The Beginning of a Beautiful Friendship?
HR and finance haven't exactly had the warmest and fuzziest of relationships in the past, but the latest evidence suggests the two functions need each other more than ever today -- and that interdependence is likely to grow in the future.
By Andrew R. McIlvaine
Finance departments today are under enormous pressure to change. Much of the work they've traditionally done has been outsourced, commoditized or automated. Now they're expected to partner with the business, helping their organizations achieve their strategic goals while using data in innovative ways to deliver more value-added services. Yet many finance leaders find themselves stuck, unable to draw in the type of talent they need and unsure of how to get there.
Does all this sound familiar?
Finance and HR are both finding that the roles they've traditionally played are becoming obsolete. Both functions need new skillsets and capabilities to meet the more strategic responsibilities that today's companies are placing before them. A pair of new studies suggests they'll have a better chance of doing so if they work together instead of separately.
Deloitte Consulting's just-released 2013 Global Finance Talent Survey reveals that while CFOs and other finance executives consider talent management vital, nearly four in 10 say they are "barely able" or "unable" to find the talent they need to manage their organizations, while 33 percent expect they'll face the same problem three years from now.
Only 40 percent of the 312 finance executives surveyed reported finding highly skilled finance leaders internally in the last three years, especially in Asia and Europe. Thirty-four percent of respondents cited talent management as their top concern in their overall finance strategy. The respondents listed as the top three barriers to successful recruitment the belief that finance offers insufficient opportunities for career development and advancement; that potential strong recruits continue to be lured by managerial or non-finance positions instead; and the fact that compensation and benefits are not competitive.
What's holding finance back in this respect is a lingering, outdated view of a career in finance that simply doesn't jibe with today's reality, says Tina Witney, New York-based Deloitte Consulting's U.S. human capital leader for finance transformation. Jobs in today's finance departments are often challenging and interesting, she says, offering recruits the potential to help shape the company's business strategy.
Unfortunately, many finance leaders haven't proven very adept at getting the word out and drawing in candidates who are up to this -- and that's where HR can help, says Witney, who works extensively with finance departments on talent development.
"I think there are big opportunities for HR in two areas: One, really helping to build capabilities within the finance function in leadership and technical areas, and two, to also help with talent assessment," she says. "In the past, finance hasn't focused much on competencies and career pathing, and that's where HR can really step in."
Finance is being forced to focus on these areas now because "what the business is demanding of finance as a function is requiring them to operate in a different way," says Witney. "In the past, they were focused on accounting, treasury and taxes; now that's shifting to data analytics, planning and analysis and business partnering. Those factors require different capabilities from the individuals who work in finance."
HR and finance executives appear to agree on many people- and performance-related issues, but diverge in terms of how broadly and rapidly increased collaboration will occur. That's according to a new survey of HR and finance executives by Towers Watson and Forbes Insight.
The top areas of joint activity are, according to the survey, setting annual budgets for reward programs (cited by 46 percent of finance and 62 percent of HR), determining changes to reward programs (43 percent finance and 42 percent HR), and setting reward strategy (39 percent finance and 41 percent HR). Areas such as overall workforce strategy (35 percent finance and 23 percent HR) and talent management (32 percent finance and 20 percent HR) saw considerably less collaboration, however.
Interestingly, there was a big divergence between the two functions concerning the question of whether there will be more collaboration between HR and finance in the next three years. While both groups agreed it will become more common, 70 percent of HR respondents thought so, while only 49 percent of finance respondents did.
"The gap is probably attributable to the fact that HR has a better understanding than finance of how changes that are made to reward programs, training and performance management can affect business outcomes and, therefore, how important it is to get finance onboard," says Emmet Seaborn, a director at Towers Watson in Stamford, Conn. "They see how critical it is to connect to those things that finance owns."
Yet, for a solid partnership to exist between the two functions, the HR department itself needs to be at a certain level of maturity, says Witney. An HR function that already has a business partner dedicated to the finance function will, of course, be better positioned than one that does not, she says.
Seaborn says he expected Towers Watson's survey to show that finance was much more focused on the cost of programs while HR was more focused on performance, but it turns out both functions are focused on driving business results and growth while helping their organization manage costs and risks.
"HR and finance are also saying they need to find much better ways to collaborate, and HR is saying they need more help from finance in accomplishing their agenda," he says.
When finance and HR work together to solve a problem, the result is often more robust than if each department worked separately, says Seaborn.
He and his team at Towers Watson worked recently with a large North American manufacturing company that was struggling to manage total-rewards costs that were "off the charts" compared to its peers, many of which had made big changes to their own total rewards programs.
Initially, HR and finance worked separately to try and address the issues. However, the business leaders were concerned that little alignment existed between the company's benefits and reward programs and "impactful results," while the finance department's focus on "balanced scorecards" wasn't helpful because there were no mechanisms in place to ensure employees were focused on those metrics, says Seaborn.
By working together, HR and finance came up with changes that resulted in significant changes to the company's total-rewards program and a stronger link between its performance-management processes and the balanced scorecards, he says.
"This organization ended up with hugely different outcomes than if HR had continued to operate in its traditional domain," says Seaborn.
As human capital management becomes more data-driven -- "less of an art, more of a science," he says -- there will be greater interaction between HR and finance in order to leverage each department's respective strengths.
"We're really starting to see a blending, a morphing and a breakdown of the silos that were previously there," says Seaborn.