planning for different business outcomes
- Cross-functional budget reviews and approvals
- Shared dashboards and reporting systems
- Predictive analytics for workforce trends
- Regular benchmarking against industry standards
When HR and Finance work together effectively, organizations see measurable improvements in:
- Financial Performance: Better budget accuracy and cost management
- Employee Retention: Reduced turnover costs and improved engagement
- Strategic Agility: Faster response to market changes and opportunities
- Risk Management: Better compliance and reduced people-related risks
- Innovation: More creative solutions to business challenges
The traditional silos between HR and Finance are giving way to a more integrated, strategic partnership. By breaking down these barriers and fostering collaboration, organizations can achieve better business outcomes while creating more engaging employee experiences. The key is to establish shared goals, speak a common language of ROI, and maintain regular communication to build trust and credibility.
As we move forward in an increasingly competitive business environment, the organizations that successfully integrate their HR and Finance functions will be better positioned to attract top talent, manage costs effectively, and drive sustainable growth. The partnership between these two critical functions is not just beneficial—it's essential for long-term success.
Ready to transform your HR-Finance collaboration? Contact us to learn how MeBeBot can help streamline your people operations and provide the data insights needed for strategic decision-making.
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