In a time of economic downturn, every business turns its attention more keenly to where investments are being made, and the justification for any spend becomes paramount. Return on investment (ROI) becomes the focus, and the challenge of how to accurately measure ROI comes to the fore. For business leaders, this brings increasing pressure to build a compelling business case for investing in talent management.
Recent research into this topic with HR and talent professionals from a range of sectors including: banking and finance, FMCG, leisure, media, advertising, manufacturing, professional services, retail and utilities. The results pinpoint some of the key challenges facing HR and talent professionals in relation to calculating ROI, and this article explores some possible solutions to these challenges.
Of the findings, the most notable were that under half (47%) of all HR professionals believe they do not possess the requisite skills to develop a financial business case, with a significant proportion (48.5%) feeling that it isn’t actually possible to calculate the financial impact of talent investment with any accuracy.
79% of HR leaders think that senior management at their organisation believe effective talent management is critical to the bottom line, and the same number of respondents acknowledge the need for an element of financial measurement.
A disconnect clearly exists between what HR professionals feel they need to deliver, and what they feel they are trained for. Irrespective of retaining traditional metrics as a measurement tool, skills shortages across the profession could limit the effectiveness of a dual approach that combines financial and non-financial measurement.
Developing skills to build capability in creating and applying a range of metrics (financial and non-financial, soft and hard), could become a vital part of a HR’s professional development. An understanding of financial measurement will help HR professionals to validate expenditure, which in turn can help protect budgets, and secure more money to improve recruitment, retention and development – all of which are critical.
Another key finding is that 4 out of 5 of those surveyed say HR should do more to measure and evaluate the financial and non-financial return on talent activities post-implementation of talent programs. One way to achieve this combined measurement is using a strategy map, which tracks both financial and non-financial measures to wider business goals.
The map allows intangible metrics to be clearly connected to more concrete metrics, ensuring that the strategic impact of the investment is comprehensively valued. It combines the talent activity and resulting level of improvement in capabilities with resulting business performance and financial data such as increases in revenue or market share, to give a cohesive overview of ROI.
Along with developing the business skills to demonstrate ROI, HR professionals and business leaders increasingly lean on technology to help them align talent to business metrics, and gather talent data with strong analytics to quantify and support post implementation ROI measurement of their talent programs.
Unifying and integrating talent processes with the help of technology creates meaningful insight and helps demonstrate talent ROI. Research into HR technology buying trends highlighted that a fifth of organisations are using up to ten separate systems. Unifying all talent management processes using core platform could help HR teams advance business analytics.
For many business leaders, traditional people metrics such as retention, performance ratings and succession ratios are still used to show talent’s worth. Financial and people metrics need to combine to create a balanced approach where traditional metrics are a key part of any return on investment equation.
For this to be successful, HR needs to be inclusive. Working with finance teams to gain valuable insight into linking people and financial metrics, and connecting with any leaders whose activities are likely to impact on investment, can be very effective.
The topic of measuring ROI in talent is a challenging one. However, using both financial and non-financial measurement enables the delivery of a unique business case that draws on the power of traditional metrics such as motivation and engagement, as well hard financial facts and figures. Investing in this process will ultimately help to prove the value of talent management to the business as a whole.