You Just Got Asked “What’s the ROI?” Now What?
I will make a bold statement: Given the recent macroeconomic context, HR functions are struggling to stay relevant in their organizations. We see more resource reductions, rigorous spend approval cycles, and “do more with less” requests than in the past ~6 years (even in early pandemic-era conditions).
As a result, I see more HR teams requesting their solution providers to help them prove the ROI on technology, on BPO, on anything they are paying for, essentially to stay relevant and “speak the language of the business.” Here’s the problem: HR’s ROI cannot be calculated by external parties in isolation of each solution purchased. In other words, if you rely on your vendors to help you calculate ROI, you are going about this the wrong way. ROI is something that HR people need to help themselves with first.
If you’re ready to help yourself and help HR with the ROI conversations, then this is how I would recommend to get started:
Change Your Mindset about HR
One of the biggest challenges with proving HR’s ROI starts with how we perceive ourselves as a function vs. how most business leaders perceive us. I’m a handbag person, so let me explain this using a handbag analogy: HR sees itself as the almighty Trader Joe’s tote bag. It is incredibly economical, aesthetically pleasing (personal opinion), and capable of going the distance and doing whatever is required to carry the load (literally and metaphorically). It’s the workhorse of the collection.
The problem is that because of the historical ‘mystique’ around people management, the current perceived gatekeeping around HR practices and knowledge, and the most recent “HR shouldn’t do this; it’s a people manager thing,” the business doesn’t look at us as the workhorse tote bag. Combined with how much an HR function typically costs a company, we are being perceived as the super delicate lamb skin designer handbag in the collection—it’s scratches and dents even when you look at it the wrong way.
I’m not here to debate if that is right or wrong because sometimes, we have to live in reality and work with the expectations and (mis)perceptions. I am here to say that just as people don’t calculate the cost-per-wear of their designer bags the same way as their workhorse tote bags, HR can’t calculate its ROI using its impression of the function. That is precisely how we paint ourselves into a corner of businesses continuously demanding us to do more, better, and faster simultaneously.
Focus on the Impact
I know; it’s the same mantra we’ve been repeating in the industry for over two decades. But hear me out: think about that handbag/accessory/shoes you always gravitate to when you have an important event. Most likely, you don’t gravitate towards those items because they’re functional (if that were the case, you’d see me giving keynotes in yoga pants and t-shirts). You gravitate towards them because they send a message about your brand and positively impact it. There is a reason why quiet luxury was all the rage a while ago. It gave the perception of providing people with an ‘in’ and allowing them to access resources that would not otherwise have been available.
So, when applying this concept to ROI calculations, stop focusing on quantity and start focusing on quality. In our attempt to quantify HR, we have resolved the easy stuff, such as the number of tickets resolved, the number of requisitions closed, the time to hire, etc. When you measure things quantitatively, the immediate reaction will always be: How can we get that ratio to perform better (read: How can HR do more with even less)? This is something you need to avoid.
I hypothesize that we don’t focus on the quality enough because it’s hard, it requires thinking, and it’s work to track the numbers over time. But when you start to look at quality and focus primarily on how HR’s projects made someone feel and bring out that positive energy every time HR comes up for discussion, I can guarantee you will see better results with your resource requests. By the way, this is not new; it is the foundation of relationship-based sales that you probably have experienced as HR solution buyers.
Ditch the HR Metrics
Lists titled“Top X HR Metrics to Use” make me cringe when they show up on my LinkedIn feed because they are so misrepresented that they are doing this industry a disservice. Here’s the thing: if you are trying to get a better understanding of how your HR function is doing, those metrics are pretty great. However, if you are trying to create a business case using the typical HR metrics, I would highly recommend not doing that.
The problem with HR metrics is that they paint you into a corner when you are trying to create a business case because:
It’s heavily HR-focused, so unless your users speak the HR lingo most of the time, talking about the nuances of voluntary vs. involuntary turnover to a business user feels like the equivalent of trying to explain different types of system integrations to HR. They will understand your words but not the deeper context and implications.
It measures quantity. Look at that list of metrics you use again and strike out the ones that answer how many, how fast, and how cheap. I’m sure you’re left with very few if any, metrics to work with at this point. When you measure quantity, you effectively set yourself up for the next logical question in any business context: how can we do all that with less? Sound familiar?
Instead, I would recommend first understanding how your business works, knowing how it makes money, and then figuring out how your investors/shareholders measure the business's success (or how your business leaders’ performance is measured). Take that, and then figure out how to tie HR/people data back into performance data. For example, instead of talking about turnover data as a proof point of why you need an employee engagement tool, talk about how turnover data negatively impacts sales figures, and, therefore, you need a tool that explicitly addresses turnover in all sales-related functions.
Get to Know the Business and Play the Numbers Game
This one may be controversial. To nail your business case / ROI, one thing I recommend for you to do, in addition to understanding how your business makes money, is to understand who/which teams are the lynchpins in that revenue generation process. Figure out what that team needs/wants/values. Now, double down on everything you do for that group.
Does this go against the whole HR-is-for-everyone thing? Yes. However, there is a time and place for having the right answers, and when you are underfunded and on the brink of functional survival, it is probably not one of those times. So, do what it takes to exude HR’s influence and make positive impressions first. Once you get the resources you need, you can do everything you want for the workforce.
Play the Long Game and Focus on the Individual
ROIs in HR are not linear. Read that sentence again and let it sink in.
We have been using Finance’s ROI templates for so long that we forget that some people-related bets don’t pay off in equal annualized portions year over year. Yet, we still try to write our business cases that way.
Getting the business case right for HR requires work, and this is the area where most of the work is needed. Instead of tracking a single cost metric, everything you have to complete a budget for approval, you need to start thinking about how you would track success across time series, as some projects might only pay off in Year 5. For example, instead of saying, “We reduced $X in year one as promised,” look at it from “We implemented Program Y 3 years ago, " which set the foundation for achieving headcount consistency despite the additional workload. Accounting for wage inflation that saved the organization $Z YTD.”
This isn’t easy because it requires a consistent dedication to measuring HR ROI and a mindset change to keep HR a returns/gains-driven north star. I think our perception of HR as the people’s people has prevented us from being ruthless and focusing solely on returns. But here’s the thing: if we are not ruthless in getting funded, the workforce and our teams suffer in the end.
If you made it this far, first of all, thank you for reading through all that. Also, I will leave you with an additional thought: Results are measured through data, which are driven by processes that are dictated by technological setups in modern organizations. So, in reverse, you need to own the tech to directly influence the process to capture the data you need to deliver your ideal results. TLDR: stop outsourcing HR tech functions to IT. It’s an alleviation in the short term; it will suck in the long term.