Forging a New Relationship with Human Resources

By Megan Smith

CFOs and chief human resources officers (CHROs) must work together more effectively. That’s the resounding message from our global CFO survey, reflecting the significant change to their relationship over recent years. HR leaders often reported to CFOs in the past. But as finance leaders shift focus towards risk management, it is prompting many firms to create a CHRO position, typically reporting to the CEO.

The latest research on this topic shows just 13 percent of HR heads report to the CFO, with the remainder reporting directly to CEOs. That number has likely fallen further due to post-COVID talent shortages and increasing focus on employee concerns, boosting the CHRO role. This change means the CFO and CHRO need to forge a new relationship. Some 80 percent of respondents in our survey believe they must work more effectively with HR heads. But clarification is needed around how it should work and where the boundaries and responsibilities lie as 87 percent of CFOs say the crossover between finance and HR is more significant than ever.

Deeper understanding of HR

HR has evolved from the back office into a strategic function over the past decade. Employee experience Forging a new relationship with human resources CFOs say they need to collaborate more effectively with HR leaders, especially on business performance metrics and common databases. CFOs and CHROs have a duty to work more effectively together. 80 percent said the crossover between finance and HR is more significant than ever. 87 percent is increasingly recognized as a factor in corporate success; it must be managed from a people perspective.

Now the CFO is responsible for financial accountability and the CHRO for people strategy. But these two are tightly interwoven because HR is a non-revenue generating cost center that needs to run efficiently. People practices are not always easy to measure tangibly or communicate on a balance sheet. It’s about understanding long-term strategy. So there must be a tight relationship to ensure the CFO understands HR investments and what the returns look like.

CFOs have recently deepened that understanding. For example, I have close conversations with our North America CFO about why investments in our benefits are worthwhile. They cannot be solely measured on mass usage. It’s also important to support the diverse needs of our employees so they feel included and that the organization sees their needs.

This conversation is about personalization and supporting individuality and the whole self. That type of support doesn’t cater to everyone, and it comes with a different price tag. These investments are highly strategic as they say a lot to employees about the type of company they work for.

Collaboration priorities

Finance leaders in our survey see some jobs as the responsibility of the CHRO or CEO. More than 87 percent of CFOs do not believe providing human explanations behind business data, talent acquisition strategy, or understanding of HR performance metrics are part of their role.

However, they say they could improve working with HR through more:

• collaboration on business performance metrics
• common databases
• involvement in strategies that boost employee satisfaction.

HR leaders are investing strongly in HR systems and that’s a huge conversation with finance to measure the functionality required, affordability, scope, and return on investment. We need a strong connection with the CFO because they have to understand that to see the value. There must be a tight relationship to ensure the CFO understands HR investments and what the returns look like.

CFOs’ understanding of HR performance metrics has also grown but must be enabled through data-driven conversations with the CFO. Common data plays a role. For example, it is important to measure usage and outcomes when it comes to benefits.

Does it help employees do their best work? How does that compare to industry trends and what we hear from employees directly? Common data across these conversations is helpful, but a challenge for many organizations. They are different data points and you have to figure out a way to marry them.

HR uses people metrics to establish value, while finance uses budgets and financial metrics. I may think it’s a clear-cut business case. However, using different metrics, they may come to a different view. So this collaboration needs to marry fiscal responsibility with enabling employees to optimize performance.

And when the business is transforming – for example, from on-premises to remote and cloud-based technologies – behaviors and metrics can change. Collaboration must be ongoing and iterative to ensure all parties understand how changing motivators drive performance.

CFOs and talent strategy

As labor markets have cooled slightly, talent shortages have dropped down CFO agendas – just 3 percent say they are a top three external challenge. But finance leaders still want to understand employee thinking, as 81 percent agree workers have more power to dictate corporate activities than ever.

Employee concerns highlighted by CFOs in our survey focus on pay, work-life balance, and benefits. There is also an emphasis on human rights, for example around ethical supply chains and modern slavery; this is a particular focus in the U.S. However, diversity is an issue almost everywhere.

Employees want to work for companies where they feel connected to the purpose and reputation. Brands need to reflect this to attract the best talent, and CFOs need to understand why this matters.

Diversity, equity and inclusion (DEI) are examples. If only 1 percent of employees have taken up a benefit, it may seem that you should not invest in it. However, it could still be a good choice if supporting diverse talent boosts your reputation as an employer.

Socially, we’re evolving so much at SAP and SAP Concur to reflect the communities we serve and operate in. How people feel about the decisions companies make has changed. So that decision could have a lasting impact on your organization’s culture.

Conversation about work-life balance has also evolved to talk about problems such as mental health and burnout, and how companies are supporting these issues. Setting culture is important; while the CFO is not always central to these conversations, they must agree with the necessary investments to support that culture. The CHRO therefore needs to bring them along in that strategy. The CFO must share this vision. A great example is the cost-benefits decision around how much physical office space to keep, given the moves towards remote working since the pandemic.

Megan Smith is Head of HR at SAP North America