To sit at the table, you have to know the language: important financial metrics for HR directors

Abstract

Purpose The main thrust behind strategic human resources (HR) includes strengthening the impact of HR on the organization. In other words, strategic HR attempts to place the HR department on equal footing with other functional areas of business. HR professionals who understand both operational indicators and their decisions on various financial metrics have greater focus and clarity when making decisions. HR professionals with such knowledge are also more likely to be viewed favorably by their counterparts in other departments and have a greater voice in the executive suite and boardroom. Design/methodology/approach Interviews with board of director(s). Findings There has been a significant shift in the role of HR over the past several decades. The HR department has evolved from a role focused primarily on dealing with administrative issues, litigation and unions, to a department that drives strategy and adds value throughout the company. To continue this transition, HR professionals should have a solid knowledge of critical financial information, including financial and operational metrics and ratios. By combining this information with a strategic mindset, HR professionals are better prepared to add value to the firm, and they participate more fully with other members of management in determining the strategic direction of a firm. Originality/value A competent, strategically minded HR professional who understands not only people-related issues but also financial issues can “elevate strategic discussions” in the executive suite and boardroom. Just as financial statements serve to direct attention to operational issues and to spur responsive management decisions among line managers, so too can financial statements direct the attention of HR professionals to line items specifically impacted by HR policies and processes. When HR professionals consider the impact of their decisions on the financial statements and financial metrics, they become key players in helping the firm achieve organizational goals.