HR: Why Increase Your Financial Intelligence?
Posted by Mark Bennett on October 21, 2009
When in Rome…
si fueris Romae, Romano vivitomore; si fueris alibi, vivito sicut ibi*
My last post asked: how can the perception of HR’s function as being primarily about governance and compliance oversight be dealt with, in order to allow and encourage its role in maximizing the strategic impact of talent?
A key first step is to learn “the language of business” i.e. Finance. Why? Here’s a list from a book** I recommended a while back, outlining the benefits of financial literacy to HR:
- Move HR from a Tactical to a Strategic Organization – be trusted with organization and talent development investment decisions.
- Evaluate Your Company Critically – spot trends or problems and understand more of the stories behind the numbers.
- Understand the Business – knowing how your company makes money is key to your HR strategy.
- Understand the Bias in the Numbers – have the power to challenge, when called for, the assumptions made by the finance and accounting departments.
- Form Relationships with Finance – help to align more the efforts of finance and HR for their mutual benefit.
- Use Numbers and Financial Tools to Make and Analyze Decisions – improve your ability to make better investment choices regarding projects and programs.
It turns out that Trish McFarlane at HRRingleader is addressing this same step in an “HR 101” series on the Creative Chaos Consultant blog, devoted to what an HR professional really needs to know to be successful. There’s also a great article, “Do HR Managers Have the Skills They Need?” by the same authors of the book, which covers exactly the discussion Beth Carvin and I were having here. Namely, it isn’t all on HR’s head or senior management’s head to enable HR to have a positive impact on strategic use of talent, but a shared responsibility. Here are the factors they listed at the root of the problem:
- Avoidance – HR folks not “dealing with it” and learning about the numbers (as Josh Bersin and Naomi Bloom said at last month’s HR Technology 2009 Conference(r) Talent Management analyst panel and Naomi’s closing keynote).
- Perception – Even when HR professionals do know the numbers, the business side still retains the outdated notion that they don’t.
- Assumptions – Exhibited when companies don’t encourage their employees to be on the earnings call, for instance, because “it’s too complicated” and “they wouldn’t understand.”
- Trust – A common theme repeated in this blog. In this case, not sharing financial data with employees because you don’t trust them results in people having nothing real to learn from or apply their learning to. Maybe that was the intended effect.
Note that some of the last two issues are not limited to HR, but can be universally applied to all company managers and employees. In fact, there is another article, “The Dismal Financial IQ of US Managers” that covers this pervasive problem and its consequences in more detail. Even though the authors have a vested interest in pointing out these problems (they have a couple of books and a consultancy that address them), the impact is unmistakable.
*”If you are in Rome, live in the Roman way, if you are elsewhere, live as they do there”
– attributed to St. Ambrose (from Wiktionary)
**Financial Intelligence for HR Professionals: What You Really Need to Know About the Numbers by Karen Berman, Joe Knight, and John Case. Despite the drab title, this book is actually quite fun to read (really!) and does not take very long to read (a few hours.) It’s written in a friendly style that comes right out and tells the HR reader which things matter, how they matter, and which things really aren’t as crucial to know so you don’t get distracted by them. Each section is loaded with examples from recent history (especially scandals) linking HR areas of responsibility to financial problems for companies.
Photo by pdbreen