When the economy gets tight, companies start to question all their costs, especially those related to non-productive activities. And among them, HR figures prominently. Not the HR function as such (although….but Elon Musk is not representative) but what it does.
Thus, the traditional question of the ROI of the HR function comes up cyclically. A question that most agree is poorly asked and therefore has no real answer. But since it has no answer, it comes up again and again.
ROI or impact of HR
As a Cartesian and ROI oriented person, I find the term inappropriate. If I am asked to judge the HR function on its ROI, I would say that it is a disaster. On the other hand, I know that it is indispensable and we can see what has happened to companies that have neglected it.
But I don’t find any ROI as such, in other words the systematic guarantee of a known return for each euro invested. This does not mean that it does not bring anything, which I also understand. So the term ROI is not appropriate.
There are investments whose potential ROI can be estimated upstream and then monitored downstream. In general it is overestimated at the beginning and we have a realistic vision once things are in place but it is quite simple to make a ratio investment / value created. That the result is not pleasing because the promise was excessive is another matter.
The manager of a factory who replaces an old machine with a modern one knows that he will produce x more parts per hour. Once the indirect costs are taken into account, he can project himself. This is pretty much the case as soon as we talk about machines or automated processes. It goes from a fleet of cars to software, from servers in companies with large IT needs to ovens in a bakery.
There are cases where the approach is more complicated. Better recruitment? More pleasant and functional offices? Train people. Everyone understands that this has a positive impact. But which one? Is it enough for what it costs?
Let’s face it, there’s no way to know for sure before doing it. But since in business we don’t know how to get out of a reassuring reading grid, even if we know it’s inappropriate, we try to make projections, and generally we are wrong (first because there is no mathematical relationship, then because we want to convince, so we embellish the figures) and in the end the result is disappointing. Not because it doesn’t work, but because we promised too much.
Maybe it is better to admit that we don’t know. That logically we should have an improvement, that if we compare with what has been done elsewhere it should give such and such a result, but that it is to be taken with care because there are too many unknowns.
This reminds me of the time when I led many projects in the field of collaborative/digital workplaces. What is the ROI of such a solution? The problem is that the ROI is not so much related to the solution but to the way it is used, which is a much more complex and complicated subject. And as companies tend to invest in the tool (the what) so as not to have to worry about the transformation of the work (the how) you can imagine the final result.
At the time I was talking about indirect ROI. The solution had no ROI but allowed a deep transformation of the way of working to take place and to produce one. And you’ll see below that we’re not too far from that topic here.
In short, to come back to ROI, I think that talking about ROI in the strict sense of the term is not relevant because the formula that links investment and benefits in a systematic way does not exist. On the other hand, we can talk about impact. You will tell me that this does not answer the question of “how much it pays off” and this is precisely why it is a good approach because it does not deceive, does not lie and does not make false promises.
HR and indirect ROI
The problem with the HR function, and so-called “support” functions in general, is that their ROI is indirect. They enable others to do their jobs better, but their impact is neither mechanical nor always traceable.
Added to this is the fact that they are perceived as being distant from the business. Marketing, even if it is accountable for the money it uses, can afford to make bets because in the end it brings in customers. The same is true for procurement, which allows savings to be made, at least in theory, because there can be significant side effects.
In an incomprehensible way, the HR function is considered to be out of touch with the business. And the worst thing is that it seems to have learned to like it and it’s not the HR Business Partners that are going to change much when they are not a masquerade.
At one time, as Director of Employee Experience, I had a very operational approach to the subject by simplifying processes, tools and organization. Smoother work, less mental workload, time saved… the idea was to have something very quickly perceptible, visible and measurable, which would be translated on the customer side. Once the ROI task was checked off, I was at peace to do whatever I wanted on the side. And when the People function ends up on the board of directors with a business tag, and even ends up taking over the management of operations, there is a way to do things. But you have to choose the right approach from the start.
But let’s get back to the topic at hand. The problem with HR is that it creates potential for others but is then dependent on what others do with it.
HR is dependent on the field
I will take a few cases in a non-exhaustive way. You might think that better recruitment, better trained employees throughout their lives, more functional offices and a generous salary policy are a pretty good basis for a successful company.
But…
HR can recruit the best talent, fully aligned in terms of skills, values, soft skills… but the talent is then immersed in a context with a manager, colleagues, tools and processes.
Toxic manager? Failed collaboration? Inadequate tools? Dysfunctional processes? HR can’t do anything about it, but it’s what will allow the potential of the employees to express itself or to be ruined.
I would say that it is better to have a bad recruiter who puts average profiles in a good context than a very good recruiter who puts top talents in a context where they cannot express themselves.
An effective training policy?
If the manager puts the brakes on the subject (an employee in training is an employee who does not produce), favors short and light training sessions (for the same reasons), does not want to see his employees develop too much (he may become obsolete), or even refuses to implement what has been learned (he has his own methods and approaches), what HR has put in place will be partially wasted.
More functional offices?
Take the most functional offices in the world, put an army of bad managers in them and you’ll understand why employees love telecommuting.
Generous pay policy?
Of course you have to pay employees the right price, and sometimes a little more in a tight market. But a company that systematically overpays often does so to make people accept certain inconveniences.
This works for a while, but either the employees end up leaving or go into quiet quitting mode. Paying for the value of the employee and adapting to the market is logical, but if it is to mask all those problems that make the work of HR have only a partial impact on the field, it is the worst solution because
1°) You don’t solve problems that penalize the performance of HR, but especially of the company
2°) It increases the “people cost” and therefore leads the company to be even more careful about HR investments and to refuse some that would make sense.
Conclusion
If it is far from being perfect and exemplary all the time, the HR function is too often challenged on the wrong ground. Its problem is to invest to create a performance potential that others will use or ruin.
Since we’ve just come out of the soccer World Cup, let’s talk sports.
Imagine that a person recruits players, trains them according to a game plan. Then imagine that on the day of the game, another person manages the players by making them play differently, not in their position with a management style that is not appropriate.
Imagine then that the first person is blamed for spending too much money in relation to the team’s performance.
That’s the problem with HR
Related articles:
Many challenges and lots of progress to make for HR according to IBM
How does digital transformation look like #1 : the visible part
Talents have gone digital. HR didn’t.
HRIS to serve people, not only HR
Training: an experience that does not think enough about its “client”.
Why do employees learn little at work?
