A global survey of CFOs and chief human resource officers (CHROs) by professional services organisation EY finds that a strong relationship between the CFO and the CHRO is linked with superior business performance. Companies where the relationship has become more collaborative over the past three years report higher EBITDA (earnings before income tax, depreciation and amortization) growth and stronger improvement across a range of human capital metrics, including employee engagement and productivity.
At high-performing companies, the CFO makes a bigger contribution to strategic workforce planning, and there is greater collaboration between finance and HR on this activity.
“Each day, companies are grappling with increasingly complex human capital decisions that have a fundamental impact on the strategic objectives of their businesses," says Dina Pyron, Global Human Capital Leader at EY. "A company’s workforce inevitably drives growth and performance and, in most companies, people are also the single largest expense. Typically, CFOs have tended to view human capital primarily as a cost, while CHROs have viewed it primarily as an asset that requires investment."
The second instalment of "Partnering for Performance," a global survey of 550 CFOs and CHROs, finds that 41% of these high-performing companies experienced EBITDA growth of greater than 10% versus only 14% of non-high performers. In addition to faster EBITDA growth, 44% of high-performers have also seen a significant improvement in employee engagement, versus 9% of others. Forty-three percent have seen a marked increase in workforce productivity versus 10% of others.
With the gap between finance and HR narrowing, the EY study identifies four key factors that have driven closer collaboration between these two leadership functions over the past three years.
Talent is scarce and labor costs are rising
Companies need a better understanding of the relationship between cost and performance, especially as organizations in both mature and rapid-growth markets are struggling to identify, secure and develop top talent. This challenge, combined with fast-rising labor costs, leads to costly rates of attrition that can threaten the viability of strategic investments. It’s imperative that companies take a smarter approach to human capital cost management.
HR is more important within the corporate hierarchy
Because HR has traditionally been a support function, it has often been too far removed from the strategic decision-making of the business. This is changing as HR rises in the corporate hierarchy, and companies recognize the need for closer alignment between their corporate strategy and human capital strategy.
Companies need to quickly change direction and develop new products and services
The rapidly shifting global business environment requires every company to continually adapt its strategy and introduce new products and services to remain competitive. By involving both the CFO and CHRO in the strategic decision-making process, businesses can ensure that both the financial and people impacts of decisions are addressed.
More organisations are altering their business models
Companies continue to transform key business functions, including finance, HR and IT. The process of seeking out greater efficiencies, standardization and scale in order to improve service delivery and increase profitability is ongoing. Firms are navigating these highly complex issues while weighing the opposing forces of onshoring and offshoring and adapting current models to capture new geographic growth opportunities. To accomplish this, they will need to move toward a multifunctional global business services model. Transformation on this scale has significant finance and HR implications.