How to Fully Fund Your HR Program: Align to the CFO

I can’t think of two more mismatched executives than the CFO and VP of HR. The former constantly looks for ways to reign in costs and mitigate risk while most HR professionals are passionate about corporate culture. It’s left brain – right brain.

Of course this is an exaggeration of a stereotype, but in general there have been historic business disconnects between the CFO’s office and HR. Fortunately, that has been changing over the past few years, as HR departments increasingly focus on how their decisions affect the business’s bottom line. In short, HR has been aligning more to the CFO and gaining respect in the organization as a result.

Talent management, in particular, is an area ripe for even greater CFO-HR cooperation with the ability to boost productivity, reduce HR expenses and even increase revenue. In a recent report, we found that organizations can boost productivity by as much as 8.5 percent with the right talent management applications. That’s a number most CFO’s can get behind to justify spending for HR technology.

But to truly gain the full benefits of talent management, HR will have to go beyond impressive statistics to help CFOs understand the full value of the programs they are proposing. This requires a closer look at the benefits and how they add up. To provide that level of financial detail that CFOs demand, HR will have to quantify benefits based on four orders:

First-Order Benefits                                                                                            These are the most straightforward to prove and most likely to persuade a CFO to sign off on a purchase order. An application that will streamline payroll and benefits administration, for example, can reduce staff dedicated to these tasks and boost productivity. You can even calculate the hours saved, staff reduction number and overall budget decrease.

A good example of a first-order benefit for talent management would be addition of talent sourcing technology that can discover good candidates for open positions, allowing the HR team to reduce the number of employees focused on recruitment. Further, it allows HR to focus on other core competencies for further productivity, but that’s a third-order benefit.

Second-Order Benefits                                                                                     These are basically first-order benefits with a presumed outcome as opposed to an exact known result. You can tell a second-order benefit by the qualifying or hedging word used to describe them. “We believe we can cut spending on job postings,” or “we expect to reduce the error rate for payroll, thus saving time and cutting costs,” for example.

While these are less compelling to a CFO than first-order benefits, they can still be powerful. Imagine asking for trigger-point learning that can route an appropriate learning recommendation to the right salesperson at just the right time to help close a deal. Just one large contract could significantly boost revenue. That should still hold the CFO’s attention.

Third-Order Benefits                                                                                            These are productivity gains that look promising, but are hard to accurately measure. To be meaningful to a CFO, HR needs to discuss the inexact correlation between time saved and productivity gained. Not all employees will devote 100 percent of time saved on another valuable function. HR and the CFO should agree on a realistic percentage to calculate a hard number for time and cost savings for a third-order benefit.

Fourth-Order Benefit                                                                                            These are the ‘feel-good,’ ‘nice-to-have benefits’ that so many people think of when they hear HR. That’s not to say they aren’t important, but they are especially hard to sell to an astute CFO. They are difficult to measure and often based on assumptions.

Imagine a situation where a company is having difficulty in retaining key talent, which can be very costly. At that point a CFO might consider fourth-order benefits. But then again, in such a situation a fourth-order benefit might become a first-order with a more linear ROI for workplace programs to keep and attract productive employees.

With an understanding of the four orders of benefits, HR can build a stronger case for the CFO and increase their chances for cooperation. In today’s metrics-driven world, they need to prove value to get full funding and run the programs they know will be good for employees, management and the overall business bottom line.

Learn more about the four orders of benefits and how to speak the CFO’s language at https://nucleusr.wpengine.com/research/single/showing-value-talent-management/