Return on people investment is not a new concept in HR. Now gathering interest right up to board level, its significance to business has only grown over time. In an environment where critical skills shortage is a key people issue for leaders, being able to deliver return on people investment is recognised as the differentiator for business growth. And while a ‘top-down’ strategic planning process is ideal, this is not often the case when it comes to getting buy-in for people programmes. So how can HR demonstrate the connection between people investments and business results—and ultimately, deliver the returns the business demands?
Set the goals, and identify the capabilities required
Everyone needs to grow their business, but business leaders must first identify what this means. Will you grow by expanding into new markets? Will you develop new product or solution lines? Do you have plans to acquire companies?
Your answers to these questions will kick off the process of deconstructing your strategy into meaningful components. For example: If you’re looking to grow through expanding your product or solution portfolio, is your organisation agile enough to incorporate the new portfolio? Do you have the right product development processes and tools in place? How will your marketing capabilities need to adapt? And have you created a differentiated employee experience to retain and attract the right talent?
Subsequently, HR must deconstruct these capabilities into specific people and organisation goals to enable the growth agenda. Developing these capabilities often requires new investments, as well as measures to track success—and returns.
Create an audit trail
Yet, while this deconstruction process represents an ideal world where ‘top-down’ strategic planning clearly outlines the necessary people investments, we operate in reality where many valuable people programmes are often questioned—and canned—because HR struggles to clearly link them to business goals. If this is your situation, here are 3 actions you can take in order to hold effective discussions on investment in people programmes:
1. Articulate the business and HR decisions required to achieve the desired goals for each existing people programme.
Who should you hire to increase organisation agility? Who should we promote to lead a new product line? How can improving engagement drive higher productivity? How can we alter our incentive plans to increase new product sales? By shifting the language of the discussion to specific and actionable decisions that the business must make, it elevates the conversation beyond static programmes and shows ‘why’ your people programmes enable the achievement of the desired goals. As always, support your argument with data.
2. Define what success looks like with clear success measures that bridge the gap between people programme outcomes and business goals.
For many existing people programmes, stakeholders are not clear ‘why’ they exist or ‘what’ they will deliver. This is because the programme outputs are not clearly stated against outcomes the business cares about. As a simple rule, look to align programmes to one of 3 key stakeholder groups: Shareholders, Customers and Employees. For example, the success measures for introducing a new suite of assessment tools can focus on the decision: ‘Who do we hire to build an organisation where people take more accountability?’ Success stems, not from how quickly people are hired, but from showing how new hires make the right decision for customers more quickly.
3. Build more rigorous business cases, supported by financial models.
Traditionally, the Finance and IT functions have used business cases with sophisticated financial models (such as discounted cash flow analysis) to receive the attention and focus of key decision makers. As a result, both functions are able to consistently tell clear stories of where money will go, how it will deliver outcomes, and ultimately, what the actual results are. The HR function, on the other hand, has often struggled to directly link spend on people programmes (including rewards, learning and development, recruitment tools, and HR technology) to measures of return on investment. Yet the same financial models are relevant to make the business case for people investment too. Besides, no organisation would think of investing in HR technology without a rigorous business case and return on investment calculation, so why shouldn’t investments in engagement or leadership development be held to the same standard?
Build a new mind-set around data and business cases
Data empowers organisations to make informed decisions on how to best achieve their business and people goals. In addition, continuous listening through constant conversations and frequent pulse surveys—not just organisation-wide evaluations once a year— provides up-to-date and relevant data for leaders to make the right decisions and act on making improvements to their people investments.
As with any form of investment, it’s only natural for businesses to expect positive returns. While the potential outputs may differ from one organisation to another, the technique to achieving positive return on people investment remains the same: HR must keep business leaders and boards captivated through every step of the journey from goal, to decision, to investment, to return.
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Need help with deconstructing your strategy, and building a case for your people investments? Get in touch with us.