ROI of Human Capital and Organizational Change Management: My Personal Story

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I was working for a company that had found themselves in a situation where they had poor morale. Raises were few, partially because of the economy and as a result, people were working very hard and not feeling appreciated. HR came to me to ask what to do. As an early design-thinker, my reaction was always to ask the “customer.” In this case, the “customer” was our own employees. When I interviewed them, I asked them what they wished they had- essentially what was missing? I found that the answers were very surprising. They didn’t feel appreciated. They didn’t feel they were growing and expanding their skills. They didn’t feel like they had a future or that the future looked bright or that they had a hand in creating that future. Or that they even mattered.

The Root Cause of Employee Dissatisfaction

I found that in the appraisal process, once the employee heard they were not getting raise, they shut down. So pretty, much after the first few minutes of the appraisal, they stopped actively participating. So when it got to the part where they were going through their goals for the next year, they had stopped engaging and were only going through the motions.

Because their future goals and engagement to their jobs and their careers was key to being a top company, I came up with the idea of separating the employee appraisal process from the employee development process. And set out to design a employee development process where employees could examine, through goal setting practices, personal-professional goals that would enhance their skill set and make them more valuable to the company, but also have a personal sense of accomplishment and growth.

The Cost of Low Employee Morale?

The cost? With my team, we estimated about $6M for 60,000 employees. I went to the executive leadership meeting and presented my proposal. There was lukewarm reception, that is… until I got to the cost. At $6M I was laughed at and told to sit down. That was the longest meeting I have ever been in. I couldn’t wait for it to be over. Trying my best to hold back the tears, I just sat there feeling awful.

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I went home that night and I did cry. I had interviewed the “customer” figured out what was missing and proposed the solutions. But what I didn’t do is calculate the return on the investment (ROI.) This was very early in my career and this experience taught me the valuable lesson of creating the business value or business case of whatever it was I wanted to proposed. The lesson served me well, because once I learned to do this, I always got my funding.

Calculating the Cost of Low Employee Morale and Attrition

So you might be wondering how did I calculate the ROI of employee development? Isn’t that a soft skill or a soft benefit? My grandpa had taught me that any time there is value, there is a financial benefit. You just had to find the numbers. So the next day, after a good night’s sleep, I went o HR and asked them, “How much does it got to hire this type of engineer – a digital signal processing engineer?”

They said, combining the recruiting teams time, traveling to various universities, ads in the local papers, radio advertisements, (This was way before social media) reviewing incoming resumes, having the initial screening calls, and then interviewing with a number of the staff and the hiring managers, getting the engineer a secret clearance, etc… the cost was about $150,000 / engineer.

And then I asked the crowning question, “How many engineers did we loose in the last month?” HR said, “200.” And I saw the ROI. If we had lost just 40 people, then $150,000 x 40 would equal the $6M I was asking for. But in the last 3 months we had lost 200, so the cost of attrition just for 3 months was $150,000 x 200 = $30M.

So with the loss of 200 engineers, if I could retain half of them, 100 engineers, then the cost of attrition would only be $15M.

Calculating the Cost of Employee Attrition

The ROI = Benefit – Cost  / Cost x 100 = % Return on the Investment

The benefit is the saving of the $15M in attrition costs. The cost is the cost of the program or $6M.

So to calculate the ROI…

Savings of $15M in attrition – Cost of the employee development program of $6M /Cost of the employee development program x 100

So the calculation looks like this:

$15M – $6M / $6M x 100  = 150 % ROI

The Defining Moment

So after pulling my self together and confident with my calculations, I asked for 5 minutes on the agenda. Of course, they were reluctant to give me any time. I got 2 minutes. So I went in with one slide. The slide with the ROI calculation. I said, “We are spending $30M in attrition and if we pay attention to why people are leaving and create a better culture so people feel that they matter, they are learning and growing and feel apart of something bigger than themselves, we can reduce that attrition. So let me walk you through the calculation….” And I did.

To my surprise, instead of sighs of ridiculousness and grumpiness, there was silence. I had hit upon something that no one had thought about. The cost of attrition. While is at first seemed like a “soft” cost, when it was laid out for them in black and white… even if I was off by 50% – we were still wasting the companies money on having people leave because we weren’t paying attention to what was important to them to feel loyal. Why go through all the time and expense to recruit these amazing people, only to push them away and have them go to our competitors, making our competitors smarter and stronger?

How Does This Story End?

Actually very well. I was given the money to develop the employee development program. I was very surprised to get so many emails and people stopping me in the hallways to tell me how much they appreciated what I had done. I didn’t do it for the accolades. I did it because I truly wanted to create an amazing place to work.

The lesson learned? If there is value to something, even if it feels like it is initially a “soft” cost, there is a way to express it in hard dollars in a way that executives can see change is needed. And this was my first experience in organizational change management!

@drnatalie

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