Connected finance and HR teams can reshape enterprise planning
Finance can improve organizational performance with closer collaboration with HR for more accurate planning across the enterprise and improved bottom line.
The value people bring to an organization is always a vigorously discussed topic among senior leadership, especially as it relates to strategic planning. You would think investing in the organization’s people is a settled argument, but it still puts finance, who holds the purse strings, in an uncomfortable position.
CFOs cannot just say “no,” nor can they just say “yes” to approving requests for investments in the organization’s people. Like other business function leaders, they will make the best decisions they can with the tools and information they have available balanced with the need to keep costs at check. CFOs and their finance organization are experts at appropriating the greatest value from the resources the company controls, along with managing how money flows through the enterprise. However, they are not experts in how people, as resources, are translated into organizational and financial performance. That is why without insights and guidance from HR, finance will make people-decisions from a predominantly financial perspective, which obscures the view of the some of the organization’s key growth levers, such as managing headcount to increase productivity or capacity.
Finance agrees in concept that investments in people are valuable. What they want to know is, how valuable? They are not usually looking for a single number, but rather a clear map of the value chain using specifics. More importantly, they want to know which investments in people create the most customer and business value, and what are the paths to achieving that value. To do so, HR needs to communicate in the language of finance, not the other way around.
Here are three effective ways for HR to become conversant in the language of finance when discussing investments in people:
1. Build up a strong vocabulary around long-range planning
One of finance’s main preoccupations is long-range planning, which aims to achieve and maintain competitive advantages. For the CFO, the more focused objective is setting up the business to generate sustainable positive cash flows. No one would dispute either is possible without assembling a high-performing workforce and leadership, but getting it done requires a deliberate and well-informed people investment plan based on HR’s expertise.HR needs to complement and extend finance’s efforts in long-range planning by developing strategic workforce plans to drive the initiatives of the long-range plan. An essential task for HR is to assess the long-term demand for critical roles against both workforce supply and future trends for skills transformations, hiring, terminations, retirements, and competition.Accordingly, HR’s analysis will identify gaps and surpluses to account for and address. Workforce planners can then build scenarios (build, buy, borrow, or bounce) to close the gaps, incorporating costs with each scenario. Finance then evaluates the proposed options and their associated costs, so HR is empowered to execute and track the chosen options, and assure the right resources are put in place to realize long-range plans.
2. Structure people investment proposals as business cases
To help the CFO and CEO make prudent, effective people investments, HR needs to do their diligence in developing business cases for their proposals. Business cases should make heavy use of the language finance speaks to facilitate better communication.For example, HR can build business cases for initiatives like employee learning and development, or employee engagement. Then, they can create scenarios that compare the cost and timing of training and promoting from within versus hiring or using contractors from outside. Another scenario could compare the cost of employee engagement versus the cost of attrition.It is important that HR presents business cases in a format finance understands. Connected Planning helps provide HR the data and structure to create business cases in the language of finance. Communicating unambiguously in a common language enables collaborative, data-driven conversations to clarify the assumptions and dependencies around investments in people, and how they map to investments in the business. This language must be rooted in an agreement on fundamentals, such as how headcount is calculated.
3. Translate nontraditional ROI so it can be better evaluated against financial measures
Return ratios such as ROI are powerful ways to describe succinctly the performance of a company’s investments and to evaluate future investment opportunities. Finance uses ROI regularly in both cases, such as operating revenue, profit, and expense per employee, as it is another part of the language of finance. Yet, investments in people are difficult to connect directly to financial outcomes. HR can help finance quantify and understand HR’s nontraditional ROI models, such as culture, employee engagement, and training.Remember that to finance professionals, ROI has a very precise meaning. So, HR needs to be careful not to force-fit nontraditional ROI into financial terms. Often, HR can communicate nontraditional ROI effectively using a benefit/cost framework as an agreeable basis to finance in evaluating and comparing people investment options.
Don’t tell your leadership peers what to do. Show them how it gets done.
By connecting HR data to finance’s forecasting and planning systems using a common platform, HR takes the first step in breaking down organizational silos and becomes a model for the rest of the enterprise by actually doing so right at the planning stage. From there, everyone can find the answers to “so what” and “what’s next” questions, thanks to actionable data.
Through a closer collaboration, HR and finance can avoid reaching impasses due to the CFO lacking sufficient contextual information to confidently say “yes” or “no” in their decisions. Instead, HR’s input in areas such as talent and location strategy become codified into the broader business strategy in ways that make sense to finance, who in turn can communicate more effectively to the CEO, where strategic decisions ultimately get made.