[SINGAPORE] A close and collaborative relationship between a company's chief financial officer (CFO) and its chief human resource officer (CHRO) will make for a more profitable business and a better performance all round, says EY's latest study.
Its global survey of 550 finance and HR leaders found that companies, where the relationship between these two sets of executives has become more collaborative over the past three years, report higher earnings before interest, tax, depreciation and amortisation (Ebitda) growth. They also report stronger improvement across a range of human capital issues, including employee engagement and productivity.
The survey report, "Partnering for performance", found that 41 per cent of these companies - labelled by EY as "high-performing companies" - experienced Ebitda growth of more than 10 per cent; this, compared to only 14 per cent of non-high performers reporting such growth.
In addition to faster Ebitda growth, 44 per cent of the high-performers also reported a significant improvement in employee engagement, compared to just 9 per cent of the others. A similar proportion also saw a marked increase in workforce productivity, compared to 10 per cent of the others.
Grahame Wright, human capital partner for EY in Asean, comments: "In the past, the only interaction between many HROs and CFOs was at budget time, but we increasingly find that an ongoing dialogue between these two organisations brings positive results to the business. This will be an important distinction in Singapore as we seek out substantive productivity improvements across many businesses."
The closer collaboration at these high-performing companies is characterised by them spending 50 per cent more time on the CFO-CHRO relationship, and having better integration between finance and HR - across processes, teams, technologies and systems.
At high-performing companies, the CFO also makes a bigger contribution to strategic workforce planning, and there is greater collaboration between finance and HR on this activity. These companies also use analytics to understand the workforce better.
EY also found that there were four factors driving a closer relationship between CFOs and CHROs over the past three years.
Firstly, it noted, talent is scarce and labour costs are rising. This has led to costly rates of attrition that can threaten the viability of strategic investments, making it imperative that companies take a smarter approach to human capital cost management.
Secondly, the HR function has risen in importance within the organisation, and companies recognise the need for closer alignment between their corporate strategy and human capital strategy.
Thirdly, EY says, 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.
And, lastly, firms are constantly working to achieve greater efficiencies, standardisation and scale, in order to improve service delivery and increase profitability, while also balancing the opposing forces of onshoring and offshoring and adapting current models to capture new geographic growth opportunities. To accomplish this, EY says, they will need to move towards a multifunctional global business services model - and a transformation on this scale has significant finance and HR implications.
Rich Polster, HR vice-president of global business services at Procter & Gamble, told EY: "It is fundamental that the finance head and the HR head are in lockstep with the line business head. The relationship between the three should be symbiotic. When we have a strategy, as a business, it has both human capital and financial implications that must be in sync. When they're not in sync, we make bad decisions and we confuse people."