How Do You Justify Your Investment in HR Technology?

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Technology has transformed the way departments across organizations operate.  With SaaS and cloud-based software becoming increasingly mainstream, it is not just the big enterprises that experience this transformation. Small and medium businesses along with startups are all benefiting from these changes.

While the HR department has been a little late to the party, it is definitely catching up. Companies are increasingly looking to HR technology to digitize existing processes, and find new and effective ways of executing traditional HR tasks. Today there are multiple software that operate in the HR tech space helping organizations in recruitment, on-boarding, payroll, leave & attendance, performance management and exits etc.  HR technology has become critical in improving and defining the employee experience.

But unlike finance or marketing or supply chain, HR is a support function. It doesn’t directly contribute to revenue maximization or cost savings. So, defining Return on Investment (ROI) on HR investment can at times become challenging.

Having said that, people are by far the largest expense for most businesses, so it is not very difficult to present a business case for HR technology. Here, we’ll break down exactly how you can go about doing it.

Define Benefits of HR Technology

The first step is crucial. You have to demonstrate the benefits of HR technology in a way that brings all other executives on board. There are two main kinds of benefits that are likely to get you the buy-in from the management. These are:

1. Benefits that will not just impact the HR department in isolation but will positively impact all other teams as well
2. Benefits that can be easily quantified, especially in terms of cost savings.

If the benefits don’t fall into either of these two categories, it’s unlikely that you will get the buy-in from senior leadership. Which means that as you assess the HR software market, and zero in on the best tools to implement, you need to figure out how to showcase these two kinds of benefits.

Inter-departmental Benefits

Things like operational efficiency or better UX will not appeal to executives as a good enough reason to invest in HR Tech. But accessing and using meaningful data to improve the quality of overall decision-making is a big bonus, and here HR Tech wins big. Here are some of the biggest benefits that cut across departments:

Quality of Hire

Using the right performance management software can help you understand how well employees from different recruitment channels are performing. This is an important tool to understand which channels to recruit from. For instance, the data may say that employees coming through referrals are high-performers while those coming from a job portal are less likely to perform. This gives interesting insights on how to manage the recruitment strategy.

Employee Convenience and Privacy

In an era where millennial and Gen-Zers make up the largest cohort in the workforce, factors like ownership, flexibility, and privacy become very important. A good HR software allows employees the convenience to access relevant information at the click of a button. These software give them the added functionalities of anytime and anywhere access thereby increasing convenience for the employees. This adds positively to the employee experience.

Employee Engagement

HR Tech enables you to build stronger employee engagement through real time recognition and reward systems. A good performance management system also allows managers to communicate expectations more clearly and systematically, and then evaluate performance continuously over time. This helps motivation, team alignment, and overall productivity— something all senior staff value dearly.

Skill Building

Having HR tech that contributes to employee skill-building in a way that leads to an increase in productivity and accomplishment of goals can go a long way. Plus, having the right e-learning tools (for example – Learning Management systems) in place gives employees opportunities to build relevant skills and hence a greater degree of satisfaction and motivation, which in turn plays a big role in employee retention.

Analyzing Workforce Trends

HR Tech tools with in-built analytics allow executives to track important workforce metrics over a period of time. This helps make people-centric decisions which, in the long run, can generate massive ROI because of a loyal and productive workforce.

Creating a Good First Impression

Employees, prospective candidates and third-party recruiters get the first impression of your company through the recruitment and on-boarding process. If it happens seamlessly, it can create a great first impression, and help in building the employer brand. That’s the kind of benefit that most CXOs would be happy to pay for.

Quantifying Benefits

The second way to convince executives about ROI on HR investment is to show them how it benefits the bottom line. While HR does not directly contribute to revenue maximization, it is definitely a cost center. And the efficiencies that technology brings in, can result in significant cost savings. All you need to do is create a framework that enables executives to see this clearly. Here are some of the biggest areas where HR tech can lead to significant cost optimization:

Process Optimization

Implementing HR tools can eliminate the processes that are manual in nature. These processes include but are not limited to manual enrollment into benefit plans, sending paperwork on benefit enrollment data to insurance providers, manual processes involved in performance appraisals, compensation planning, and the recruitment and onboarding process. While, it will lead to fewer people being hired at the entry-level, it will also free up time for senior executives, who can shift their focus on more strategic solutions.

Reduction in Time Taken

Process automation in HR tech also reduces the processing time for several repetitive tasks. These include:

1. Generating reports can now be automated
2. Enabling employees to access these reports
3. Data entry into different systems and the high room for error, as a result, can be drastically reduced through process automation
4. Tracking of employees, notifications, and alerts can all become commonplace
5. Far less time needs to be spent on everyday admin

Compliance and Risk Mitigation

Manual compliance and pay-rolling can lead to things slipping on occasions. In such a case, you have to spend a lot of time dealing with legal hassles, not to mention substantial fines. Having HR tools handling pay-rolling and compliance can save companies a lot of headaches, and money in the long run. The biggest savings comes through the saving of senior management’s time that would have been needed if these slippages in compliance were to occur.

Making a Business Case for HR Tech

One of the best ways to add credibility to your proposal is to substantiate it with some actual case studies. In fact, the HR tech software providers you’re considering are likely to have some case studies that can help you validate your proposal in a big way. It’s also a good idea to have the big picture ready that showcases exactly how the implementation of technology will impact the company in the short (3-6 months), medium (12-18 months) and long term (24-36 months).

Conclusion

Given that HR is a support function, justifying ROI on HR investment can seem challenging. But, as long as you are able to demonstrate cross-team benefits and quantifiable cost savings, this should be easy enough to accomplish. Always ensure, of course, that you include as much data and case studies as you can to validate your hypothesis.