Business partners: HR and finance are learning to team up effectively to develop strategy and resolve operational problems

HR Magazine, Sept, 2003 by Steve Bates

When HR Manager Christina M. Hartley, PHR, wants to talk to her company's CFO, all she has to do is go next door.

It's no accident that finance manager Ignacio Mercade has the adjacent office. Executive at their firm, SHI-APD Cryogenics Inc. of Allentown Pa., consider the top HR and finance officials to be equals and want them to collaborate as much as possible.

While such close cooperation among HR leaders CFOs is not the norm at U.S. companies, it is growing trend that bears tremendous potential for organizations and HR professionals. A recent in-depth survey conducted by CFO Research Services and analyzed by Mercer Human Resource Consulting has documented what Hartley and Mercade already know: The HR and finance professions work better together than separately.

"Both have the role of the conscience of the company," says Hartley, who has learned a lot from Mercade, including "how to use spreadsheets, how to read monthly financial reports and understand them, how to see how the company is doing and where the costs are."

And Mercade has much to thank Hartley for: understanding union contracts--"We always rely on her interpretations as to which way to go"--plus changes in labor laws that must be dealt with to minimize the chances of litigation.

It hasn't always been this way at SHI-APD Cryogenics, a cryogenic equipment manufacturer that was bought by a Japanese company a few years ago and restructured to have HR report directly to top management. "In the past, HR was kind of passed around," says Mercade. But today the finance and people functions are valued equally and "are working much closer together than ever before," he says.

When Hartley wants to propose a program or spending increase related to staffing, she goes to Mercade first. He costs out the options and analyzes them with her, and together they refine a plan that they can defend before top management.

"I couldn't fathom working this closely with any other department," says Hartley. "Sometimes it's intimidating" she adds. "What am I doing here with all these financials in front of me?" But she says the benefits of working outside her previous comfort zone, plus the knowledge that she can go next door for help at almost any time, outweigh any drawbacks.

Like Venus Mars

Even the most ardent supporters of cooperation among HR and finance concede that the two disciplines are by nature quite different. If HR is from Venus, finance is definitely from Mars. Many HR people come up with a nurturing, protective approach to employees, often supplemented with a deferential attitude toward CFOs and CEOs. Finance people, trained to focus on dollars and cents, are often imbued with an impulse to control costs and their sources.

Attitudes are shifting, however. Thirty-nine percent of respondents in the CFO Research Services survey said they view HR "mainly" or "somewhat" as a strategic partner, one-third said they see HR as an even mix of cost center and strategic partner, and 28 percent said they see HR as "somewhat" or "mainly" a cost center. Though there is no earlier survey to quantify the shift in attitudes over time, the report's authors and other experts say there is definitely a trend toward greater CFO understanding of, respect for and interest in HR. (See chart, page 49.)

"In the last couple of years the linkage has been accelerated because of the economy" says Mark Huselid, a professor at Rutgers University in Piscataway, N.J. Greater scrutiny of corporate governance matters also has put more pressure on businesses' HR and finance functions to cooperate, Huselid states.

The vast majority of CFOs surveyed view human capital as a key driver of shareholder value. Few finance executives say they understand their return on their human capital investments--only 16 percent of the survey respondents know that return to a "considerable" or "great" extent. But the desire to influence people management is there.

Not all CFOs think that cooperation with HR is the best way to influence people management, however. In some organizations, finance people grab power over matters traditionally considered to be HR's territory, and the results are not always positive.

In 13 percent of large corporations, HR reports to finance, not to the COO or CEO. That structure exists in 22 percent of smaller firms, according to the CFO Research/Mercer survey report.

In some firms with small HR operations, it makes sense for HR to report to finance. But in large organizations, that structure might suggest that HR isn't considered to be as trustworthy or as business-minded to play at the same level as finance.

Even so, a partnership between the disciplines can prove worthwhile. To achieve that partnership, both HR and finance will need to give a little.

"Human capital is not strictly associated with the HR function; notes Rick Guzzo, a partner with Mercer who was involved in the survey report. "As an intangible asset, it doesn't conform exactly to the finance function or the HR function."

Guzzo says that he was surprised to see just how willing finance officials are to work with HR. "CFOs probably have to make the greater leap of faith here."