Enhancing Business Outcomes: The CHRO & CFO Alliance
In today’s business landscape, the performance of HR and finance is more interconnected than ever. Therefore, it is essential for the Chief Human Resources Officer (CHRO) and the Chief Financial Officer (CFO) to prioritize building a strategic and mutually beneficial alliance.
The CHRO and CFO have become crucial partners at the core of every successful organization. Companies face the challenges of attracting and retaining talent, enhancing business value, and managing budgets. This partnership is not just beneficial—it’s a competitive advantage.
Whether it involves aligning talent investments with business objectives or navigating economic uncertainties, building a strong working relationship between Human Resources and Finance leaders is increasingly important.
3 Reasons the CHRO-CFO Partnership is Critical
Traditionally, the roles of the CHRO and CFO operated in silos, with finance focusing on costs and HR concentrating on people. As the influence of the CHRO has increased within the C-suite, the importance of their partnership has grown.
The CEO/CHRO/CFO Triad: A Strategic ‘Three-legged Stool’
More and more, CEOs are turning to the combined insights of their CHRO and CFO to shape organizational strategy. These two roles are among the executive team members most likely to maintain a broad perspective across the enterprise. While functions like marketing, IT, and legal often operate in isolation, HR and finance leaders manage people and budget processes that necessitate collaboration and cross-functional insights.
“I’ve had many CEOs tell me that their ‘three-legged stool’ of leadership consists of themselves, their CHRO, and CFO,” Tom Wilson, Partner and Technology/Digital Practice Leader. “It’s a good complementary team because you don’t want the organization to over-focus on either the finance or talent aspects of the business.”
This leadership triad enables businesses to align workforce planning with financial strategy, creating a more agile organization that can effectively respond to internal and external challenges.
CHRO Influence on the Rise
Chief Human Resources Officers have gained significant influence over organizational strategy, a trend that has been accelerated by the pandemic. According to LinkedIn, the CHRO role is one of the fastest-growing positions in the C-suite. Fortune reports that 13% of HR executives at S&P 1500. companies were among the top five highest-paid C-suite positions in 2022 (up from 0.5% in 1992).
A PwC survey reveals that 60% of CEOs consider their CHRO to be a crucial strategic partner in decision-making, second only to the CFO. This increasing alignment highlights a growing recognition that effective talent management goes beyond just managing people; it plays a vital role in ensuring the company’s future competitiveness and sustainability.
Talent as a Strategic Priority
Talent is usually a company’s largest investment, with workforce costs accounting for the biggest overall expense, comprising 70% of total expenditures. These costs include not only salaries and benefits but also expenses related to recruitment, training, and employee retention. Given these figures, it’s essential to manage people-related expenses as strategically as other business investments.
When the CHRO and CFO work together, they can effectively manage the organization’s most significant asset while also controlling its largest expense.
HR and Finance Leaders are Linked by Key Processes
The chance for HR and finance to collaborate starts with key organizational processes that intersect their areas of responsibility.
Strategic Hiring and Workforce Management
Hiring a CHRO often requires significant input from the CFO, particularly when planning for future workforce needs. Beth Ann Namey, a Partner, explains that “The CFO is often involved at some point in the CHRO recruiting process, occasionally from the very beginning.” This involvement is especially important when hiring a CHRO for a public company, as “the CFO typically seeks a strategic business partner, rather than someone who merely administers the HR systems, processes, and records.”
Once the CHRO is in place, effective strategic workforce management necessitates collaboration between the HR and finance departments. This collaboration is essential to align the organization’s talent requirements with its financial capabilities. A strong partnership between HR and finance is crucial for the budgeting process, forecasting skill needs, and managing operational processes.
Payroll and Compensation
Payroll is an area that requires close collaboration between finance and HR. Although payroll often falls under the finance department in many organizations, HR plays a crucial role in providing the data needed for compensation models. Aligning these two functions is essential for the company to stay competitive in attracting and retaining talent while avoiding budget overruns.
Success Story: A CHRO and CFO Join Forces in a Fast-Growth Startup
We found a compelling example of a partnership between a Chief Human Resources Officer and a Chief Financial Officer in our work with a fast-growing startup. In this case, the CFO and the HR leader, both tech-savvy, collaborated to create a workforce planning process that closely aligned with the company’s financial forecasting. Since the company is data-driven, it’s essential for them to anticipate future talent needs in advance to remain competitive in their industry.
This collaboration resulted in a workforce planning system that not only supports the company’s rapid growth goals but also adheres to the financial parameters established by leadership. As a result, the company has been able to maintain a competitive edge in talent acquisition, successfully recruiting top tech talent and leaders while managing costs effectively. This approach has provided clarity within the organization regarding where to add or relocate talent, thus avoiding costly hiring campaigns that do not align with the company’s overall objectives.
Risks When There’s a Gap in HR-Finance Leader Alignment
When the CFO and CHRO aren’t on the same page, the organization can face significant operational challenges.
- No alignment: A company experienced challenges due to separate budgeting and hiring processes. Without proper alignment, financial resources were allocated without considering essential talent needs. As a result, the firm faced unfilled positions and operational inefficiencies.
- Over-emphasis on operations: In another company, operations were prioritized over people, leading to several issues. This approach resulted in high employee turnover and uncompetitive salaries. When talent is considered less important than other business priorities, a company may face high attrition rates, low morale, and challenges in attracting top talent.
Why Do the CHRO and CFO Need Each Other?
Human capital costs usually represent a company’s largest expense, making the CHRO-CFO partnership essential for managing this significant investment.
When financial and talent strategies are not aligned, companies miss out on opportunities for growth, cost savings, and enhanced productivity. For instance, entering new markets requires not only financial resources but also the right talent to achieve success. Without a strategic workforce plan developed through collaboration across functions, individual business units may waste resources on recruiting, hiring, and firing employees, all while failing to align their efforts with the company’s long-term goals.
Today, the best CHROs are as HR performance- and business-minded as they are people-focused.
Similarly, CFOs must aim to develop a deeper understanding of how investments in talent can impact the bottom line.
Summing It Up: 3 Key Steps for a CHRO and CFO Partnership
1. Understand Each Other’s Role
The CHRO needs to have a strong understanding of financial metrics and how they connect to the company’s overall business strategy. With the increasing reliance on artificial intelligence in human resources, as well as HR technology and analytics, HR leaders must adopt a more data-driven approach. This expertise will enhance their collaboration with the CFO.
Similarly, the CFO should recognize how investing in talent can lead to long-term financial success. Their career advancement will be more significant if they focus not only on numbers but also gain insights into the human aspects of the business.
2. Lean Into Workforce Planning
Workforce planning should be a strategic, iterative process where HR and finance constantly collaborate to prepare for growth and contraction. This requires long-term thinking and decision-making backed by data.
If HR and finance are well-synced in planning, the organization is prepared for growth, or if necessary for cutting back; changes are anticipated.
3. During Growth Phases, Put Critical Priority on Alignment
In fast-growing companies, such as startups, alignment between HR and finance becomes even more critical.
For example, in one financial technology company, the Head of Total Rewards reports directly to the CFO while also having a dotted-line relationship with the CHRO. This structure recognizes that managing labor costs—an important factor in the company’s expansion plans—is done strategically.
Conclusion
The Chief Human Resources Officer and Chief Financial Officer can benefit significantly from forming a strategic partnership that aligns their HR and finance strategies. This collaboration has become essential for driving long-term success.
If your organization is looking for a CHRO or CFO, our executive search experts can assist you in identifying and recruiting a leader who not only understands these dynamics but also meets your company’s unique needs. A well-matched CHRO-CFO team can effectively manage both human and financial capital, propelling your business forward.