Measuring ROI: Return on Individuals: Investing in People Has a Feel-Good Ring to It-But What Impact Do Human Resource Initiatives Have on the Bottom Line? and How Easily Can That Impact Be Measured?

By Jayne, Vicki | New Zealand Management, October 2003 | Go to article overview

Measuring ROI: Return on Individuals: Investing in People Has a Feel-Good Ring to It-But What Impact Do Human Resource Initiatives Have on the Bottom Line? and How Easily Can That Impact Be Measured?


Jayne, Vicki, New Zealand Management


The leadership and innovation course you've just finished was a bit of a buzz--but what's it worth to your organisation?

If you don't apply what you learned to the work you're doing, probably not a whole lot. But then again, if you seriously enjoyed the process, at least they get the benefit of your gratitude, possibly your improved morale and even your increased loyalty.

Trying to get to grips with the value of organisational investment in people can be a little like nailing jelly to the wall--the link between what's learned and the bottom line benefit is often indirect, intangible and hard to quantify. Which is why many human resource (HR) departments shy away from it.

A recent survey shows the majority of New Zealand businesses are putting money into HR initiatives without attempting any formal evaluation of the outcomes. And while the costs of those initiatives are routinely tracked, the benefits are not. It's an approach that not only risks wasting money on poorly targeted initiatives but rather seriously undersells the impact of HR practices.

When the links are made between those practices and a company's organisational performance, they turn out to be pretty significant. The results of a recent study on human capital practices in Canada and the US (The Human Capital ROI Study, Deloitte & Touche) suggest they represent as much as 43 percent of the difference between the market-to-book value of one company compared to another.

It also found that while a small set of human capital practices are universally valuable in driving financial success, it's not a case of one size fits all. A practice that works for one organisation may not work as well for others and certain widely accepted practices vary in how they add value.

It seems few New Zealand companies would be able to identify where they get the best ROI on their human capital spend. A nationwide survey conducted jointly by Deloitte Human Capital and education specialists The Learning Curve, and involving 108 organisations of varying sizes, found that just 18 percent measure the tangible business impact of their HR programmes. Most of the rest are "using intuition, perception and general observations", says Learning Curve director Cheryl Reagan.

The result is that while the tangible cost of HR is readily apparent on corporate balance sheets, the return on that investment remains intangible. That makes it a lot easier to take the cost-cutting knife to HR programmes when times get tough, warns Jack Phillips--a visiting American who's been described as "the gold standard" on capturing the ROI in learning.

According to Phillips, the local survey results are a bit disappointing and lag behind international best practice. "It's not all bad news. There are some great investments in people going on here. The missing part is the ability to show the value of a particular project or programme. There's a perception you can't do this--it's too difficult or costs too much, but it doesn't have to be that way."

Both Phillips and his wife/business partner Patti have authored books on evaluating human capital investment ("I do the fat ones--hers are more readable"), and visited New Zealand recently to run workshops on the subject in partnership with Deloitte.

"Our advice," he says, "is to take on the challenge and put some impact in around those initiatives; show the returns. Otherwise you're in tiffs soft fuzzy area and when people are looking to cut budgets during a downturn, that's where they'll cut because they don't know the value"

But a downturn is when HR spending should increase, even if staffing levels have to be dropped, says Phillips while conceding that it can be hard to persuade senior management that's the case--particularly if HR benefits aren't captured.

So how to go about it?

Sooner not later

Asking whether money put in a development/training programme was well spent a couple of years down the track is worthless--you have to build evaluation into the programme right up front, says Phillips. …

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