The Disconnect Between HR and Finance – Why It Matters and How to Fix It
When Alpha Manufacturing’s profits plummeted by 10% over two years despite sales being at steady levels, the root cause wasn't market conditions or product quality – it was an internal disconnect between HR and Finance. The company had allowed these crucial departments to work in silos, leading to chaotic hiring cycles, budget overruns, and ultimately, lost clients.
And this isn’t unique. The relationship between HR and Finance departments can make or break a company’s success. While the two departments focus on different things, misalignment can create a lot of inefficiency and missed opportunities.
In this article, we'll look at why this disconnect happens, the costs that come with it, and how you can fix it in your company.
The Disconnect Between HR and Finance
In many companies, it’s as if HR and finance departments are two neighbors who speak different languages. Of course, the two have different goals: HR focuses on developing talent and building culture, where finance keeps an eye on the bottom line. But what many executives don’t realize is that this tension, though natural, is expensive.
Both departments have some opposing views towards the other. Finance teams often view HR as expensive and without an ROI. HR teams often think of finance as number-crunching gatekeepers who don’t care about the human aspect of a company.
But the problem is this disconnect is hitting companies where it hurts most – on their performance across the board. Recent research by Deloitte shows that organizations with poor HR-finance collaboration are 15% less profitable than their better-aligned competitors. And PwC found that siloed operations can drive up operational costs by as much as 25% due to redundant efforts and missed opportunities for efficiency.
According to SHRM research, when HR and Finance aren't in sync, employee turnover jumps by 20%. Why? Because misalignment often results in ineffective compensation strategies and insufficient investment in talent development. Research by McKinsey shows that companies struggling with this departmental divide are 30% slower in making critical decisions.
Perhaps most alarming is the compliance risk. Research by EY indicates that poor coordination between HR and Finance increases the risk of non-compliance fines by 40%.
These aren't just statistics; they're proof of a problem in most businesses that needs immediate attention.
Why Finance and HR Need to Work Together
Even if they don’t like each other – the truth is that finance and HR both have a common goal: driving the business forward. When they’re in sync, the business progresses towards that goal smoothly. When they’re not, expect a bumpy ride.
Every major HR decision has financial implications, and every financial strategy affects people. When planning workforce expansion, HR needs finance's insights on budget constraints and ROI projections. Meanwhile, finance relies on HR's expertise to understand the true cost of talent acquisition, development, and retention. It's a two-way street.
According to research by Deloitte, organizations with strong HR-finance collaboration consistently outperform their financial targets. Because when these departments work together, they make smarter decisions about resource allocation and invest in initiatives that actually move the needle.
Research by SHRM shows that companies that focus on a strong HR-finance partnership report significantly higher employee satisfaction rates. When these departments work together on compensation strategies and benefits packages, they create programs that are both financially sustainable and attractive to top talent.
And those are just a few examples.
Building a Partnership
Creating a strong partnership between HR and finance can actually be quite simple.
First things first: communication is key. “Good communication is the bridge between confusion and clarity” – Nat Turner.
Successful organizations establish regular, structured touchpoints between HR and finance teams. What this looks like depends on your organization. It could be strategy sessions, planning meetings, or regular check-ins.
But just the fact that you are communicating is not enough. It matters how you communicate. HR needs to speak the language of finance, framing initiatives in terms of ROI, cost-benefit analysis, and measurable outcomes.
Instead of saying "We need better employee engagement programs," try "Here's how this initiative can reduce our turnover costs by 20%." Simultaneously, finance teams need to understand and acknowledge the human impact of financial decisions.
Here's what effective collaboration could look like in your company:
Regular check-ins with clear agendas and action items
Shared access to key performance indicators and metrics
Joint ownership of strategic initiatives
Collaborative approach to budget planning and resource allocation
Building this partnership is not just a one-time effort. It’s something you have to keep focusing on over years. The goal is to create a sustainable partnership that becomes part of how your company operates.
The key is to move beyond the traditional transactional relationship where HR asks for resources and finance either approves or denies. Instead, it should be a strategic partnership where both departments work together to drive the company towards its goals.
Takeaways
Success: Open communication, shared goal, and mutual respect.
Challenges: Resistance to change, lack of trust, misaligned priorities.
Obstacles: Persistence, education, and demonstrating quick wins.
