The View From The CFO’s Office 1/5

On September 22, 2014, in HRExaminer, John Sumser, by John Sumser

photo of Manhattan skyline in HRExaminer.com article View from the CFO Office

“I am tired of being cast as the limiting factor by the HR Team,” says one Silicon Valley CFO.

This week, we’re going to paint a picture of how things  look from the CFO’s office.

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“I am tired of being cast as the limiting factor by the HR Team,” says one Silicon Valley CFO.

Here is an open letter to HR from the CFO on how Finance and HR can work more effectively.

Finance is how organizations quantify the future. We help make the future achievable by making it measurable. We use financial information to look long and hard at effectiveness. Our job is to help the company understand where it is and where it should be going.

On one level, the company’s job is to turn small piles of money into larger piles of money. Accounting is how you measure the money. Finance is how you make it grow. Financial analysis incorporates information from many sources in the company’s operations to understand and measure the company’s overall performance.

Our job in the CFO’s office is to render changing circumstances into useful decision making conversations. We work so that the company can understand its internal financial dynamics. We try to illuminate how the market affects the business model. We provide information for navigation and course correction.

When I communicate with HR, I am bombarded with data about cost and expense. It’s as if they imagine my team as a bunch of accountants who are only interested in cost avoidance and reduction.

In Finance, cost are a small part of our overall analysis. We pay attention to costs and ‘sharpen our pencils’ when the market is bad. Recessions, calamities, shifting competition, and changing supply chains will cause us to hunker down. We focus on the pennies and nickels when we are threatened. But managing the bottom line like that is a defensive strategy.”

When we are growing, changing, and adapting, the focus is on the top line. We’re interested in things that drive revenue. It would be really wonderful if HR could join us in that conversation.

Here are some ways we see things differently.

A. Level-Setting Compensation

The compensation conversation is a great place to start. Predictable financial performance depends on predictability in the labor market. It’s HR’s job to understand and control labor market dynamics. Usually, HR delivers a presentation that focuses on shortage of people and wage inflation.

Here’s what Finance would like to see instead.

Suppose HR’s presentation begins with changes in the compensation and supply aspects of the market. Instead of concluding that costs are rising, it would be amazing to get a presentation on alternative ways to get the work done in light of that conclusion. Compensation strategy is at the heart of the company’s business model. It makes all sorts of assumprtions about how work is performed and what’s important. Yet, the real conversation about understanding compensation in light of the work itself.

HR has a deep view of each of the company’s functions and how the people there fit together. So HR is in a unique position to give us information about:

  • what is the work;
  • where is the value;
  • is it the right price; and,
  • what are the alternatives.

“I’d love to be engaged in an ongoing conversation about optimizing our return on labor investments. It’s like getting a report on rising gasoline prices without any discussion of alternative energy sources.” We pay higher or lower wages based, in part, on other less tangible factors. Brand, reputation, desirability of the workplace, the health of the local economy and labor demand all exert quantifiable effects on compensation. Finance needs a comprehensive view of all of the trade-offs.”

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