CIMA-funded (Chartered Institute of Management Accountants) research has discovered that the closer the co-operation between finance departments and human resources (HR) departments on areas like bonus schemes, the better the organisational performance will be.
The research was carried out by John Innes, University of Dundee; Reza Kouhy, Glasgow Caledonian University; Rishma Vedd, California State University, Northridge; and Takeo Yoshikawa, Yokohama National University on a CIMA grant. The project examines the relationship between HR management, management accounting and organisational performance. Six case studies covering the UK, Canada and Japan were analysed with the results tested in a series of 100 telephone interviews.
Top level findings show that HR and finance teams need to work closely with one-another on HR policies to ensure better performance across the entire business. Where the tone is set at the top, with HR Directors and Finance Directors being seen to liaise on bonus schemes and benchmarking exercises, it is generally felt that a better working relationship between HR and finance can be achieved.
Researcher John Innes, explains further:
'It was commonly considered that while HR can benefit from getting financial input on how to structure bonus schemes and strategies, that finance can equally benefit from working with HR to understand how viewing employees as 'assets' rather than 'costs' can lead to a net positive effect on an organisation's long-term performance.'
Although the relationship between HR and the operational and executive functions of any business needs to be strong and founded on mutual respect and collaboration, I think that the relationship between HR and Finance is pivotal to achieving great things. If the two functions can work together, despite sometimes conflicting priorities, then the CEO’s two greatest concerns – people and profit – are much easier to manage. | |
As an HR Director, I’ve seen this work (and fail) spectacularly, so I can speak from experience. I’ve worked with some fantastic finance professionals over the years. There was D-----, who spent ages patiently teaching me the idiosyncrasies of cash-flow forecasting to help me through the accounting module of my degree. D---- was brilliant at conjuring up an Excel formula to speed up the most intricate reporting requirement. N---- knew the business so well that he could spot potential trouble-spots, and tell me about them, long before I knew there was anything brewing. M------- gave me some really useful insights into the company culture which made it much easier for me to introduce new initiatives, knowing in advance that they would work.

The common factor with each of these people was that although they were finance specialists, they also had huge amounts of business acumen and understood their businesses thoroughly. Isn’t that also a key requirement for HR professionals? Are we any different from our finance colleagues in that respect?

I would argue that there are a lot of similarities between the two professions. If Finance is fully integrated with the business it serves, there are huge benefits in cost management and control. The Finance function understands the business and can therefore plan investment and expenditure to meet trading patterns rather than simply reacting to events that have already occurred. Similarly an integrated HR department can pre-empt people issues and can act quickly to resolve them before they become problems. It’s all about being visible in the organisation, talking to people, understanding their needs. Yes – and being commercially focussed. | The results of collaboration |
The best Finance Directors and CFOs that I’ve worked with are the ones who take the time to get to know their fellow Directors and their colleagues in other departments. They are the ones who you see out and about, talking to employees and not hiding away behind closed (sometimes locked!) doors in the Finance Department. With such open communication channels, nothing comes as a surprise and in today’s tough financial climate, that’s a real bonus.

In my opinion, the relationship between HR and Finance should be a partnership – two distinct specialisms but working together as equals to support the business’s most important assets. For that reason, it doesn’t feel right to me that HR should ever report to Finance and I know that I couldn’t work in an organisation where that was the case. I know that this happens in some organisations and if that’s your experience, it would be good to hear your views. Perhaps it depends on the calibre of the CFO and their willingness to collaborate and share differing opinions rather than a single-minded pursuit of profit. I think I know which I’d prefer to work with!
TODAY'S HR function is becoming a sophisticated bottom-line business partner that requires more input and collaboration from the finance department than ever before.

From sharing relevant employment data to maintaining joint responsibility for projects, the HR and finance functions should be ‘great friends, not raging enemies.’

The HR department is concerned with the recruitment, development and deployment of a superior workforce. This makes the role of HR all-encompassing.

The function, not only needs to make sure there are enough employees to do a company’s work, but that those people have the right skills, are placed in the right jobs, are paid competitively and receive proper motivation and rewards.
Unfortunately, in many organisations, the HR and finance functions work in isolation.

Finance people think that their HR counterparts waste space that should be reserved for ‘valuable’ professionals.
Human resources specialists, on the other hand, think the finance function is filled with a ‘bunch of pencil-necked bean counters’ whose sole enjoyment in life comes from saying “no” to every requested project.

Like many contentious relationships, the problem between these departments is lack of understanding or appreciation of each other’s roles.

Their relationship can only improve if they take time to learn how they can support each other’s roles. Finance, more than any other function, is in a key position to help the HR section achieve its objectives. This is because in many firms, the finance function is the primary source of performance measurement data.

The information finance gathers on earnings, productivity and customer satisfaction provides tremendous insight into staffing and development needs of an organisation.

How can finance work closely with the HR people, particularly if the relationship between the two departments has been strained? A good way to start would be by benchmarking.

Look at HR practices in your company that touch the finance department and compare them with best-practice companies, then work together with HR to uncover ways to improve the whole process.

In other words, collaboration is the key. For example, the finance section can help the HR function make financially-sound business decisions by helping them calculate the return-on-investment for their programmes, practices and increasingly, technology.

By working closely with HR, the finance department will understand and take advantage of HR’s expertise in areas like recruitment, training and development, communication, motivation, dispute resolution or termination.

In the end, the best way to build the two sections’ relationship and, thus improve service to the organisation as a whole, is to open their communication lines. There is need to find opportunities for frequent communication.

When the finance function understands what HR department brings to the table, it can find ways to improve service to the function and, hence gain a greater appreciation for HR activities.