Setting clear goals first step to finding ROI

Linking HR technology investment to organizational objectives is mandatory in most organizations

In the free-spending late ’90s, HR departments were among the most avid adopters of new technology.

This first wave of technology initiatives left HR executives with mixed feelings about whether their investments delivered a fair return. The cause of this lingering uneasiness? A failure to establish concrete goals for ROI at the outset of the project.

Due to 21st century economic realities, creating a business case that links HR technology investment to organizational objectives is no longer a “nice-to-have.”

It’s mandatory in 73 per cent of North American companies, according to the Cedar 2003 Workforce Technologies Survey.

The tracking of pre- and post-implementation metrics has the potential to benefit HR because it requires a disciplined approach to technology adoption. Further, it should position HR as a cost-reduction centre. Savings achieved by HR ripple across the organization, since it is responsible for supporting all employees in the areas of:

•benefits delivery and administration;

•HR policies and compliance;

•hiring and retention; and

•retirement and employee life events.

Any company that wants to ensure a significant return on any technology investment should first decide which processes and services need improvement and what measurements will be used to quantify that improvement. A baseline should be established and savings and process improvements compared to this benchmark.

Lower cost of service, usually shown through fewer full-time employees (FTEs) providing a given service, and increased productivity, meaning more work accomplished without increasing head count, are two widely accepted metrics used to calculate value.

Other items that are typically part of an HR technology ROI analysis include reduction or elimination of printing and distribution costs for materials, reduction of cycle times, reduced compliance risk and reduced time HR staff spends on routine administrative tasks.

While ROI calculations are appealing because they should deliver objective data, company culture and management expectations also come in to play in structuring the analysis. For some companies, hard dollar ROI realized from eliminating line items on the budget is the driving factor. Soft dollar ROI, such as improving service to employees and centralizing benefits administration, may be less compelling because it is more difficult to correlate directly to the bottom line.

Case studies in implementation

Lee Enterprises, a major newspaper publisher headquartered in Davenport, Iowa, wanted to centralize HR operations and provide online self service for benefits administration, while preserving its traditional, “high-touch” relationship with its 6,700 employees spread out over 100 sites.

Through the implementation of its online technology and the creation of a centralized call center, Lee reduced expenses, increased efficiencies and improved the quality and consistency of information delivered to employees.

The company estimates savings at about $750,000 (US) per year in staffing costs due to HR staff redeployment and reduction. Other savings include elimination of printing and shipping of new hire materials, which is estimated at $16 per employee, and elimination of 30 minutes of staff time that was spent entering new hire enrolment data. Since the company hires about 2,600 new employees each year, this represents a substantial savings.

Using Six Sigma to build a business case

Tenneco Automotive is a $3.5 billion (US) global manufacturing company based in Lake Forest, Illinois. The company uses the popular Six Sigma quality assurance tools and other methodologies to improve productivity and reduce manufacturing errors. Those same principles are used to evaluate HR and other business functions.

Prior to the implementation of benefits plan management software, Tenneco conducted an analysis of the amount of time HR managers spent answering employee questions and the time that employees waited for a response.

This study was part of a larger project intended to quantifiably reduce policy inquiry cycle time and eliminate costs associated with delivery of inaccurate information.

Six Sigma methodology proposes that defects arise from variation due to either process, material or design flaws.

The first step is mapping processes and identifying non-value-added steps in the process, followed by data collection and analysis. Tenneco established that the waiting time for an employee to get an answer to a basic policy question, which it called a Tier I inquiry, should be 59 seconds or less.

The study found that the actual average waiting time for sample groups at three locations was 13.7 minutes. This data was a powerful part of the business case Tenneco used to validate potential for cost-savings that could be achieved by automating HR communication.

Now that the online system is live, Tenneco has begun collecting data to confirm that the wait time for answering employee questions is shorter, and that HR receives fewer Tier 1 calls and has more time to spend on value-added activities. Employee surveys and other followup will quantify improvements and track savings.

As the experiences of these companies demonstrate, as long as the implementing company takes the time and makes the effort at the outset to establish concrete and measurable goals, HR technology can deliver ROI that meets management expectations and creates a strategic advantage for HR.

Nancy Okochi is a product director at White Plains, N.Y.-based, ProAct Technologies Corp. She can be reached at [email protected].

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