Successful organizations understand that ROI isn’t just generated by the sales and marketing team, nor is it only a concern for the finance department. Generating a return on investment should be a priority for every facet of a business; including the human resources department to achieve an ‘ROI in HR’.
After all, your people are what create a great product or service, which in turn generates a profit (or loss), so ROI should naturally be a priority when it comes to managing people.
Every single person employed in a business is an investment, and by guiding your people to perform at their peak, reducing attrition, and investing further in your people to develop them, we can maximize productivity and the subsequent returns.
The following guide to ROI in HR will offer a practical introduction to understanding how people generate ROI in different stages of their employment, and how you can maximize profits throughout these stages.
We will cover:
ROI in HR is an assessment of the financial return your HR activities are generating for the time, energy, costs and resources you’ve invested into them. Although it might seem challenging to put a number on human-based programs and initiatives, it’s now more important than ever for HR to demonstrate their effectiveness and how they impact the bottom line.
There are a number of key HR metrics that you can track to link your programs to outcomes. For example, if you’ve introduced a wellness program, what is the impact on absenteeism? Or do increases in employee satisfaction correspond to increases in business performance?
The first area where organizations can start to maximize their profit is through greater productivity and output from their workforce.
Performance naturally peaks and troughs throughout an employee’s tenure, as you can see in the Employee Lifecycle Performance Curve below.
By modeling a typical employee’s trajectory, which consists of three phases (onboarding, performing, offboarding), we can start to understand when new hires start generating returns and when longer-standing employees’ profitability starts to drop.
Let’s take a look at each of these phases in a little more detail in the next section.
When an employee starts a new role, they go through a phase that requires investment by the organization to get them to the point of break-even. Up until this time, the organization isn’t profiting from this employee because they are outlaying time and resources training them as well as their salary (and this period can take anywhere up to 12 months, depending on the role). After break-even, the employee will start to generate more value than it costs to employ them. There are several things you can do to optimize and speed up this process.
Perfect the onboarding process
A consistent and high-quality onboarding strategy delivered consistently to all new starters will help limit wasted time at the beginning of an employee’s tenure while also giving them a good first impression of the organization.
Where possible, get a head start by kicking off the onboarding process before an employee starts their first day. Most paperwork or compliance tasks can be completed over email in the lead-up to their start date so the employee doesn’t have to spend time filling out forms when they start work.
This is just one way you can always be prepared for new starters and ensure they have everything they need to hit the ground running in their new role. Once the new starter has officially joined your organization, all necessary training should also be provided as soon as possible, allowing them to start productive work sooner.
Build a solid foundation with probation
Probation checkpoints can easily be built into your onboarding process to further set new starters up for success in their first 3-6 months. Using a people management system like intelliHR you can set up automated check-in forms to go out to new staff during their probation, gathering insights for managers into any areas they may need to provide further support or recognition. This allows managers to deal with potential problems early on, giving the team member maximum opportunity to pass their probation, while ensuring performance-limiting issues are not carried forward into their ongoing employment.
Speed up the learning and ownership curve
One way the onboarding phase can be accelerated is by introducing new starters to their role in a phased approach. By starting them off with information they need to know, and simple tasks they can master fast, and gradually increasing complexity over time, onboarding costs stay low and ROI is achieved sooner. Encourage them to set achievable goals in these areas as soon as possible, so they start to gain personal rewards from achievements more quickly than they would have otherwise.
Employees can be considered to be in the “performing” phase after they have reached the break-even point. At this time, the organization’s objective now firmly turns to help the employee both quickly reach and sustain peak performance. It is while an employee is at peak performance they are deriving maximum profitability for the organization.
It is possible to take control of this performance curve to accelerate and even extend performance throughout the employee lifecycle. In order to achieve this, organizations must be equipped with the right tools, while also having an understanding of what drives performance in their people.
Drivers of performance
There are a number of important internal and external factors that drive an individual’s performance. We can think of all these factors and how they affect performance using the Performance Equation.
High Performance = (ability + motivation + opportunity) culture
For the best chance of success in controlling performance, organizations must plan for and manage all of these influences.
|THE OBVIOUS||THE LESS OBVIOUS|
Essential tools to take control of the performance curve
The following tools play a vital role in managing the drivers of performance throughout the Employee Lifecycle Curve. It’s important to note, these tools are effective as together they serve to empower employees to be self-led, and take control of their role.
|MUST HAVE TOOLS AND PROCESSES||Probation||Continuous Feedback||Performance Improvement|
|Policy Compliance||Achievements||Exit Interviews|
Now that we’ve looked at some ways to get people performing during onboarding and after break even, we can now explore how to minimize or offset the cost of attrition by speeding up time it takes to progress from onboarding to performing – and extending performance over time (rather than allowing it to decline).
The faster you can accelerate an employee to peak performance, the greater cost savings you can achieve and the higher profit generation you can assist the employee to contribute. It truly is a win-win.
Rejecting static position descriptions
The perfect role needs to fit your organization’s needs as well as the skills and talents of the employee who fills it. It pays to keep things flexible and adapt individual roles to changing needs on both sides, to derive maximum productivity and returns. A constantly evolving role that develops with an employee and the needs of the business, allowing them to self-manage, grow and stay engaged better than a static position description can.
Goals (which we expand upon shortly) are an important component in place of a static PD, they can be used to align expectations but also keep the focus of employees agile and dynamic. Leaders can focus team activities in alignment with individual talents, interests, and development challenges.
Keep two-way communication flowing with check-ins
With intelliHR form designs, organizations can set up a simple check-in to be distributed to new starters automatically by email at designated intervals. These can be tailored to the needs of your business, so think about what you want to know to help new starters have a good experience and get performing as soon as possible. Some good questions your could start with include:
This signals to new employees that they should feel comfortable asking for help if they need it and that support is available. Managers receive an email notification to access responses and can act on any potential problems in real-time before they escalate.
Give new hires a sense of purpose and direction from the start
With self-managed goals, employees can set their own goals, or have collaborative goals cascaded to them from their manager or other team members from day one. This provides them with a sense of purpose and an actionable target they can work towards all while being able to track their progress and communicate with their manager all within the platform.
Complement continuous feedback with a formal annual review
Once self-managed goals are being set and tracked, this record of goal progress can be used to inform annual performance reviews. Achievements are captured in the continuous feedback forms and then automatically feed into your performance summary reports in intelliHR. This way, staff can monitor how they are going throughout the year and know what to expect when performance review time rolls around. Most importantly, staff have a chance to proactively improve throughout the year, rather than wait 12 months to hear about improvements they need to make.
Helping employees find their fit
An automated organizational chart available to everyone in the business will help new starters find where they fit in. The chart should update automatically to reflect any changes to reporting lines or position titles while also adding or removing employees as they enter or exit the business. This way, new employees will always be visible to the rest of the business and know where they stand from day one.
This also means all employees have visibility over the structure of the company they work in, and with names and profile pictures added to each staff member, can get to know their colleagues quicker and feel right at home. There is complete transparency and no confusion over who is who.
Beyond checking in on progress, formal performance reviews are an opportunity to reflect on an individual’s role and reassess where their talents can best be applied in the future. For example, if you have two sales people in the same role, but one is excelling in lead generation, while the other gets less leads but has a better close rate – it might be worth redesigning their roles to cater to their unique skills. By having more flexible position descriptions or staff and allowing for role adaptation, the performance curve can be extended over time, compared to dropping off if each staff member was forced to continue working on tasks that did not align to their strengths.
After expectations have been clearly communicated in the performance review process, if there is still room for progress, a performance improvement plan can be enacted. This is a positive, not a disciplinary process, and should provide the employee with clear guidelines on expectations going forward and milestones that must be achieved to get back on track.
Beyond the performance improvement plan, diary notes can be used to monitor performance over time and take note of cause for recognition or continuation of problems. If problems persist over time and performance does in fact decline, the next step is offboarding.
While the above steps will help to maximize performance and engagement as much as possible to deliver ROI in HR, there will always be some cases where offboarding becomes necessary. Declining performance, if not identified, managed or turned around, will ultimately lead to a business-initiated termination as the cost of employing the staff member becomes greater than the value they create.
If staff are non-productive or disengaged, their impact on your business can only be defined at best as ‘sunk wages’, and at worst they can also have a negative impact upon other team members. If low productivity or disengagement have been identified and corrective action has not been effective, it is best to initiate processes to help these employees find alternative employment options (set them free) as soon as possible to minimize lost productivity and wasted wage costs.
When it comes to generating ROI through your people, maximizing performance and reducing attrition go hand in hand. While it is important to offboard (and fast) if a hire just isn’t a good fit, it’s ideal if this can be avoided in the first place by better recruitment and onboarding processes.
Understanding the real cost of employee turnover
Hiring and retaining the right employees doesn’t just increase ROI by improving performance, it also increases ROI by reducing turnover costs.
We often think about the visible costs of hiring a replacement staff member, like advertising the position online or recruitment agency fees, but what about all the hidden costs? Imagine a current employee is job hunting and it takes them four weeks to secure a new job. They take sick days to attend interviews and eventually give their two weeks’ notice of resignation. By the time they exit the business that is six weeks of reduced capacity your organization will never get back.
Considering the known and hidden costs of attrition, let’s look at what costs your organization may incur in obtaining a new hire.
|Most visible costs||Less visible costs|
|COSTS OF HIRING||ONBOARDING AND INDUCTION||TRAINING AND LEARNING & DEVELOPMENT||OPPORTUNITY COST OF UNFILLED ROLE|
|Position advertising costs
– Advertising on job boards
|New employee’s salary in onboarding period
– Minimum two weeks
|Wage costs of time spent completing mandatory learning and development “on the job”
– Minimum one week of new employee salary
|Lost revenue during new employee’s onboarding phase
– Minimum two weeks’ wages *3
|Recruitment Agency Fees and Commission
– 10-15% of position salary
|Other employee overheads in this time
– Normally 30% of salary (payroll tax, insurance etc.)
|Salary of current staff members being paid to provide training
– Minimum one week of trainer salary
|Lost productivity during resigning employee’s job hunting and notice period
– Minimum two weeks notice period, sick days taken for interviews etc.
– 3-7 days’ work
|Cost of mandatory courses and qualifications|
|Wage cost from time spent conducting interviews
– Minimum 10 hours of time taken from senior staff members
|Average per-person training budget
– Normally $3000+
|Readiness for work environment
– Payroll administration, IT systems set up, medical examinations etc.
Now multiply all these costs by how many employees leave your business each year. The numbers quickly add up.
Looking at the cost of this turnover each year, it is easy to see that a small percentage decrease in attrition can equate to millions of dollars in savings per year.
So there you have it, there’s a lot that can be done to help support and optimize the performance of your people to maximize your ROI in HR. From onboarding to employee engagement, to goals, performance reviews, and more, but don’t think you have to do it all at once! Start small, and if you need a system to help support, streamline and automate your processes, intelliHR has got you covered.
intelliHR is a people management platform helping HR, leaders and managers enhance performance, culture, engagement and retention. With built-in HRIS and powerful real-time analytics, see how the platform works today.