In today’s uncertain landscape, HR is leading business transformation. From optimizing workforces for a changing economy to going the extra mile to retain talent, HR leaders are tackling some of the greatest organizational challenges to have arisen during the pandemic. Few departments have insight into the entirety of an organization’s workforce the way HR does. But has the rest of the C-suite considered how these insights could be better and more competitively leveraged?
In light of recent developments, like the shift to remote work and unprecedented employee turnover, many employers are looking for new ways to support their HR teams. For a function long relegated to the back office, a first step is expanding HR’s reach at the highest levels. That means resetting the relationship between HR and the rest of the C-suite, starting with the chief financial officer. Why finance? Traditionally, budget-decision makers have struggled to link investments in people-centric HR to metrics-based financial performance. But, as companies feel the impact of hiring crises and HR teams embrace data analytics, HR’s “qualitative” reputation is proving to be faulty.
While talent strategy may not be entirely a numbers game, the costs of an underperforming HR function are real and growing. Hiring is expensive–the price of procuring talent from posting to hire is estimated at more than $4,000 per non-executive employee. Then, there is the impact of widespread vacancies on wages, already rising fast in many sectors. On a broader level, the financial implications of even the more abstract elements of people strategy are becoming clearer; for example, McKinsey’s Organizational Health Index reports that those with top-ranked cultures achieved a 60% higher shareholder return than median-level companies. In short, the connection between people decisions and a company’s bottom line has never been stronger.
Companies can take three actionable measures to build stronger and more effective partnerships between CHRO and CFOs:
1. Take a step back, together
In a world of accelerating business transformation, department leaders should not assume their goals and objectives are still aligned. Before jumping into day-to-day concerns, HR and finance executives need to reset a mutual understanding of the organization’s purpose, identify where responsibilities overlap and consider where and how they can collaborate.
For its part, HR may need a refresh on how funds are allocated internally and how the company earns money. Finance leaders may need an update on company policies in areas such as business travel and a full accounting of HR-led projects, which may have evolved in remote settings. Setting these kinds of baselines will ensure a stronger working relationship moving forward. Of course, consensus between the CHRO and CFO will also help elevate both leaders’ voices in the boardroom, putting more shared goals within reach.
2. Build frameworks for collaboration
Finance needs the workforce and operational intelligence that only HR possesses, but there are typically few avenues to share it. Companies must establish appropriate channels for HR to communicate the latest figures and trends with finance teams, like the associated costs of remote work or how product roadmaps hold little weight without the people to do the work.
Digital solutions can go a long way in bridging this divide. Many next-generation talent management platforms and applicant tracking systems use analytics to track metrics like the average position turnover. This data can then be used to compute figures, like the total cost of unfilled vacancies, that are legible and relevant to finance. And while many digital solutions integrate cross-functionally, these insights can also spark dialogue in management-level convenings or, even better, dedicated meetings between HR and finance leaders.
3. Conduct a hiring deep dive
The future of talent acquisition is still in flux, but one thing is certain: There’s no going back to the old way of doing things. CFOs and CHROs need to work together to determine how new practices will impact budgets and performance. Discussing hybrid and remote working arrangements should be a top priority, given their enduring popularity. If HR expands recruitment efforts to remote candidates in other regions, does that also imply location-based salary adjustments? And then there are the non-salary costs to consider, from legal expenses to taxes and even office supplies.
Once these pressing concerns are addressed, there are more long-term strategic issues to confront. For example, what is the cost-benefit equation of investing in internal talent development initiatives, from trainings to promotion pathways, versus relying on external recruitment? Are traditional salary practices like annual pay increases still relevant retention mechanisms, or should the company move toward performance-based pay? If so, which metrics are relevant? After all, the pandemic has taught both teams that actions taken in the moment will reverberate far into the future.
It’s time to break down silos
There are plenty of explanations for historically limited cooperation between HR and finance–different lexicons, backgrounds or even physical locations. But few of these justifications hold up in today’s more connected, less hierarchical workplaces. What’s more, companies win when CFOs and CHROs commit to stronger collaboration through better strategic positioning, optimized budgets and happier employees. With more uncharted waters ahead, this dynamic duo must work together to lead the way forward.