In the first piece of this series, we focused on being reflective, or more specifically, reflecting on the priorities of your company’s business and how your people-focused priorities support the needs of the business. In part two of this series, we focus on getting to the ’So What, which involves building a case for certain software investments.’
Companies are like personalities; each one is unique. Getting to the ’So What' comes in three forms:
a) Understanding the personalities and priorities of the people involved in the decision-making process so they hear you;
b) Understanding that just switching software won’t magically get you to your ROI target;
c) Understanding what will deliver impact to the business.
Let’s break these down.
If it’s the CEO, s/he is going to want to understand how an investment in certain software supports the vision and advancement of the business.
If it’s the COO, s/he is going to want to understand how the investment will deliver improvement in critical business measures/ impact KPIs.
If it’s the CFO, s/he is going to need to see the impact of the investment over a three-to-five year period; understand how it's congruent with an appropriate discount rate and calculate it against the operating margin for benefits. which are revenue-centric. In other words, appreciate the mathematical detail in your business case.
If it's the CHRO, s/he is going to need to have confidence that alignment to the business is achievable. Achievable is the keyword here, and a perfect transition point to b) below.
Change can be expensive and is always disruptive. If you're comparing business cases from vendors you're considering and pick the one with the higher "ROI," it may not be a mistake, but I would argue that it does come with a degree of risk. For example, if you’re making a straight TCO (total cost of ownership) decision, and pick the lowest-cost option, then you're deciding on a single, although certainly important, data point.
It is at this point where people typically bucket benefits into two categories: Hard costs (TCO), and soft-costs (the fluffy stuff). For the term "soft-costs," I pull from my colleague Dr. Tom Tonkin who has a great quote on this point: "I like to call soft-costs the ’harder costs.'" I could not agree more. Soft costs are not fluffy at all. They are truly the hardest costs to achieve and are typically the ones that move the business. Soft-costs don't just happen; they require user adoption: use of the system, and adoption of the processes. If you fail to address this as a part of your business case you should expect it to be raised as an objection when you present. I've seen it before, "...and how do you expect to do this exactly?" A C-level executive who is not close to your day-to-day will ask that question. My point: Don’t just focus on the numbers Give attention and detail to explain how the investment will affect change in the organization, i.e., the "so what."
I think it’s natural for HR & talent specialists to focus on efficiency measures instead of effectiveness measures. Although efficiency measures are good, effectiveness improvements are better:
- Instead of talking about efficiency, which accounts for .5-2x ROI)[1]:
- % of performance reviews completed
- # of employees with goal plans
- Time spent by managers and HR
- Focus on effectiveness, which is 8-10x ROI)[2]:
- Productivity and engagement
- Business results
- Improvement trends
- Revenue per employee
When it comes to calculating any benefit, I offer these points to consider:
- Calculate your impact over a five-year investment horizon versus a three-year. Why? It may take your organization three years to fully implement and for all employees to adopt the use of the new system. You do not want to leave yourself with little-to-no runway to recoup the investment.
- If you’re calculating revenue (top-line) impacts, net those impacts against your operating margin. You still have to account for business costs.
- Be comfortable with the assumptive improvements you use, such as the following. If you have that funny feeling in your gut, adjust:
- The percent of turnover reduced.
- The percent decrease in time to productivity.
- Customer conversion improvement percentages (ex. retail spending).
Don't forget to address the elimination of legacy costs, areas such as previous licensing / subscription / maintenance / support costs. This would also include reducing any previously required integrations, physical space, etc.
You will find overlap when thinking about benefits that align with the priorities you set, and that’s okay. That said, be sure to prioritize based on what will move your business, and that only comes from truly being reflective, which will, in turn, help you get to the "so what."
With parts one and two now behind us, be on the lookout for the final installment focusing on delivering the story you are now in the final stages of completing.
Notes:
[1] Source: Bersin & Associates, CedarCrestone
[2] Bersin & Associates, CedarCrestone
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Header photo: Creative Commons
