Impact of the Relationship Between Finance and Human Resources Department

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In organizations with clear-cut structures, comprehending the roles and relationships between the human resources department and the finance department is critical for the success and attainment of the desired outcomes (Shleifer & Vishny, 2007). The current roles of the human resources department have become sophisticated and need more collaboration and inputs from other departments, particularly finance (Paauwe, Guest & Wright, 2013). Both the departments share functions ranging from maintaining relevant employment data to responsibilities in project management (Paauwe et al., 2013; Boxall & Purcell, 2011). The study will be looking into two variables, the impact of the relationship between HR and financial departments as an independent variable and the organization outcome as the dependent variable. In other words, the study will be examining how the organizational outcomes depend on the relationships between finance and HR metrics.

Background/Literature review

Evidence suggests that the interrelationship between finance and human resources management is critical to the smooth operations of the firm (Paauwe et al., 2013; Gravetter & Wallnau, 2009; Boxall & Purcell, 2011). However, most of the studies focused on the important roles the two departments play within the organization (Gravetter & Wallnau, 2009; Boxall & Purcell, 2011). For instance, the human resource unit is critical in tactical planning and worldwide outsourcing decisions (Vermeeren, Kuipers & Steijn, 2011). In addition, the HR department is imperative in the management of workers’ gains as well as expenses concerning their reparations. Assessing the personnel performance based on their output is another function of the HR division (Gravetter & Wallnau, 2009; Boxall & Purcell, 2011).

On the other hand, the department of finance is essential to the operations of the organisation since it avails funds needed to achieve the firm’s goals (Boxall & Purcell, 2011). In other words, the finance units aid the firm in identifying suitable pecuniary information and relay the data to aid in the decision-making processes (Shleifer & Vishny, 2007; Director, 2012). Chhinzer and Ghatehorde (2009) argued that the human resources metrics such as the employees’ headcount not only relate directly to the financial performance but also other financial metric. Further, Dany, Guedri and Hatt (2008) argued that human resources aspects such as learning and growth, turnover and compensations are greatly influenced by the financial metrics such as profit margins, returns on assets and returns on investments, which in turn determine the organisation performance.

The studies on the relationship of the two departments and how the relationship contributes to the organisational outcomes are limited (Vermeeren et al., 2011; Director, 2012). The assumption is that the two departments have always been in apposite relationship and that contributes to the positive outcomes yet in practical terms the financial departments have always felt ill disposed towards personnel divisions due to proficient collisions thereby hindering the smooth operations of business organisations (Director, 2012). Moreover, human resource departments always face economic obstacles from the finance unit, thus circumventing the execution of the firm’s goals effectively. Conversely, in the case where the firm incurs a number of expenses, the functions of a financial unit in cutting costs face encumbrance of the human resource department who are defenders of workers through cautioning of the legal implications of such moves thereby enhancing the worth of personnel (Boxall & Purcell, 2011).

Another conflict in the operations of the HR and finance divisions arises from the diverse time horizons under which the departments function. For instance, the HR unit stresses majorly on the firm’s lasting initiatives and programs, whereas the finance sector focuses on the interim coherent and quantifiable components of the firm that evaluate return on investment choices (Boxall & Purcell, 2011; Director, 2012). Most companies recognise that human resource managers have more roles that are critical in the strategic management of the firm. As such, the HR department makes major decisions on company management even without involving the finance unit.

The Human resource is instrumental in driving growth in the firm. For instance, the HR management often plays major roles in the firm’s meetings through resolution of conflicts arising from differences of the executive board. In essence, the HR manager operates as a confidante to the management committee. In fact, performing such functions provides the human resource with an edge over the finance counterparts. As a result, the HR uses its influence in making the decisions about organisational politics and the identification of the employees’ skills. On the other hand, the finance department is the focal point where all funds that facilitates the operations of a firm is positioned and thus are not regulated by the influence of human resource at the executive level (Boxall & Purcell, 2011).

Achievement of better relations between the departments requires better comprehension of the organisational basics that have positive implications on the firm’s corporate strategies. In other words, the HR should develop ideas that are able to eliminate the negative attitudes that originate from the finance department (Vermeeren et al., 2011). In essence, acknowledging the firm’s operating basics is critical in influencing the involvement of the sectors in discussions. The basics encompass a work environment where the sectors support each other in their operations. For example, the HR unit should aid the finance department in the recruitment, development and training of the finance staff.

Ensuring successful relationships between HR and finance involves the formulation and promotion of metrics that show the dimension of each segment’s contribution in the expansion and operations of the firm (Gravetter & Wallnau, 2009). In addition, the finance sector should allow the HR to carry out its role on strategic issues of the organisation (Paauwe et al., 2013). Moreover, professional collaboration is essential in shaping and developing the organisation arrangement through exceptional training programs that are invaluable in the development of finance and HR staff.

Currently, researches have found that the collaboration of HR and other departments within the organisation has increased influence on the organisational performance (Paauwe et al., 2013; Shleifer & Vishny, 2007). In fact, theories such as human capital theory and resource-based theory can be found within the perspective to explain the importance of the relationship between HRM and finance departments. According to the theory of human capital, HRM contributes to the other departments the human capital with the essential skills they need. Similarly, resource-based theory emphasises that internal resources including human or financial play a critical role in developing and maintaining the firm’s competitive advantage (Shleifer & Vishny, 2007; Director, 2012; Paauwe et al., 2013). In fact, the study will be based on the theoretical framework deemed appropriate and explain the type and importance of the relationship between HRM and finance.

The effects of the two departments to the organisational performance are so strong that it blurs the need to determine the link between HR and financial departments (Fleetwood & Hesketh, 2007). However, researchers have identified the need to understand how the relationships between the HR and the financial departments might affect performance (Walsh, Sturman & Longstreet, 2010). Beyond the mathematics and economic equations are the underlying assumptions, causality questions and the need to acknowledge the process of how the relationship works.

Aims and objectives

The main objective of the study is to examine the relationship between the finance and human resources metrics and how such relationships affect the organisational performance. Though the study have been designed to test the independent and dependent variables empirically, the objectives of the study include

  • To determine how employees turnover as a human resources practice is influenced by the financial metrics such as revenues and costs
  • To examine if the relationship between employee turnover and the financial metrics has a significant effect on the organisational performance

Research questions

  • Are human resources practices influenced by the financial metrics?
  • Are the relationships that exist between the HR practices and financial metrics having a significant effect on the organisational performance?

Research hypothesis

  • H1: The relationships existing between the departments of finance and human resources have a significant effect on the organisational performance.
  • H0: The relationships existing between the departments of finance and human resources have insignificant effect on the organisational performance.

Theoretical framework

Generally, there are two primary perspectives to describe the relationship between the HR and finance departments and the overall performances of the organisation. The universalistic approach assumes that positive relationships between the departments have a direct link to the organisation’s performance (Shleifer & Vishny, 2007; Director, 2012; Paauwe et al., 2013). However, a fair amount of empirical evidence that support such hypothesis has been accumulated. Most studies have focused on individual contribution of the HRM departments (Paauwe et al., 2013). The universalistic approach has been used to develop models that explain the individual contribution of the two departments to the general performance of the organisation (Uysal, 2008). Similarly, the universalistic approach can also be applied to develop the multi-dimensional explanation of the interrelationship between the two departments and how such relationships affect the organisational performance.


To answer the two major questions, the questionnaires will be sent to limited banking institutions targeting human resources and financial managers. In other words, as one of the most important studies in the organisations’ interdepartmental management, the information will be collected through administering properly designed research questionnaires through conducting well-structured in-depth interviews to the unbiased selected participants. The soundly designed research questionnaire will be administered to 65 participants constituting 35CFOs and 30 HRMs. Besides, the study will utilise diverse data analytical tools to determine the correlation that exists between the variables. Even though the majority of data will be quantitative, the descriptive statistics will be analysed through content analysis.


The study will advance the knowledge and understanding on how progressive relations between the two departments contribute to the positive outcomes or performances of the organisation. Besides, the study will be used to assist other organisations in formulating strategies and policies in order to increase performance. The relationship between finance and HRM departments is an area that is currently under-researched. The study will provide data to test the existing theories and assumptions found within the organisational management. The main difference between this study and other studies is that it undertakes to develop a theoretical framework that best suit the organisational dilemma. The outcomes of this study are expected to inform the organisational strategies and management.


Boxall, P, & Purcell, J 2011, Strategy and human resource management. Palgrave Macmillan, Basingstoke.

Chhinzer, N & Ghatehorde, G 2009,Challenging relationships: HR metrics and organizational financial performance,” The Journal of Business Inquiry, vol. 8 no. 1, pp. 37-48

Dany, F, Guedri, Z & Hatt, F 2008, “New insights into the link between HRM integration and organizational performance: the moderating role of influence distribution between HRM specialists and line managers.” The International Journal of Human Resource Management, vol. 19 no. 11, pp. 2095-2112.

Director, S 2012, Financial analysis for HR managers: tools for linking HR strategy to business strategy, FT Press, Upper Saddle River, NJ.

Fleetwood, S & Hesketh, A 2007, “HRM-performance research: under-theorised and lacking explanatory power,” International Journal of Human Resource Management, vol. 17 no.12, pp. 1977–1993

Gravetter, F & Wallnau, L 2009, Statistics for the behavioral sciences, Cengage Learning, Belmont, CA.

Paauwe, J, Guest, DE, & Wright, P 2013, HRM and performance: achievements and challenges, Wiley Press, UK.

Shleifer, A & Vishny, R 2007, “A survey of corporate governance,” Journal of Finance, vol.52 no.16, pp.737-783.

Uysal, G 2008, “Relationship among HR and firm performance: a Turkey context,” The Journal of American Academy of Business, vol. 13 no.2, pp. 344-354

Vermeeren, B, Kuipers, B, & Steijn, B 2011, “Two faces of the satisfaction mirror: a study of work environment, job satisfaction, and customer satisfaction in Dutch municipalities,” Rev Public Personnel Admin, vol. 31 no. 2, pp. 171-189.

Walsh, K, Sturman, MC & Longstreet, J 2010, Key issues in strategic human resource, Sage, Los Angeles, CA.

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