Can finance really love HR?

The relationship between HR and finance is necessary.

HR executives and their finance counterparts believe a stronger partnership is in their future, especially when it comes to helping their organisations boost performance and improve their return on investment in people.

The two functions agree on many people- and performance-related issues, but diverge in terms of how broadly and rapidly increased collaboration will occur, according to a recent research report.

“As the economy improves, companies are putting more emphasis on ways to enhance financial performance,” said Emmett Seaborn, a senior consultant at Towers Watson, which conducted the report.

“While the HR and finance functions have traditionally worked independently, both groups recognise that it’s their employees who ultimately add value and help drive performance, and that for these workforce programs to succeed, they will need to collaborate more in the future.”

The report found that the functions already partner to a greater extent than many might expect, although they differ over the extent of both current and future collaboration.

“HR/finance collaboration can and should go beyond rewards to encompass the full strategic workforce agenda”

The research, conducted by Towers Watson, found that the top areas of joint activity are setting annual budgets for reward programs (cited by 46 per cent of finance and 62 per cent of HR), determining changes to reward programs (43 per cent finance and 42 per cent HR) and setting reward strategy (39 per cent finance and 41 per cent HR).

HR and finance executives were also closely aligned on top people risks, with both groups focusing on insufficient leadership development (44 per cent finance and 60 per cent HR), inadequate retention of people and skills required for growth (40 per cent and 49 per cent respectively), and inadequate investment in talent for critical roles (34 per cent finance and 50 per cent HR).

However, there is far less collaboration in areas likely to become more important in the future, including setting an overall workforce strategy (35 per cent finance and 23 per cent HR) and talent management (32 per cent finance and 20 per cent HR).

And while both functions agree there will be more collaboration in the next three years, HR respondents were far more likely to think so (70 per cent) than finance respondents (49 per cent).

Return on investment (ROI) on reward programs is an area ripe for improvement since neither group believes current ROI is where it should be, according to the research report, Driving Performance through HR and Finance Collaboration, which took in 122 HR executives and 218 finance executives at US and global organisations.

It found that just 56 per cent of finance respondents and 61 per cent of HR respondents agree their company’s current ROI on rewards is acceptable.

Overall, only 12 per cent of all survey respondents indicated they didn’t currently measure reward ROI, while just under two-thirds use financial metrics and just over half use workforce metrics.

Fewer than half measure ROI in operational areas like productivity or innovation, despite the importance of these factors in strategic growth. And only slightly more than a quarter use customer metrics, a gap that companies will want to close, given the direct impact employee actions and behaviour have on customer loyalty and buying patterns.

Both respondent groups identified the same top reward priorities for the next three years, all of which are aimed at improving their ROI on reward programs. These priorities are increasing the linkage of rewards to company performance, differentiating rewards across talent segments to better reflect people’s roles and contributions, and increasing the linkage of rewards to individual performance.

“HR/finance collaboration can and should go beyond rewards to encompass the full strategic workforce agenda,” said Seaborn.

“Ultimately, sustaining and improving performance must be a shared responsibility between the two functions since it depends so heavily on the relationship between what an organisation can afford to invest in its people and the financial goals it has to deliver.”