Across professional services, the CFO’s role is migrating away from a financial-reporting focus. CFOs are now expected to positively influence future financial results, and therefore are becoming more involved in several types of human capital decisions that impact those results. Below are the top 5 reasons for this increased involvement:
1. Talent is Revenue.
For professional services firms today, new talent is the engine that drives revenue growth. The CFO must work with human resources (HR) to ensure that the firm’s recruiting function provides a clear estimate of each candidate’s revenue-generating skills. Even at the senior level (e.g., partner), positive “soft” skills have boosted the candidacies of individuals whose revenue histories were below firm standards. It is the CFO’s job to vote “No” on candidates who bring the financial average down for a given level.
2. Talent Is Margin.
While “Top” talent generates above-target margins and receives top compensation, “Average” talent generates below-target margins but often receives compensation that is higher than the margins warrant. Even more concerning for finance chiefs? “Below-Average” talent generates breakeven margins and often receives compensation that is subsidized by the “Top” and “Average” talent. CFOs are working with HR to ensure the consistent monitoring and reevaluation of the true profitability of engagements across partners, so this data can inform HR’s talent evaluation and compensation processes. The professional services industry is home to many partners who appear to be successful but whose margin numbers tell a very different story. For this industry, salary and bonus structure are a make-or-break expense. It is critical that finance works closely with senior leadership to ensure the compensation structures in place make sense for both their people and their business.
3. Talent Doesn’t Scale Quickly.
While manufacturing firms can add a third shift to double their output next month, many professional services firms are still effectively artisanal—doing ultra-high-value piecework. And while a bigger, better back office and shared functions can ease growth and generate economies of scale, the talent that sells the work, completes the engagement, and delivers the margin simply cannot be scaled up quickly. To combat these challenges of scale, CFOs are working to more closely connect the financial/business planning processes with the talent management processes—to ensure that forecasted demand will be met with the right talent.
4. Talent Is Risk.
One person, doing the wrong thing at the wrong time, can bring down a professional services firm. Risk can be the intentional act of a rogue employee, or it can be simple negligence—the unwitting omission of a limited-liability clause from a contract. To better-insulate their firms from these risks, CFOs are working with HR to ensure that firm policies are followed without exception and that risk management and compliance is an important component of employee evaluations.
5. Talent Is Mobile
It is said every day at every professional services firm: “The sole assets of this firm go down the elevator each night.” At most firms the loss of a single, key partner or a single, key client, can materially affect financial results for multiple quarters. With an eye to employee- and client-retention, CFOs are working with HR and firm leadership to ensure that top talent is recognized, both financially and in firm communications, and that business leaders are actively managing relationships with key clients.