ROI-driven Approach to Maximizing the Impact of HR Technology

According to Gartner, by 2025, 60% of global midsize and large enterprises will have invested in a cloud-deployed HCM (Human Capital Management) suite for administrative HR and talent management.

Leaders are now increasingly turning to HR Technology, aka HR Tech 4.0, as antiquated methods such as spreadsheets are not able to provide an accurate picture from the humongous amount of employee data being generated.

According to the Sierra-Cedar report, the average large company now has 11 core HR systems – for recruiting, learning, communications, payroll, and more.

Josh Bersin further states in a report that the overall spending on HR technology is several thousands of dollars per employee per year (often more than is spent on training and enablement).

But these HR platforms’ ROI (return on investment) is fuzzy, to say the least.

When asked if their HR projects delivered on their expected business value, this is what employers said:

Source: IHRIM HR Software Study

To solve for this, in this article we will talk about the different steps businesses can take to maximize the ROI from their HR Technology investment.

Step 1: Determine the state of your existing HR Technology

To measure the ROI of your HR technology initiatives, it is first crucial to get a strategic view of what is going on with your current technology investments. Therefore, you ought to audit your existing processes, projects, and the impact it has on your company to identify gaps and benchmark future progress.

Let us say you are planning to implement an employee onboarding program and need to determine the ROI. The ROI, in this case, would not only be measured in terms of cost savings and productivity but also intangibles such as employee satisfaction which can be measured using surveys and other mechanisms.

In this case, let us say you spend 6 months implementing an L&D program. While the initial investment might have been more than expected, the ROI in terms of reduction in employee turnover and satisfaction scores might very well make the initial investment worth it.

For organizations, it is tough to demonstrate the success or ROI of an HR initiative if you do not have clear data on where you were starting from. Therefore, before measuring the ROI of your HR efforts, ensure you are collecting as much data as possible.

The following needs to be considered:

• The annual cost of the HR software, including subscription fees, data storage or support.
• First-year set-up costs include data import, customisation or configuration services, project management or training costs. You will also need to factor in the cost of your own time as a separate item.
• Ongoing costs to cover any additional expenses you may need to pay, such as additional configuration or customisation by the vendor, plus the time your team needs for ongoing maintenance.
• Training costs to bring employees up to speed
• Payback period. In this case, the number of years you expect to use the solution for.

Step 2: Set clear KPIs (Key Performance Indicators)

You cannot effectively measure the ROI of HR if you do not know what exactly you are measuring — which is why for organizations, there is an urgent need to set up mechanisms to do so.

KPIs help you determine what you are trying to accomplish with your HR initiatives and establish goalposts.

Case in point, let us say you are rolling out a new learning and development program. In this case, the ROI can be measured by determining the difference in productivity before and after the program – (By anonymous surveys from reporting managers?)

Whatever method you choose to measure the ROI, KPIs ensure you can evaluate your initiatives’ success and give you better visibility of the ROI and the means to improve it.

“Analytics has moved from the periphery to the centre of HR” – David Green

Your KPIs should ideally be tied to your business goals. This helps you effectively understand how your initiatives impact the company’s bottom line.

Source: AIHR

Examples of good HR KPIs (Key Performance Indicators) in this case might include the following:

• Absence rate
• Absence cost
• 90-day quit rate
• Benefits satisfaction score
• Employee productivity rate
• Employee satisfaction index
• Net Promoter Score
• Voluntary Turnover Rate

As an HR leader, it is crucial to ensure that the KPIs you list can be measured by the tools you already use.

Step 3: Iterate

Once you have set up mechanisms to track HR data, you can use the information to identify new areas of HR technology automation and areas where existing software can be replaced if needed.

In the case of the latter, research and compare different technology options to find the one that best meets the company’s needs. This could include looking at different vendors, products, or pricing options.

Choosing the right HR partner involves conducting a thorough review of the HR technology market by reading product reviews, attending industry conferences or events, or consulting with HR technology experts to get recommendations.

Once you have identified a few potential technology options, create a comparison matrix that lists each technology’s key features and the costs associated with each option. By comparing the different options side-by-side, the HR leaders can determine which technology best fits the company’s needs and budget.

Let us say you want to automate the employee attendance tracking process. In this case, the HR leaders must compare different options based on factors such as ease of use, the accuracy of the attendance tracking, and the pricing.

In this way, by iterating on their existing HR processes and identifying new areas where HR technology can be implemented, the organization can make informed decisions and maximize the ROI of their tech initiatives.

Best Practices for ensuring ROI credibility

• Work with credible and unbiased data
  Make sure to use first-hand information and data from unbiased sources if possible. If you use third-party sources, ensure that they are credible and unbiased.
• Focus on actionable metrics
  Rather than focus on intangibles such as employee branding, try to focus on metrics that can be reported on. For instance, that might include metrics such as time to process leave requests, payroll, etc. The intangibles can be itemised separately.
• Use numbers wherever possible
  Showing the detail of your calculations allows for a more informed discussion about the pros and cons of different approaches.
• Build in variables
  Include a worst-case and best-case scenario when modelling different scenarios, and you incorporate all variables.
• Include hidden costs
  Remember to account for hidden costs, such as the time you will need to set aside to manage the process or ensure data is clean.
• Specify your payback period
  Stakeholders such as finance would want to know this to determine the feasibility of your proposed initiatives.
• Talk about risk
  Budget holders will be looking for reassurance that the investment will be safe. This is especially important if you are reliant on the HR vendor for digital transformation.

Check out PeopleStrong to make more data-driven people decisions

PeopleStrong’s HR-Tech 4.0 platform is an integrated suite of solutions that enables organizations to offer their employees end-to-end services across their life cycle, thus enhancing their employee experience.

The platform capabilities span the employee lifecycle from hire to exit, including Human Capital Management, Payroll, Talent Acquisition & Management, and Collaboration.

Organizations across Asia-Pacific, such as Inspiro, AirAsia, Aditya Birla Group, Max Life Insurance, and more, already use our HR Tech 4.0 platform to make data-driven decisions.