A guide to HR analytics
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Most finance and HR managers have seen the ad from Workday depicting a cartoon man and an anthropomorphic dollar bill riding a tandem bike together. While the business world isn't exactly analogous to a bike ride, the ad from the cloud-based human capital and financial management software vendor does prompt questions. Do finance and HR really go hand in hand? And if so, should business leaders from one area approach technology purchases with the other in mind?
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According to Yvette Cameron, integration between finance and HR systems ranks fairly low on the priorities list for today's HR buyers, especially in the United States. But it's not the same on the other side of the equation.
Especially on a global scale, "I am seeing the beginnings of a trend where the chief financial officer is taking a greater interest in the human capital management [HCM] suite of applications," said Cameron, research director for HCM technologies at Stamford, Conn.-based research firm Gartner. "We are seeing a greater uptake of conversation about HR and finance together, but the majority are not driven by the HR buyer."
But maybe they should start bringing it up. In addition to data-quality and analysis benefits, Cameron said such a shift in thinking might be critical to the continued relevance of the HR profession.
Unified platform for HR and finance aids analytics
Although the healthcare staffing and outsourcing company Schumacher Group had been a Workday HCM customer since 2010, the vendor wasn't the default option when the organization began looking for a new financial management system. According to chief information officer Douglas Menefee, the members of the finance department at the Lafayette, La.-based organization knew they wanted to implement a cloud product from the start. With this in mind, they evaluated several cloud players such as Oracle Fusion, Lawson, Microsoft, Workday and Oracle PeopleSoft, the organization's existing platform.
The finance team ultimately chose Workday, due in part to the organization's already strong relationship with the vendor and differentiating features such as work tags, detailed reporting, open application programming interfaces (APIs) and ease of use. But integration was also a key consideration. "We had a confidence level there, but a second reason was the connection and the synergy between human capital and finances. They said, 'We can't be on two separate systems anymore,'" Menefee said.
Since Financials went live in January 2013, the data accessibility and analysis benefits of running the same system for HCM and financial management are clear, Menefee said. For one, it's much easier to correlate human capital and financial information. "Head count tied to salaries tied to cost centers -- it has been absolutely monumental for us," he said. He also said the unified platform boosts data quality, especially as it pertains to employee information.
Cameron pointed out that taking a unified approach to HCM and financials opens the door for more meaningful HR analytics. "The challenge with today's HCM analytics is that they're very myopic in their view. We're looking at turnover percentage of high performers [or] the percentage of performance reviews that were at the high versus the low end, but we're not correlating these measures to business results," she said. "At the end of the day, are account management initiatives improving earnings per share? What's the revenue per employee?
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"When you have HR and finance on the same platform, you're tying those financial metrics -- the data of the organization from the corporate performance -- with talent performance and workforce data," she continued. "You're able to communicate the return on investment of your talent initiatives in business terms as opposed to just workforce terms."
Menefee noted that the way Workday Financials and HCM work together is different from the way other integrated systems function, since it operates on a unified code stack. "It's not like traditional models, [where] I've got module A and module B, and I have to have some type of middleware connection. Out of the box, it's already integrated," he said.
But the integration still leaves wiggle room for HR and finance to work independently without hindering each other. "Workday forces a conversation of where that overlap [should] occur to have alignment and consistency, but then it still gives the flexibility for [each] domain to do some things that would not have a negative impact downstream," Menefee said.
Besides the opportunity to understand the business better through more meaningful analytics, Cameron raised the point that integration between HR and financial management systems also serves risk management in the wake of the Affordable Care Act (ACA).
"While worker classification and benefits eligibility and costs are managed through HR systems, the actual payment of penalties and communications to health exchanges will need to be managed through the financial systems, she said. "Having these two systems on the same platform, with uniform data shared across both applications and easily reported upon will make compliance with legislation like ACA significantly easier than if they were managed [on] two disparate systems."
HR must understand financial measures to stay relevant
But what about the potential downsides of such an approach? Menefee acknowledged that there was apprehension at Schumacher about the risk of putting too many eggs in Workday's basket. "There were concerns from a business continuity perspective in the event that Workday's data center [goes down] or they experience outages," he said. And while an outage did in fact occur in 2012, Menefee said he appreciated the vendor's transparent communication during the downtime. Service was quickly restored.
Despite the minor hiccup, Menefee affirmed that the company's experience with Workday has been positive and that the ability to correlate HCM and financial data has been particularly advantageous. "It truly brings a 360-degree view of the organization."
And according to Cameron, this broader view is one that today's HR managers must adopt to stay relevant. While HR has done well automating its processes through technology, she said it's now time to focus on the function's broader impact on the organization as a whole, which requires a better understanding of the business and its financial metrics.
"HR has to be proactive in reaching out to business [and] finance leaders [to] understand the measures that are used, and define the measures that demonstrate people's impact on the business by working with finance," she said. She added that finance leaders at many organizations are extending a hand to their HR colleagues by offering coaching and guidance.
But if HR managers don't accept this outstretched hand, they might find themselves out of the loop. "If HR doesn't speak the language of the business, it will be [sidelined], and the data scientist roles [and] strategic analytics investments will move out of HR into finance -- if they've haven't already," she said. "So it's not just for the betterment of the business, but for the longevity of the HR role itself that that relationship has to be brought together and understood."
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