The most important decisions made by business people are not WHAT decisions, but WHO decisions. — Jim Collins
Convincing leaders to invest money in their people (beyond their salaries, which are also getting squeezed) can be a heavy lift. Most leaders view people as an expense/loss to be minimized on the balance sheet. Many executives believe that funds spent on human ‘resources’ (HR) generate a low rate of return compared to other investments (equipment, technology, R&D, marketing, stock buy-backs etc.). This is why the HR leader is usually not a full strategic partner in the C-suite of most organizations.
And so it fell to the people who offer training, coaching, consulting and other talent development services to ‘prove’ they are worth the cost. This challenge spurred a large-scale research effort to calculate the return-on-investment (ROI) in a range of HR development programs. Summaries of this research are available in the references below.
So what have we learned about the ROI in HR? The quick answer:
For every $1 invested in talent optimization, the economic value added is in the range of $2 - $10 (ROI = 200% - 1000%)
Most of us would be thrilled to have that rate of return in our personal investment portfolio. And yet an interesting thing happens when this ROI research is presented in the executive suite: LITTLE OR NOTHING! Most leaders listen politely (or not) to the presentation, and then go back to doing what they were already doing: treating people like a cost and squeezing them hard.
In my experience, the leaders who invest in robust HR development programs do so because they want their organization to be the kind of place where people want to work and succeed together. In other words, investment in HR is more of a VISION-based decision than a purely economic one. So if you are a leader, you might want to ask yourself:
What kind of place do I want my organization to be? How do I want people to be treated here?
Do I view the people who work here as a cost to reduce or an asset to invest in?
Am I willing to invest precious limited resources (e.g. time, attention, money) in helping people thrive and succeed for mutual benefit? How much, and on what?
REFERENCES
J. Phillips et al., The Human Resources Scorecard: Measuring the Return on Investment
J. Phillips, Return on Investment in Training and Performance Improvement Programs (2nd Ed.)
D. Goleman et al., The Emotionally Intelligent Workplace
T. Steward, Intellectual Capital: The New Wealth of Organizations
J. Pfeffer, The Human Equation: Building Profits by Putting People First
F. Reicheld, The Loyalty Effect: The Hidden Force Behind Growth, Profits, and Lasting Value
M. Beer, High Commitment High Performance
I think now is a great time to bet on human development and support. Thanks for your clarity with data. Happy Monday
ROI on talent optimization should be shouted from the rooftops. Yet the resistance comes down to short-term thinking and risk aversion. The companies that win are those brave enough to invest in their people’s growth.
Happy June Baird :)
Cannot believe we are here already!