The human resource: From cost to asset
To less-enlightened CFOs, human capital is viewed as a cost to be managed. Even after many advances in productivity, average human capital costs are, admittedly, still a major operational expense. But in the modern global economy, where ideas and digital skills – rather than physical resources – are increasingly where economic value is realized, people can be a company’s greatest asset. When Apple overtook Exxon in 2011 to become the world’s most valuable company, it was a watermark in post-industrial capitalism. A consumer products company, whose technologies were not a fundamental need for anyone, had become more valuable than a corporation pumping the fuel on which the global economy depends. Later, multibillion dollar valuations and acquisitions of the likes of LinkedIn and WhatsApp further demonstrated the commercial value of ideas that, in turn, underscores the importance of people: successfully incentivizing the smartest workers, and ensuring they stay. Far from seeing staff as a cost, CFOs must view them as a growth engine.
Since human capital is now central to the creation of value in the modern organization, that in turn makes it relevant to profitability and shareholder value. CFOs thus need to see a company’s workforce as an engine of innovation, rather than a cost to be managed.
Since the 1970s, the role of the CFO steadily expanded as companies became more complex. Forty years of globalization transformed the CFO function from accounting to management to high-level strategy, deal-making and even public relations. In a survey by Robert Half Management Resources, 85% of CFOs said their roles have expanded outside of traditional accounting and finance in the three years prior to the study. Human resources topped the list of new skills, followed by IT, operations, and marketing and sales. Indeed, when looking for CFOs the executive search firm Spencer Stuart notes their ability to collaborate across all segments of the business. “In this increasingly global workforce and business, we’re finding that HR partnership is critical,” says Karen Quint, a consultant in the financial officer practice at Spencer Stuart.
According to EY, a global management consultancy, there are four drivers of greater collaboration: talent scarcity and rising labor costs; elevation of HR within the corporate hierarchy; changes in strategy and the creation of new products and services; and changes to operating models in pursuit of greater efficiencies, standardization and scale.
Towers Perrin, a management consultancy, also found that a strong relationship between the CFO and the CHRO is linked with superior performance. When relationships were collaborative over the prior three years, companies “report average higher EBITDA growth and stronger improvement across a range of human capital metrics, including employee engagement and productivity”. CFOs who fail to recognize the importance of talent to success, by contrast, will put their organization at a disadvantage. If their company cannot attract the smartest people in the field due to inadequate investments, their rivals will. And companies that cannot keep their employees lose valuable experience and waste resources in retraining replacements.