To overcome finance and talent bottlenecks and win in the market, CEOs will increasingly rely on the HR and finance function strategic collaboration

EY LLC, Kyiv, Ukraine, 
Monday, July 14, 2014

KYIV, 10 July2014: Recent EYsurvey TheCFO & HR: Partnering for performance provides strong evidence thateffective collaboration between the Chief Financial Officer and the Chief HumanResources Officer (CFOs and CHROs) is linked to greater EBITDA growth and toimprovements on key HR metrics, including employee engagement and productivity.This study is based on a global survey of 550 CFOs and CHROs and a series ofin-depth interviews with CFOs, CHROs and EY professionals.

As companies around the world seekto grow, the two most likely obstacles they will face will be a scarcity offunding and a shortage of human capital. Over the past three years, externaland internal factors drove the CFO and the CHRO to collaborate more closely. Among the550 finance and HR leaders surveyed for this report, 80% say that theirrelationship has become more collaborative during the last year. The CFOs and the CHROs with globalresponsibilities, and those who are at companies with annual revenues overUS$10b, are particularly likely to report an increase in their level ofcollaboration.

Olga Gorbanovskaya, Partner, Head of the Human Capital practice inUkraine, comments: "Both the CFOsand the CHROs roles have risen within the corporate hierarchy. It has becomecommon for them to report directly to the CEO and to be peerson the management team. This has coincided with a broadening of both the CFOs’and the CHROs’ responsibilities to be more strategic and commercial, as well asmuch less siloed and narrowly focused on their own functions”.

The transformation of the HR andfinance operating models, through the establishment of shared service centresand centres of excellence, has accelerated this shift. In many businesses,finance and HR are at different stages of this journey. Organizations that havesuccessfully completed this transformation have taken the administrative burdenaway from the retained function, freeing up time for a more-strategic focus.

Kostiantyn Neviadomskyi, Partner, Head of Advisory services in Ukraine, comments: ““Shared service centres and centres of expertise need to merge togive companies more visibility over key information, including data points fromglobal payroll, pensions, total rewards and talent management systems. Havingglobal data oversight and knowledge is the next journey for companies to make,which will give HR and finance business partners the insight they need tobetter enable business success.”

EY research reveals four drivers ofCFOs and CHROs collaboration.

1. Talent scarcity and rising labourcosts

Companies everywhere arestruggling to identify, secure and develop top talent. In rapid-growth markets,where companies are focusing on driving volume growth and rapidly rising labourcosts, these challenges are particularly acute.

As the global economy recovers,unemployment falls and competitors increase their recruitment efforts, theseissues will become more evident in mature markets too. Wherever it occurs,talent scarcity and rising labour costs leads to costly rates of attrition.This can affect the viability of investments.

The combination of these trendsrequires companies to take a smarter approach to human capital cost management.Companies need a better understanding of the relationship between cost andperformance.

2. Elevation of HR within the corporatehierarchy

Because HR has traditionally beena support function, it is often far removed from the strategic decision-makingof the business. As HR rises in the corporate hierarchy, this is changing.

High-performing companies areachieving closer alignment between their corporate strategy and their humancapital strategy.

3. Changes in strategy and the creationof new products and services

The rapidly changing globalbusiness environment requires each company to adapt its strategy continually.They must also introduce new products and services to remain competitive. Themore rigorous and agile companies are in making these decisions, the greaterthe competitive advantage they will achieve.

By involving both the CFO and theCHRO in the strategic decision-making process, businesses can ensure that boththe financial and people impacts of decisions are addressed. This can result inbetter outcomes and can help businesses avoid pitfalls. A close relationshipbetween the CFO and the CHRO increases the company’s agility.

4. Changes in the business’s operatingmodel

Companies continue to transformkey business functions, including finance, HR and IT. As we explored in Delivering tomorrow’s companies today, the process ofseeking out greater efficiencies, standardization and scale in order to improveservice delivery and increase profitability is ongoing.

This is a complex issue: companiesmust weigh up the opposing forces of on shoring and off shoring, navigateincreasingly complex matrix structures and adapt their operating models tocapture new geographic growth opportunities.

Many companies have alreadyachieved efficiencies and increased productivity by moving productionfacilities to low cost locations, or outsourcing. The logical next step formany companies is to move toward a multifunctional, global business servicesmodel.

Transformation of this scale hassignificant finance and HR implications, and so requires close collaborationbetween finance and HR.

Common characteristics in the way the CFOs and the CHROs at high-performingcompanies collaborate, which set them apart from those at the other companiessurveyed:

1. Greater maturity in organizationalstructure and operating model

High-performing companies in our surveytypically demonstrate greater maturity in the transformation of their financeand HR functions. This means that both functions have integrated processes andhave widely adopted shared service centers.

Their governance models are also more mature.The CFO and the CHRO are likely to be peers in the top management team whoreport to the CEO. High-performing CFOs and CHROs also simply communicate more— they spend a significant amount of time in discussions, both formally, aspart of management meetings, and informally, through one-on-one conversations.

• High performers spend more time on collaboration
• High performers have a peer relationship

2. Greater involvement in strategicplanning and decision-making

The finance and the HR leaders athigh-performing companies play a bigger role in strategic planning anddecision-making than those at other companies. They use factual commercialinformation and analysis to help shape strategy, rather than just reacting toit, and work together to identify solutions to business problems.

The CFOs at these companies also get moreheavily involved in strategic workforce planning, helping to explore potentialscenarios and forecast the impact of broader trends on the workforce andproductivity.

• High-performers have more upstream involvement in shaping strategy
• High-performers use their relationship to adopt a more forward-looking approach based around identifying opportunities and solutions to get the most out of people and capital

3. Wider adoption and greater use ofanalytics

Analytics provides a powerful platform forcollaboration between finance and HR. When data is consistent and mature acrossboth functions, finance and HR leaders have the opportunity to make decisionsfrom a more informed standpoint.

This helps them to identify opportunities andrisks and to truly understand the drivers of performance in the business. Inparticular, a focus on predictive analytics can be a particularly powerfuldifferentiator, as most companies only focus on lagging indicators, likeemployee turnover.

By looking ahead to assess how changes to thebusiness will impact new skill requirements, and assessing the availability ofthose skills in the market, companies are better able to plan ahead anddetermine the viability of key investment decisions, and any potential humancapital bottlenecks that need to be overcome.

This forecasting process – often undertaken overseveral years – forms a greater alignment and synergy between finance and HR.

• High-performers use analytics to understand the workforce better
• High-performers take a data-led approach to decision-making

4. More rigorous HR measurement

A platform of data and analytics across HR andfinance enables a much more sophisticated approach to choosing and monitoringkey HR and performance metrics. This means that companies can move beyond anarrow selection of metrics to one that encompasses those that really matter totheir business.

High-performing companies recognize this andhave adopted a more sophisticated approach to choosing metrics, which allowsthem to base their actions on the continuous monitoring of performance.

• High-performers measure better and measure what matters
• High-performers use broad metrics to track the organization’s health, not just the finances

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