By Liam Butler, VP Sales EMEA at SumTotal
Against a backdrop of spending squeezes, technical innovation and massive changes in organisational cultures and employee expectations, it is increasingly falling to the Chief Financial Officer (CFO) to strike the perfect balance between people and investment.
The role of the CFO has changed dramatically in recent years. Now, in addition to financial reporting, CFOs are also responsible for performance acceleration, driving analysis and providing the perspective and insights needed to link corporate strategy to execution.
CFOs must demonstrate a deep understanding of how organisations invest their resources to achieve business goals and improve organisational capabilities. Given that human capital represents a company's biggest investment, increasingly CFOs are finding themselves having to not only quantify what's being spent on training, development and talent management, but also assess how learning and development (L&D) initiatives translate into value for the enterprise.
HR and Finance: working together
Many organisations are now drawing on the strong financial modelling and analytical skills of the CFO for talent management and acquisition. CFOs are often able to use these skills to help the organisation drive a more effective HR strategy.
In a recent EY CFO report, 80 per cent of finance and HR professionals surveyed said their relationship is becoming more collaborative. The report goes on to suggest that more engagement from the CFO in HR matters leads to increased corporate and HR performance, higher growth and improvements in employee engagement and productivity.
The vast majority of CFOs view human capital as a key value driver and central factor in their company's ability to achieve outcomes that drive shareholder value. In the UK alone, businesses currently invest over £40 billion a year on formal training, and that's without taking into account the additional time and resources UK firms will commit to addressing the skills challenges that lay ahead, such as Brexit.
With Brexit on the horizon, harnessing the CFO skill set for HR strategy is taking on a new importance.Almost half of CFOs surveyed in the CFO Survey: 2017 Q2 predict hiring will decrease over the next 12 months. Sound, informed decisions on budget priorities and allocation for maximum L&D ROI will be crucial.
In addition to political uncertainty, changing workforce trends are also driving organisations to redesign themselves. The gap in digital and highly skilled sectors (70% of organisations cite 'capability gaps' as one of their top five challenges according to a SumTotal whitepaper), flatter work hierarchies and the management of Millennials mean businesses are moving from traditional, functional structures to focus more on interconnected, flexible teams built around specific projects. Millennials are taking on more responsibility in the workplace and organisations need to address their expectations.This includes providing the accelerated development opportunities that more than two-thirds of Millennials say an employer will need to have in place in order for them to stay –all the while ensuring that funds directed to them are well placed.
More activity in HR
More than two thirds of CFOs now take an active role in recruitment and talent management. For example, some finance departments are now closely monitoring the acquisition of key hires, their performance after three months and the return on investment each hire has contributed to the business. Finance is also working closely with HR to better understand where cost can be saved through reducing employee churn. Often, promoting talent from within is a good way to reduce employee churn and can often be more beneficial to the company than hiring someone new. This is particularly true for strategic, high level jobs.
By hiring from within, employee retention is improved, which leads to greater workforce stability and productivity – and an enhanced talent pipeline. Plus, a step-up in retention rates generates expense reductions in other areas – like the recruitment and induction cost associated with buying in talent and skills.
Quantification – a job for the CFO
According to the Chartered Institute of Personnel and Development, poor quality people management costs UK businesses £84 billion a year in workforce disengagement, performance and productivity.Calculating the true cost of talent management is not as straightforward as simply monitoring L&D spend against budget.
CFOs are aware that a company's largest expense is often its people. Therefore, the performance of the workforce is critical for operations and results. Now, more than ever, understanding and maximising training ROI is a focus for CFOs.
As finance's role in HR evolves, it will need to take into consideration the hidden expenditure related to training. The cost of learning expenditure per-head can at least double –if not quadruple – once all associated indirect costs are factored in. These indirect, variable costs include loss of productivity when employees undertake training and wasted training investments – for example, when employees fail to attend a scheduled training event on the day due to illness or workplace demands.
The key to effective L&D is for finance to work closely with training partners and HR to develop appropriate metrics to monitor and measure the efficacy of learning and development programmes. Going beyond merely tracking costs, the CFO can understand when to further invest or withdraw budget. It is up to HR departments to capitalise on this wealth of knowledge to make the most beneficial decisions for the company and the workforce.