The ONE quality that all the superstars in HR have…

What’s that one quality?

Simply put, it’s…

Financial Intelligence.

Surprised?

Don’t be.

Let me explain.

Many HR folks complain about how tough it is to be taken seriously and win a seat at the leadership table where the big boys and girls sit.

The superstars in HR don’t.

A lot of HR professionals are further discouraged by popular articles like “Why We Hate HR” (Fast Company) and “Memo to CFOs: Don’t Trust HR”  (CFO Magazine) that rake HR across the coals as a totally worthless function.

The superstars in HR read these articles, throw them in the trash and just laugh out loud.

HR superstars don’t worry about any of this stuff.

Why?  Because they feel that if you’re in HR and you don’t know your numbers and don’t know your business well enough to participate actively at the table, then you don’t deserve a seat there and the disparaging stuff that’s being written and said about HR is warranted and applies to you.  (Hey, that sounds kinda arrogant, but I don’t believe they intend it to be.)

On the other hand, they’ll say…

It’s Easy To Impress Your Business Leaders As An HR Professional…
When You’ve Impressed Them With Your Knowledge Of Their Business First”!

If this sounds familiar, it should be.  It’s item #1 on my list of “50 Things I’ve Learned in HR.” Here’s why this is true.

Superstars in HR demonstrate a high degree of influence and personal persuasion with their business leaders.  And they achieve this by building their financial knowledge steadily so they can be viewed as equal partners with them.

Here’s a quick test to clarify what I mean.

Let’s say, you’re an HR manager in the Gatorade business at Pepsi, and your Gatorade general manager was out sick.  Could you step in and give his 30 minute monthly financial update to the leadership team?  Could you describe the current challenges facing the business?  Or talk with confidence about how Gatorade is made, where it’s made, how it makes money, and how the product has been positioned to attract consumers in the marketplace?  And could you describe how the P&L impact of the HR programs and initiatives you’re accountable for?

Tough standard?  Yes.

Impossible? Definitely not.

At Pepsi, we called this skill “knowing the business cold” and all of our very best HR people – the ones that were true partners with their business leaders — had this skill in spades.  And you’d be amazed that how much credibility they had, how much they were valued and how much they were and are able to influence the performance their business.

So, if you really want to become an effective HR advocate, leader, and business partner… and want to position yourself for position of greater responsibility, be taken seriously and advance your HR career…it’s simple.  You must improve your financial acumen and knowledge of the numbers.

In the old days, HR professionals could focus only on the people side of the business and get by.  It was HR’s job to ensure that hiring and firing were done properly, that labor laws were followed, that employee benefits were properly managed, and so on.   The better ones could stand out by throwing around a few HR-specific financial metrics, such as the cost of turnover.

But when the financial discussions occurred in business meetings — as they do 80% of the time — that was the cue for HR to shut up, check their smartphone messages under the table or leave the room.  Some HR professionals still don’t think or talk much about the broader financial side of their organizations.

Unfortunately, when this happens, business leadership teams lose out on the HR perspective. But it also hurts HR people themselves. Why? The fact is, business will always be a game of numbers, and the real players are the people who understand what the numbers mean.

So, if you want to be seen as an integral part of the success of your company, if you want your department to be seated at the strategic table, if you want to be a true business partner to the operational unit you are supporting, then you need to be financially savvy.

The best companies have begun expecting HR people to understand the business and to take part in business-related discussions and decisions.  And, the superstars in HR recognize this.  They’ve begun transforming themselves into business folks and number jockeys that can hold their own with just about any business leader on their team, just like the Gatorade HR manager in the above example.

They speak the language, ask questions, and use financial information to add their voice…a strong voice…to business decisions, not just HR decisions.

However, financial intelligence is not innate.  It can be learned.  And here four things that let you know that you have it:

1.  The finance basics don’t frighten you.

HR leaders who are financially intelligent can read an income statement. balance sheet, and a cash flow statement.  They understand how their company makes money.  They know the difference between profit and cash. They understand why the balance sheet balances.   The numbers neither scare nor mystify them.

Once you can read the cash flow statement, you can simply take it the way it comes and inspect it for what it tells you about your company’s cash situation.  Then you can figure out how you affect it as an HR professional and you can help improve he business unit you support with your HR expertise.

For example, HR affects many line items on the P&L including travel, training, and office supplies.  However, the fact that HR’s direct line of sight is to expense items doesn’t mean that HR should always be focused on expense reduction.  The investment in doing more training might bring more value to the company than just cutting back training expenses.

2.  You can talk the talk.

Finance is the language of business. Whether it is comfortable for you or not, the one thing every organization has in common is numbers and how those numbers are tabulated, analyzed and reported.  In HR you need to talk the language to be taken seriously and to communicate effectively.

As with any new language, you can’t speak fluently at first, but you gain confidence as you go.

For example, in most manufacturing-based organizations financial ratios such as days sales outstanding (DSO) is a key measure of the company’s efficiency in collecting receivables. The faster receivables are collected, the better a company’s cash position.  As an HR professional, knowing this enables you to go to your finance leader and say, “Hey, I notice our DSO has been heading in the wrong direction over the past few months—how can I help turn that around?”

You may think that questions like these aren’t in HR’s purview. But if you really want to elevate your status as an HR professional, you must be taken seriously a business  person.  And doing that requires that you treat finance as your second language, not a foreign language.

3.  You can tell what’s real and what’s B.S.

HR superstars recognize that finance and accounting are an art as well as a science. They recognize that their finance counterparts must try to quantify what can’t always be quantified.  It’s not always black and white, there is often bias that is built into the numbers.  And just like HR does with people, often finance must do with numbers and so they must rely on rules, estimates, and assumptions.

Financially savvy HR managers can identify where the “artful” aspects of finance have been applied to the numbers, where the “soft spots” (or BS) are in the numbers, and they know how applying the numbers differently might lead to different conclusions.    They are thus prepared, when appropriate, to question, push back and challenge the numbers like any other member of the business team.

For example, consider a plant manager charged with delivering a gross profit of $1 million per month. This month she is $20,000 short. Then she realizes that $25,000 of her COGS (cost of goods sold) is in a line item labeled “contract administration on plant orders.”  Does that really belong in COGS?  She lobbies the controller to move those costs to operating expenses and the controller agrees — so the change is made and the plant manager hits her target, and everyone is happy.  An outsider might even look at what’s happening and think that gross margins are improving—all from a change the plant manager made because she was trying to hit a target. Since you provide HR support to this business and take part in regular manufacturing meetings, it is important for you to know exactly what happened and why.   This can influence how you establish your own budget for the HR department.

4.  You walk the talk.

Once you have the foundation and an appreciation for the art of finance, you can use the information to analyze the numbers in greater depth – ratios, return on investment (ROI) analysis, and the like — to justify your own actions and make better decisions.  You can connect the dots between financial results and your HR job.

For example, let’s say you want to add a kiosk at one of your remote manufacturing sites so that your employees can have direct access to their payroll, benefits and compensation information.  Your boss says he’ll listen, but he wants you to justify the purchase.   You can certainly provide “soft” data from your most recent employee survey.  Nothing wrong with that.  That’s what most HR folks would do.

However, the HR superstar will go one step further and also dig up data from finance, including cash flow analysis for the kiosk, working capital requirements, and a depreciation schedule.  All these numbers—surprise!—are based on assumptions and estimates.  They will then examine them to see where they make sense.   If they don’t, with the help of their finance counterpart, they change the assumptions, adjust the estimates, and put together an analysis that is more realistic and that supports their proposal.   They might assume that they can save an hour a day per employee because of the new computer’s features and processing speed.  And, then they calculate the value of an hour per day of his time over a year and presto the recommendation shows that buying the kiosk is a no-brainer.

All of this is powerful stuff.

Want to know how to begin building your financial acumen?

There are lots of ways of doing it.  However, one of the best books I’ve read on the topic is called: Financial Intelligence for HR Professionals: What You Really Need to Know About the Numbers

It’s available at Amazon by CLICKING HERE.

This book is different than most numbers-oriented books aimed at HR.  Those books typically focus on numbers specific to HR, things like hiring, staffing, compensation, retention programs, training, and the like.  This book, by contrast, is about general financial metrics — especially for HR professionals.  These are the numbers that senior managers use to gauge a business’ performance. They are the basis for many of the fundamental decisions that company leaders must make day in and day out.

If you don’t have enough time to read this book, take it with you at your desk for lunch, or if you fly for business, take it with you on a trip or two. In a couple of hours, you will dramatically enhance your knowledge about finance. Also, the chapters are deliberately short, and you can read one whenever you have a few spare moments.

If you are already an HR superstar, none of this is new to you.  However, if you want to join their ranks begin taking steps today to improve your financial intelligence.

 

 

This blog is reproduced with the gracious authorisation of its author - Alan Collins

About the Author: Alan Collins is Founder of Success in HR, and the author of the two HR best sellers, UNWRITTEN HR RULES and BEST KEPT HR SECRETS.  He was formerly Vice President – Human Resources at PepsiCo where he led HR initiatives for their Quaker Oats, Gatorade and Tropicana businesses.