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To add business value, HR and finance must work together

HR and finance need to share data. The metrics that finance uses and the metrics that HR uses, brought together, can help to measure an organization's success.

To deliver business value, human resources and finance have to work together to drive the behaviors and outcomes...

needed from employees, processes and technology to provide the quickest return on investment.

Finance needs to develop measures that will enable HR to have a better understanding of the business and its financial metrics. HR has to provide information that will be most useful to CFOs and other C-level executives. The goal: to tie HR performance data back to financial results. In other words, how do the metrics that finance uses and the metrics that HR uses help to measure the organization's success?

"HR and finance have the same trends that are influencing all businesses, so those lead us to the metrics that are important," said Kathy Baker, senior vice president of human resources at Wolters Kluwer, based in Alphen aan den Rijn, the Netherlands. "Some of that is just the whole rise in economic uncertainty and volatility. And technology itself has changed our ability to think about data and how we make decisions. And the last trend is the whole question around human capital."

The human investment -- that is, the degree to which the investment in people makes a difference to the enterprise's overall success -- is what unites HR and finance more than in the past. And it makes the data relationship between HR and finance more of a bond than it's ever been, Baker said.

Making intelligent hiring decisions

For one analyst, the business imperative for the link between finance and HR comes down to making intelligent hiring decisions based on intelligent economic decisions. Every time a business looks at a hiring decision, it should be able to determine if the job will be best filled by a full-time professional, a contingent worker, two contingents or some other hiring model, said Katherine Jones, vice president of HCM Technology Research at Bersin by Deloitte at Deloitte Consulting LLP, in Oakland, Calif.

"Right now HR's response to 'I need a body' is to give them a body," she said. "So, there's one area where knowing what your spend is and understanding it ahead of time is very important when you're making filling-the-seats types of decisions."

However, those decisions can't be made without access to the numbers. HR has to know what the overhead is, what the benefits cost per person is, and if the Affordable Care Act kicks in with a particular person -- monetary information that's usually locked up in finance, she said.

Many HR software programs, like human resource management systems, or HRMSes, and human resource information systems, or HRISes, have expanded to include performance management, succession and talent acquisition. But only a few such products have a basis in ERP and include out-of-the-box the financial packages that feed the financial data back to HR so an HR director can get all the other data needed to make sound decisions.

What HR should be asking

To understand the business, HR should start by asking finance for basic information like cash flow and income -- what kind of money the company is making with a breakdown of which department, which services, which products are actually contributing to that money, said Hyoun Park, principal consultant at Boston-based DataHive Consulting.

"At the end of the day, that's how the business is making its decisions on the people being hired and the types of investments that are going to be made going forward," Park said. "The problem is that the business should also be providing future-facing data on what the company is expected to do over the next couple of years and the company's talent needs so HR can meet those talent needs that are associated with the future," he said.

However, the financial users don't typically provide that guidance, making it much more difficult for HR to truly plan for the future. "HR makes long-term investments, but finance departments often aren't thinking that far ahead, especially publicly traded companies that can be too focused on the next quarter to the exclusion of strategic guidance," Park added.

On the flip side, the data that HR provides to finance tends to be straightforward and centered on compensation and basic costs, Park said. But that's not enough. HR should be providing finance with more important metrics, like how long employees have been there, the type of churn that exists in each area, the extent to which employees are gaining skills or being able to take advantage of the learning and development budget, and the infrastructure required to make each employee viable or productive in their specific roles, he said. "That additional information may not be purely HR in nature, but HR should be providing the information that allows finance to have a better picture of what all that money is going into," Park said.

Systems need to be integrated

Bersin by Deloitte's Jones agrees with Park's assessment. CEOs want to know if the people the company has hired are in the right jobs. They also want to know how long before an employee is productive and how long before that person is providing the return on the investment that the business made in him, she said. However, companies don't always have the right technology in place to make it easy to get that data.

CEOs should have basic information, like how many people work for them on a day-to-day basis, but they usually don't because often there are multiple systems all over the world that aren't integrated, Jones said.

"And they don't have a centralized depository for getting simple information. When you have so many disparate, not integrated, HR systems, you can't get the analytics you need, you can't get back to the CEO to say, 'We have an attrition problem in Vietnam,' because you don't know," she added.

As Wolters Kluwer's Baker sees it, the metrics a finance person is interested in revolve around profitability; that is, the revenue flow, the EBITDA (earnings before interest, taxes, depreciation and amortization), the cost per hire and personnel-related costs.

From an HR perspective, several layers of data are important and some are operational, she said. "What's the turnover? What's the staffing time? What's the number of people promoted from within? What's the onboarding time? Then, how do you take that operational and efficiency data and use predictive analysis in the context of HR and in terms of business decisions?" she asked.

Baker offered an example from Wolters Kluwer of the data that is meaningful to HR, as well as to finance and C-level executives. The company has a software release next year and finance is interested in the impact of that release on revenue and on costs, she said. That's applicable for Baker because as she breaks out those two key measures (operational data and efficiency data), what she's going to provide to the finance community and what she's going to look at in terms of her own planning revolve around operational data.

Baker is interested in the number of people needed to affect this release. For example, does the company need more architects, coders, salespeople, customer service agents? HR also needs to determine the average time to recruit those people, as well as the time it will take to bring them up to speed.

"And for the finance person -- if Kathy says it's going to take X number of weeks to get Y person, then [the finance person wants to know] how quickly can we bring that person on? And how quickly will that person be productive? And the finance person also wants to know what the impact will be on his costs until that employee ultimately brings in a return," Baker said.

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This was last published in December 2014

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