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A Dynamic Duo

A new study released by EY suggests a connection between CHRO/CFO collaboration and business performance.

Wednesday, June 18, 2014
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Have you spoken with your chief financial officer lately? Well, if not, you might want to pick up the phone and give him or her a call.

New research from London-based EY suggests that chief HR officers have good reason to build an even stronger relationship with their CFOs.

According to the EY report, high-performing companies -- those with EBITDA (earnings before interest, taxes, depreciation and amortization) growth in excess of 10 percent over the past 12 months, and that have had a significant increase in performance across both employee engagement and productivity over the past three years (according to respondents) -- are more likely to have chief HR officers and CFOs who more regularly collaborate. The study also found that collaboration was more likely to take place at high-performing organizations that are large and global in scope.

The research, titled "Partnering for Performance," is based on a survey of 550 CHROs and CFOs around the world, as well as interviews with industry leaders. (It's the first time EY has studied this issue.)

Eighty percent of the CHROs and CFOs polled said their relationship with their counterparts in HR or finance had become more collaborative in the past three years, with 42 percent describing it as "much more collaborative" and 38 percent as "a little more collaborative." Fifteen percent reported "no change," while 5 percent said it was "a little less collaborative."

On average, the study found CHROs and CFOs at high-performing organizations spend approximately 50 percent more time working together and are more likely to have a "peer relationship."

What's driving this greater collaboration? The research points to issues such as talent scarcity and rising labor costs; the elevation of HR within the corporate hierarchy; changes to business strategy, including many affecting both HR and finance; and changes to operating models as companies seek out greater efficiencies.

Steve Jacobs, executive director of human capital for EY in Chicago, points out that CHROs and CFOs are much more engaged at the strategic-planning level these days than they were five years ago.  "Contributing to this," he says, "is the elevation of the role of the chief HR person, who in many organizations is at the same level as the CFO, and the [increasing awareness] that people represent such a large component of business success."

Jacobs also points out that the availability of data and the fact that much of that data overlaps both functions are spurring the two to collaborate on the strategic-planning front.

At high-performing companies, the study found, CHROs and CFOs spend 7.8 hours working together, versus 5.1 percent at other organizations. Sixty percent of the respondents at those organizations also identified themselves as peers, versus 42 percent at other organizations; and 49 percent of those respondents describe their organizations as "excellent" at using data analytics to improve HR performance, versus 23 percent at other organizations.

Ian Ziskin, president of EXec EXcel Group, a human capital coaching and consulting firm based in Sag Harbor, N.Y., says the findings make "intuitive sense."

"Effective CHROs are being called upon to partner more effectively across organizational boundaries in a more seamless way -- with CFOs, CMOs, CSOs, etc." Ziskin says he is increasingly seeing this partnership take place around areas such as executive compensation, healthcare and pension strategies and cost, organizational costs involving layers and headcount, public policy and investor relations, and business and workforce analytics.The foundation of any effective CHRO/CFO relationship has to include mutual trust and respect, says Ziskin, adding that during his career as an HR leader he's worked with CFOs who were great partners and with one who was not.

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If you're an HR leader who works with a CFO who resists attempts to collaborate, Jacobs offers the following advice: Get their attention by talking their language. "You need to articulate the commercial side of the business ... ."

Whether talking about expanding into new markets or introducing a new product line, Jacobs continues, every business event involves decisions around people, skills and compensation—so, as an HR leader, you need to be able to understand and explain to the CFO what the financial impact is going to be.Wayne Cascio, a professor of management at the Business School of the University of Colorado-Denver, describes greater collaboration between HR and finance as an "unremittingly positive" development.The fact that CFOs at high-performing companies said they participated in the development and tracking of HR metrics goes a long way to ensuring a tighter link between HR practices and business strategy, Cascio says.

True, the study isn’t able to show causation between collaboration and performance, says Jacobs. But it does show a very strong link between the two. "Other factors can contribute to higher performance," he says, “but when we looked at those companies that had a stronger relationship, they also had strong business performance."

 

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