Measuring the ROI of Tech
Remember the good old days, when technology choices delivered clear benefits? It was easy to decide that moving from time cards to time clocks would pay for itself by reducing buddy punching and payroll errors or that transitioning from paper-based to electronic benefits administration would cut costs and increase efficiency. Then things got more complicated.
As HR managers look to technology to streamline operations, support data-driven decision-making and ensure compliance, software vendors have increased the pace of innovation—as well as the complexity of their solutions. As I pointed out during a breakout session I conducted (“Measuring the ROI Impact of HCM Investments: What Factors Matter?”) at the most recent HR Tech Conference, this can make understanding the potential return on investment of HR, payroll and other applications a challenge—particularly when organizations are considering an upgrade. The ROI challenge is compounded by the pressure on HR executives and HRIS managers to meet the growing number of demands and regulatory requirements with limited resources. With a laundry list of potential initiatives across the employee lifecycle—from recruiting to onboarding to benefits to talent and succession—prioritizing projects based on business impact and ensuring those projects deliver are moving targets.
Over the past 15-plus years, I’ve been analyzing the return on investment from HR-technology projects, and Nucleus Research has published hundreds of case studies on the actual ROI companies have achieved from their HCM-technology initiatives. If we look at the past few years of data, we find the projects delivering the greatest ROI are those that automate payroll, core HR, and time and attendance functions. These areas are followed in bottom-line impact by benefits-administration and scheduling automation, with talent acquisition and talent management coming in third.
While those categories can be helpful in framing your high-level goals in terms of potential value, in reality, the technology checklist and budget are often more nuanced. To be successful with technology, HR and business managers need to understand the relative benefits of projects in their own specific organizations, weigh vendors’ timelines and budgets, and ensure the investments they make today will support—or at least unencumber—their future goals for innovation.
When working with HR and HRIS managers on evaluating their potential HR-tech initiatives, I encourage them to rate each project on five key factors, from a scale of 1 to 5, to identify which projects are likely to deliver the greatest ROI. This is helpful for prioritizing projects and focusing adoption efforts but also for taking some of the politics and emotion out of the budgeting process; a numbers-based approach can help compare apples to oranges and reduce subjectivity.
The first two—and the most important—are:
- Breadth. The more people, applications or processes a technology project touches, the greater the potential return.
- Repeatability. The greater the frequency of use of a technology solution, the greater the potential return.
Breadth and repeatability go hand in hand when we think about the benefits of a project that automates payroll or time and attendance: They touch every employee (breadth) at least once per pay period (repeatability). Other factors are:
- Risk. The greater the potential of a project to reduce risk, the greater the potential return.
- Collaboration. The greater the ability of an application or project to support collaboration, the greater the potential return.
- Knowledge. The more a project or application has the potential to disseminate knowledge, the greater the potential return.
While understanding the benefits of different HRIS initiatives is important, so is understanding the potential cost and achievability of those benefits—and the relative costs and risks of different potential vendors’ approaches. I’ve seen a few key factors that really make a difference in both the relative cost and time-to-value of projects.
The first is cloud. Our data show cloud-technology projects deliver 3.2 times the ROI of on-premise ones. This is because of the lower initial cost and faster time-to-value, but also the ability to deliver greater value over time without the cost and disruption associated with traditional on-premise HCM deployments. Think about it this way: In the past, a deployment might take 12 to 18 months or more before users would ever access the software, let alone see benefit. Even if a vendor delivered an upgrade every year or two, many companies would delay those upgrades because of their cost and disruption, even if they delivered significant benefit. Today, with most cloud vendors delivering innovations on a quarterly or more frequent basis, with upgrades that are relatively seamless, companies can achieve greater benefit or make needed changes to an application without a big consulting bill or the cost of running parallel systems to avoid business disruption.
Another innovation impacting time-to-value, cost and risk—which is also cloud-related—is the availability of implementation wizards. Designed to automate much of the configuration of an HR solution to meet a specific business’ needs—based on the data and best practices captured by vendors through other organizations’ cloud deployments—these wizards can automate up to 80 percent of the coding, customization and configuration associated with a deployment. This reduces consulting costs (which can often account for 20 percent to 30 percent of deployment costs), risk and ongoing costs because there’s less customization to support. The implementation wizards provided by many cloud vendors have an important practical impact as well: Because they are based on best practices, they can be an impetus for changing existing processes. Rather than debating how much customization is warranted to support “the way we’ve always done things,” managers can use the wizards as the standard for new processes, treating deviations as exceptions to be considered rather than requirements.
The third important deployment consideration is usability. More usable applications reduce training time, accelerate adoption and increase employee engagement, particularly in self-service areas such as scheduling, benefits, and talent and performance management. We’re seeing usability innovations in mobile, embedded analytics, and personalized or role-based views as important factors driving adoption and ROI. As workforce entrants’ expectations for employers increase, usability can support recruiting and engagement as well.
As organizations look to HR technology to go beyond just reducing costs to increase efficiency and optimize returns from their overall labor investment, there are a few key areas where technology vendors are investing that are worth considering:
- Collaboration. In the past two years, we’ve seen many HR-technology leaders invest in embedded collaboration and content management within their solutions—both organically and through partnerships. Collaboration can increase the breadth and repeatability of HR applications and provide a wealth of unstructured data for analysis in areas such as talent and performance management.
- Embedded analytics. With basic backward-looking reporting becoming table stakes for any HR application, vendors are investing in predictive and prescriptive analytics to help HR and line-of-business managers better understand workforce performance, predict cost and disruption factors such as absenteeism and flight risk, and make data-driven decisions in real or near-real time.
- Artificial intelligence and machine learning. While we are in the early days of the development and adoption of embedded AI and ML, the use of AI to extend, automate and enhance the HR function has great potential benefit. Look for immediate applications in areas such as talent acquisition and a broader impact over time in talent management and workforce scheduling and optimization.
- Engagement and philanthropy. With half of employees believing it is important or very important to work for an employer that is aligned with their social views and principles, look to HR solutions to bring outside philanthropy into the overall employee-engagement picture. Whether it’s enabling scheduling of group or company volunteerism, integrating giving into payroll options, or tracking and measuring skills learned outside the workplace in internal talent and skills profiles, savvy HR professionals will leverage the capabilities of technology to support philanthropy-related employee engagement.
Making sense of the complexities of HR technology is one of the challenges facing HR and business leaders. It can also be a great opportunity—as the effective use of technology can be a competitive advantage for talent acquisition, engagement and ongoing optimization. Using breadth and repeatability (and the other factors) as your guide, taking advantage of the cloud to drive faster time-to-value and flexibility, and embracing analytics and AI as an extension and enhancement (not an exit) for HR can help build the profile and leadership skills of your HR and HRIS team.
The HR Technology Conference will be held Oct. 1 through Oct. 4 at the Venetian in Las Vegas.