Pre-recession, investing in the best talent was viewed as being so vital to a company’s success that there was often no call for a business case – it was a no-brainer.
Five years later, in a tough economic climate, HR leaders face increasing pressure to justify investment, and there is a view that traditional 'people' metrics alone no longer cut it.
Research from Cirrus into measuring investment in talent found that nearly two thirds of HR professionals feel the pressure to justify a return on investment and create a financial case for talent.
More than half (54%) of those surveyed feel their company has not invested enough in talent, yet 87% believe senior management still view it as being critical to the bottom line.
The research shows there is a very real need to justify the business case for talent, yet almost half of all respondents feel it isn't possible to calculate the financial impact of talent investment. 47 feel that HR professionals lack the relevant skills to drive this forward.
Are we looking at a HR skills gap, or is it actually feasible to calculate the financial return on talent investment?
For many HR leaders, traditional people metrics such as retention, performance ratings and succession ratios are still used to show talent's worth. Irrespective of the demand for financial metrics, there was a feeling among those surveyed that it shouldn't be a case of one set of metrics replacing the other. If anything, the financial and the people metrics need to dovetail to create a balanced approach where traditional metrics are a key part of any return on investment equation.
As Hasan Khair, Regional Talent Director, EMEA, Saatchi & Saatchi said: "An ROI narrative built on pure financial metrics isn't a rounded view. Intangibles, such as culture and what people feel are equally important."
Dr Richard Waters, group head of learning and development at Hays, said: "The word I use is value - and value is about more than money. It is about how we deliver against the organisation's wider strategy and this ultimately trickles down to the bottom line."
Many other HR and talent leaders also argued that people metrics such as succession, employee engagement and motivation are predictive indicators of future business success. Evaluating the return on investment should include these benchmarks as complementary metrics to the financial data.
Just one in four of the organisations surveyed linked revenue and profit margins to ROI in talent - suggesting the lack of a commonly accepted financial model of assessment.
We suggest there are four key steps to create a rounded and more connected approach to assess return on investment in talent:
Use a strategy map to convert intangible assets into tangible outcomes
The core of this approach is based on the strategy map developed by Professor Robert Kaplan of Harvard Business School. By using a strategy map, you can track 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.
Work with finance teams to gain valuable insight into marrying people and financial metrics. It is also important to connect with any leaders whose activities are likely to impact on investment and treat them as stakeholders.
Irrespective of retaining traditional metrics as a measurement tool, skills shortages across the profession could limit the effectiveness of a dual approach. Developing skills to build capability even in the most basic of financial metrics could become a vital part of HR's development.
Technology and a data-driven HR function
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 HR leaders, the challenge of measuring the ROI in talent is an opportunity to bring a unique perspective to the usual financial business case. Traditional metrics such as motivation and engagement are powerful predictors of future business success. Combining these with hard financial measures can enable HR to prove its value and contribution to business success.
A talent strategy linked to strategic goals can give an organisation a real competitive advantage. HR professionals who can embrace the growing complexities of their role and shape a balanced case for talent investment can have a real impact on organisational success.
Rob Davies is principal consultant at leadership and talent firm, Cirrus and Liliya Apostolova is product marketing manager at talent management solutions company, Lumesse
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