Why Finance Gets Strategic HR

A colleague, Laura Schroeder, who has an eye for the interesting and important pointed me to this article some time ago that qualifies as both: “Finance Keener on HR strategy than HR.” The gist:

Why financial professionals are reportedly ahead of human resources pros in understanding the connection between people and business performance could be an interesting analysis in itself. I can see a number of good reasons why finance “gets” strategic human capital management and I think there are some important implications:

• Shifting Business Basics. Financial training and practice creates an acute sensitivity to business inputs and outputs, yet historically those inputs and outputs were “things.” Inventory was the key input/output and, to be honest, finance did not give HR much attention. Direct labor on the automated shop floor was at best a relatively undifferentiated commodity and at worst, a drag on margins to be minimized. However, as the value drivers of business have shifted from things to people, finance has naturally shifted its gaze to understanding the new inputs, which are people, and their outputs. “Employment matters” are now business matters, and have come under more financial scrutiny.
• Increasing Labor Costs. Finance by nature and training tends to be very cost-aware, if not hypersensitive, to the cost drivers of a business. As labor costs increase in both absolute and relative terms, finance’s attention is naturally drawn to that area and analysts start to dig in to understand the source, nature, and purpose of those costs. Where there is cost, there is finance.
• Changing Role of Finance. Finance as a discipline has spent the last 20-plus years shifting its own role in the enterprise from “bean counter” to business leader. This journey has led finance to grow beyond its traditional core competencies of accounting and financial reporting to create models, tools, and metrics to enhance its ability to understand and provide insight into the whole business.
• It’s Personal. As noted above, finance has been keen to move beyond its accounting and administration heritage to become a valued business partner. This, in turn, has caused a large and fundamental shift in the talent and skills needed to be an effective finance organization. At every single financial executive conference I have attended over the last decade, a good amount of agenda time was dedicated to the talent acquisition, development, and retention requirements for building and running a highly performing finance shop. Finance has a very selfish reason for focusing on “people issues.”

The leading implication of all this is that strategic HR concepts and ideas are crucial to business success today. The finance departments that are aligned with the above reasons have undertaken the transformation necessary to become strategic business partners. We see it with our own customers: As Workday announced today, Sallie Mae selected Workday Financial Management and HCM because it understands the correlation between HR and finance and the value of a unified platform, and it required tools that will allow it to get real-time information about its workforce that impacts critical management decisions.

Many, many more finance departments are either in process of or have yet to begin the transformation journey. So we, as a finance profession and discipline, need to continue to invest in talent and systems capable of improving our ability to understand and measure the investment in and contributions of human capital.

For HR, there is an incredible opportunity to deliver business value (who better to drive strategic HR initiatives?), but to do this HR must continue to evolve, as has finance, from an administrative focus to a business focus. In short, successful HR people of the future will be business people, and effective HR systems will be business systems.