Traditionally, HR and finance departments have depended on bespoke internal software and solutions to optimise employee administration. Finance Director Europe speaks to Michael Custers at NGA HR about how a company can build a culture of more streamlined and efficient digital strategies to bring the two departments closer together.
Finance Director Europe (FDE): To what extent do you think companies are ready for a digital transformation in all lines of business, including HR?
Michael Custers: Not many companies are really ready at this point, but I think HR is a line of business that shows huge opportunity, for the very simple reason that employees' lives contain more digital interaction then they used to. Over the past 10-15 years, HR departments have started interacting with employees through social communities, email, call centres and more, so the dynamic has fundamentally changed.
The current challenge is that many processes in an organisation's infrastructure have not evolved consistently or have been held back by legacy systems that haven't allowed them to flourish in a digital environment. So the opportunity for these companies to move forward is incredible.
Consider any HR or financial process that was carried out on paper or in an offline form in the past - all of that can be done online today. And doing it online means transactions in real time, reporting better, analysing data better and achieving greater data integrity so that fewer errors are made.
This can all play an enormous role in improving the touchpoints between an employer and its employees. It's a huge opportunity but it will require a massive shift to a company's underlying infrastructure, tools and processes to move towards digital.
FDE: Do you feel that corporations are doing enough when it comes to embracing digital technology?
Michael Custers: I think companies are waking up and beginning to experiment with a couple of technologies. But it's really a matter of them mapping out an all-encompassing strategy for every digital tool across the entire company, not just in nooks and crannies.
Now what's required for that is broad management awareness, full understanding of the various opportunities and their cross benefits, and the strong business case that digital can bring to companies.
FDE: What are the main reasons why companies are still sceptical about investing in digital technologies?
Michael Custers: Part of it is due to the fact that we have a new generation of employees in companies who have grown up with digital tools; people who are now in their 20s and early 30s that have always known an online world. The previous generation, who are 'digital immigrants' and have known the last days of the offline world, are by now often in the management level of a company, and are being challenged by new generations of workers.
With time, the more millennials and late-generation X-ers that we see move into these senior management roles and positions that can trigger change in companies, the more digitally prepared organisations will be. That doesn't mean that the previous generations cannot make the switch, they've just lived in different environments - and now they'll have to adapt a little bit.
So I think this generational shift plays a significant role in how to deploy new technologies, but also how to absorb change. In the past, we used to talk about change-management projects typically taking 12-18 months. In a digital world, these changes can take place in a matter of weeks, so the speed of operation is massively changing.
FDE: What do you think the biggest obstacles are for enterprises when moving away from legacy management software?
Michael Custers: The willingness to give up the status quo is very important; companies over the past 25 years of automation have just layered systems over one another - it's like a layer cake of different technology and processes that are embedded and highly customised. The big hurdle right now is for companies to be prepared to step back and say, "Do we really need this stack of old things that we've implemented or can we look at radical simplification?".
So they're really going to the nervous system of the organisation to reassess and question core processes. That requires courage as well as a deep understanding and knowledge of this; stepping away from legacy systems is going to be absolutely critical to make digital solutions work.
Another factor is the financial perspective - if you simplify things, how is that going to help you drive business cases? Moving away from complex bespoke systems is, over time, actually going to bring huge benefits such as maintaining fewer systems, and achieving faster processes and transactions.
FDE: As a solution provider for HR, do you see finance directors becoming more involved when it comes to working with their HR departments? Would you say the relationship between these two departments is becoming more collaborative?
Michael Custers: Historically, there's always been a good relationship between HR and finance; in particular, in payroll and key financial functions where HR and finance cross over. Payroll is often one of the top expenses for a services company; in many cases, it's the biggest. So it's extremely important for finance departments to fully understand payroll data.
In global organisations, you have the additional complexity of operating in multiple countries, multiple jurisdictions and with multiple compliance regulations; keeping control of that whole framework can be pretty daunting. One of the services that we offer is to help companies get control over their entire global payroll function, which in turn gives the finance department full control over end-to-end processes.
Another way that HR and finance are coming together is in the approach to analytics and HR data. In the past, HR lacked data or systems and were more focused on 'keeping the people happy' through culture. That is still very important of course but, through new technologies, HR can actually use data, metrics and analytics capabilities to allow them to speak the language of finance. It's HR's capability to develop dashboards, metrics and analytics that is absolutely critical in bringing the two together.
FDE: In very broad terms, how do you see the HR management market changing in the years to come and how would you like to see it change?
Michael Custers: I think cloud technology will remain very significant as it allows organisations to transform and release systems very quickly on a flexible pricing model. Automation is also very important as it means more technology can be deployed and a lot more properties and standardised issues can be computed. If you carry out more processes in a uniform way, they are much easier to automate because there are fewer exceptions to work with.
Another vital element is analytics - the fact that everything is stored in a cloud environment means that technology can be easily deployed, consumed and analysed, which is critical to enabling a dialogue between HR and finance. The next wave of transformation will really be about making everything come together, combining the different digital and cloud technologies into one so the borders between software and outsourcing will really disappear.
I think the role of the chief financial officer (CFO) is essential in all of this. The CFO needs to help enable these transformations strategically and look beyond the individual components to see how everything can be combined. A CFO completely understands the opportunities that are offered from a reporting and analytics perspective, but also from a corporate strategy and agility perspective. When CFOs and CHROs align, challenge the status quo together and embrace the opportunities offered by digital technologies, the next decade is going to look really interesting.
This interview was originally published in Finance Director Europe.
Michael Custers serves as SVP Strategy & Marketing for NGA Human Resources, overseeing worldwide marketing. Michael joined ARINSO International in 2005, as Director Investor Relations & Communications and has divided his time at NGA (equally) between Europe and the US.