Financial Intelligence for HR Professionals
from Chapter 3
Why Increase Your Financial Intelligence?
So far our discussion has been pretty abstract. We have been introducing you to the art of finance and explaining why understanding it is an essential ingredient of financial intelligence. But who needs financial intelligence, anyway? To put it bluntly, why is this book worth reading?
For starters, we want to emphasize that this book is different from other finance books. It doesn’t presuppose any financial knowledge. But neither is it another version of Accounting for Dummies. We will never mention debits and credits. We won’t ever refer to the general ledger or trial balances. This book is about financial intelligence, or, as the subtitle says, what you really need to know about the numbers. It’s written not for would-be accountants but for everyone in human resources.
This book is also different from other numbers-oriented books aimed at HR. Those books typically focus on metrics that are specific to human resources, including those related to hiring, staffing, compensation, retention programs, training, and the like. This book, by contrast, is about general financial metrics. These are the numbers that senior managers use to gauge a business’s performance. They are the basis for many of the fundamental decisions a company’s leaders must make day in and day out.
HR professionals sometimes—maybe even many times—get a bum rap. They focus on the “soft” side of business, so it is said, rather than on the “hard” numbers side. It’s a bum rap because the numbers ultimately depend on people, and HR is the department that is most responsible for the people in a company. Still, it may be true that HR folks tend to shy away from discussions and decisions that involve finance. That hurts the company because senior management may miss 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. 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 intelligent. “If you’re going to be in business and you’re going to work in HR, then you better understand finance,” says John Hofmeister, president of Shell Oil Company, which is Royal Dutch Shell’s U.S. division. Asked exactly what an HR professional should understand about finance, he replied, “To be blunt, everything that a business line manager should understand.”
Hofmeister believes that HR people should be able to read and understand their company’s income statement, balance sheet, and cash flow statement and that they should be able to “deal with the whole budgeting process, capital investments, depreciation, and so on.” That’s precisely what we propose to teach you in this book. You’ll learn how to read the financial statements and how to use the information they contain to do your job better. You’ll learn how to calculate ratios. You’ll learn about return on investment (ROI) and working capital management, two concepts that you can use to improve your decision-making skills and boost your impact on the organization. You’ll see pretty quickly that it isn’t hard—the concepts are straightforward, the calculations simple.
This is an excerpt from Financial Intelligence for HR Managers: A Manager’s Guide to Knowing What the Numbers Really Mean by Karen Berman, Joe Knight, and John Case, published by Harvard Business School Press, 2008. Copyright 2008 Business Literacy Institute. All rights reserved.