Marc Effron, HRExaminer Editorial Advisory Board

Marc Effron, HRExaminer Editorial Advisory Board

At a recent Talent Management in Financial Services breakfast, a participant stated that having better return on investment (ROI) metrics would help to prove talent management’s value. Unfortunately, my literal response was, “Those who worry about talent management ROI are insecure HR leaders who feel the need to justify their existence.” While perhaps lacking nuance, my comment highlighted the needless distraction and effort spent trying to justify talent management’s value.

HR leaders are understandably jealous that other functions’ can so easily prove their activities’ financial impact.  At our monthly executive team meeting, we hear our CXO peers describing their investments and returns.  Operations, Supply Chain, Finance, IT and even Marketing can offer compelling analyses about the financial return that their spending has yielded.

HR’s contribution to that financial conversation is limited to benefits costs, pension underfunding or vendor-derived misstatements about technology cost savings. We can present data analytics, engagement scores and other quantitative information, but we typically don’t have actual ROI. Any concerns that lack of ROI is diminishing our ability to prove talent management’s value are unfounded since:

1)   Your CEO Either Gets It or S/He Doesn’t: If you need to present potential ROI numbers to convince your CEO to invest in talent management fundamentals – holding executive talent reviews, differentiating the experience of high potentials, global movement – you have a long journey ahead of you.  Just remember that there’s no sainthood awarded for being an HR martyr.

2)   Your CFO Won’t Believe You Anyway: Any CFO worth his ledger isn’t going to believe your stated ROI for a talent or HR program. He’s used to making fresh-faced, Ivy League MBAs cry by dissecting a financial proposal’s every assumption and pointedly questioning its logic. And that’s with investments that have quantifiable inputs and outputs! Your ROI analysis that takes “soft” inputs (engagement, training, coaching) and proposes specific dollar returns (or vice versa) will be met with a polite smile and a hidden smirk.

3)   HR’s ROI Calculations are Often Laughable: A quick web search turned up the this example on the SHRM site. In an instruction deck on calculating ROI, the author’s logic was:

  1. Assume the average revenue per FTE is $287,323. This calculates to $787 in revenue per employee per day
  2. Assume our HR investment reduces time to hire by 10 days
  3. Our investment has increased productivity by $7,870 per hire

You can pass a solar system through the holes in this logic, yet it’s not unusual math in many HR departments.

4)   Broad claims don’t yield company-specific benefits:  We can’t prove our case using generalized research findings, yet this type of ROI claim abounds in HR presentations.  For example, “Watson Wyatt concludes excellence in all talent practices is associated with a 47 percent increase in market value.”  True? Maybe. But first refer to #2 above then ask why anyone would trust such generalities when making a financial investment.

Measurable ROI is a laudable goal but a high bar for talent management practices. To calculate ROI you must be able to accurately measure the financial input and the financial output of an activity. While practices like succession planning or performance management can certainly deliver value, there are too many other variables involved to accurately determine their specific and unique contribution.

If you question the value add of talent management activities at your company, answer these questions:

  • Do you thoroughly understand your company’s business strategy?
  • Do you understand how your senior team wants talent managed?
  • Have you created talent processes that are being executed and that reflect the two questions above?

If you can respond affirmatively to those three, it’s likely that your talent management activities will have a positive return on investment. That should help sooth any lingering insecurity.

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