For measuring the success of any business endeavor, defined and tangible ROI is a must. But when it comes to HR Technology, measuring these results gets difficult as it is considered one of the ‘softer functions’ and the returns are majorly long-term and intangible. In fact, it is often associated with being an activity that has known costs and unknown returns! Well, we can surely say that the outcomes of HR Tech initiatives are rather subjective in nature. And therefore, to understand the real ROI of HR Technology, we must break down the costs involved into two segments:
- Cost of acquiring the HR software and subsequent recurring costs, like subscription, maintenance and so on. This includes the whole cost of buying/installing and implementing the new HR software. Also, other aspects involved are:
- Cost of data migration
- Cost of updates
- Cost of customization etc.
In the case of on-premise software, these prove to be major expenditures for the enterprise as these costs are always considerably higher than the ones that come with a subscription-based model. Also, the subsequent maintenance, monitoring, and even updates that need to be done are added costs in terms of both money and man-hours. Even if the organization chooses a cloud-based software, the cost of implementation and subscription fall under this category.
- Value gained from the HR software
The margin by which the latter exceeds the former is essentially where the profits or the returns lie. While we have a pretty objective and clear way to measure the costs involved, we need to have some clarity on the second. It is mostly indirect and hence needs to be deduced from relevant parameters. The best way to go ahead with this analysis is to select parameters, set benchmarks and report in terms of the gains experienced wrt these. Some of them can be:
- Saved Labour Hours: Even the most trivial processes, if tackled manually, end up consuming a major chunk of the doer’s time. And time ultimately is money. In fact, according to a report published in 2011, companies spend an average of $1400 per employee per year on the manual administration of payroll, time and attendance, health and welfare.To put it simply, automation of HR processes saves time and effort from the users’ end by taking up parts of the process that can be simplified using tech. Thus, labor hours are saved during processes like attendance and leave management, performance reviews, manual follow-ups to ensure compliance, etc. This sets the ground for building a case of ROI from HR Tech in terms of saved labor costs and the costs borne by the organization on their behalf.
- Proven Productivity Gains: It is important for an organization to leverage existing information related to productivity gains experienced by similar companies on successful implementation of the HCM systems. Even the productivity data pre and post-implementation within the organization can be tracked for better analysis and reporting. Well, when the day to day and mundane tasks are simplified and facilitated through technology, knowledge workers can fully devote their time to tasks they were originally hired for. This ultimately results in better productivity and makes for a good case in the favor of returns from a good HR tech system.
- Efficient Engagement, Recognition & Reward:Most organizations are feeling the need to engage their employees and are witnessing the direct impact such engagement has on job satisfaction and attrition rates. Thus, another concept gaining rapid popularity in the HR Tech space is the rise of platforms that engage, recognize and reward an organization’s top talent. Given the mass percolation of social media in our lives, organizations are now more inclined than ever to have similar functionalities on their HCM platforms too. The polls, group-based activities, and other engagement activities that happen hence can be used as a parameter to judge employee engagement at an organizational level. Moreover, even recognition and reward-related activities can be executed far more efficiently using technology. By having a thorough analysis of historic data done regularly, HR systems are rapidly becoming medium of better engagement and recognition; ultimately translating to retention.
- Lower Recruitment Costs:Before hiring a resource which is the best fit for your organization from a skill set as well as culture point of view, shortlisting a talent pool is necessary. The right HRMS not only helps you map skills but also simplifies the process of marketing job openings and spreading the word among potential candidates. This is a far more credible and targeted approach towards the process of recruitment as compared to one-off job postings, ads, or word of mouth. In fact, through successful and in-depth mapping of skills with what is needed on the job, companies can achieve higher interview-to-offer and offer-to-acceptance ratios. These numbers can ultimately serve as good progress indicators of the returns from HR Tech.
While these are some ways in which we can try to correlate the ROI of HR Technology to numbers and figures, what must be kept in mind is that implementing an HR Technology is one of the long-term investments made by the organization for the enrichment of its human capital. The return might be largely subjective and intangible, but it definitely is worth it.
Did we miss out on any other ways to calculate ROI on an HR Tech implementation? Let us know in the comment section.