Show Me the Money Jack J. Phillips, Ph.D.. AgendaAgenda Explore implementation of a balanced set of...

Show Me the Show Me the MoneyMoney

Jack J. Phillips, Ph.D.Jack J. Phillips, Ph.D.

AgendaAgendaAgendaAgenda

Explore implementation of a balanced set of human capital measures

Examine the various ways to place value on human capital

Identify five strategies for determining the human capital investment level

Describe a comprehensive process to measure ROI

Identify key issues surrounding ROI utilization

Human Capital PerspectivesHuman Capital PerspectivesHuman Capital PerspectivesHuman Capital Perspectives

Traditional ViewTraditional View Emerging ViewEmerging View

Expenses are considered Expenses are considered costscosts

Expenditures are viewed Expenditures are viewed as a source of valueas a source of value

Function is perceived as a Function is perceived as a support staffsupport staff

Functions is perceived as Functions is perceived as a strategic partnera strategic partner

Involved in setting HR Involved in setting HR budgetbudget

Top executives involved in Top executives involved in budgetbudget

Metrics focus on cost and Metrics focus on cost and activitiesactivities

Metrics focus on resultsMetrics focus on results

Metrics created and Metrics created and maintained by HR alonemaintained by HR alone

Top executives involved in Top executives involved in metrics design and usemetrics design and use

. . . and

Human Capital PerspectivesHuman Capital PerspectivesHuman Capital PerspectivesHuman Capital Perspectives

Traditional ViewTraditional View Emerging ViewEmerging View

Little effort to understand Little effort to understand the ROI in HCthe ROI in HC

ROI has become an ROI has become an important toolimportant tool

Measurement focuses on Measurement focuses on the data at handthe data at hand

Measurement focuses on Measurement focuses on the data neededthe data needed

Measurement is based on Measurement is based on what others measurewhat others measure

Measurement is based on Measurement is based on organization needsorganization needs

Programs initiated without Programs initiated without a business needa business need

Programs linked to Programs linked to specific business needsspecific business needs

Reporting is input-focusedReporting is input-focused Reporting is output-Reporting is output-focusedfocused

Increased Interest in the Value of Increased Interest in the Value of Human CapitalHuman Capital

Increased Interest in the Value of Increased Interest in the Value of Human CapitalHuman Capital

DRIVERS: The increasing cost of human capital Consequences of improper or ineffective HR

practices Linkage of human capital to strategic

initiatives Increased accountability of all functions Top executive requirement for HR

contribution, and human capital ROI

ProfitabilityPROGRAM

IMPACT

Strategic

AccountabilityEvaluation

BOTTOM LINE CONTRIBUTION

Effectiveness

Vital S

igns

Benefits vs Costs

ECONOM

IC

VALUE ADDED

PERFORMANCE STANDARDS

Shareholder Value

Balanced Scorecard

Value BasedROI

Three JourneysThree JourneysThree JourneysThree Journeys

1.1. The need to change the HR The need to change the HR measurement mixmeasurement mix

2.2. Setting the investment level for Setting the investment level for human capitalhuman capital

3.3. Valuing human capitalValuing human capital

HR Accountability HR Accountability ProgressProgressHR Accountability HR Accountability ProgressProgress

Leading Edge

Approach

es

Solid V

alue-

Added

Approach

es

Early

Approach

es

ROI Methodology

HR Macro Studies

Human Capital Measurement

HR Profit Center

Competitive HR Benchmarking

HR Satisfaction Surveys

HR Cost Monitoring

HR Key Indicators

HR Auditing

HR Case Studies

Feedback Surveys

MBO in Personnel

HR

Acc

ount

abili

ty

1960’s 1970’s 1980’s 1990’s 2000

Balanced Scorecard

Leading Edge Approaches to Leading Edge Approaches to Measuring the HR ContributionMeasuring the HR ContributionLeading Edge Approaches to Leading Edge Approaches to

Measuring the HR ContributionMeasuring the HR Contribution

Balanced ScorecardBalanced Scorecard

HR Profit CenterHR Profit Center

Human Capital MeasuresHuman Capital Measures

HR Macro StudiesHR Macro Studies

ROI ProcessROI ProcessMost promise as an immediate tool

Measurement CategoriesMeasurement CategoriesMeasurement CategoriesMeasurement Categories

Attitudinal Data

Comparative Data

Human Capital Measures

Benefit/Cost Analysis (ROI)

Select an approach in each of these categories

Setting the Investment LevelSetting the Investment LevelSetting the Investment LevelSetting the Investment Level

Let Others Do

It!1

Motivating Forces

• Cost control

• Lack of infrastructure

• Instability

• Access to expertise

• Short-term focus

• Survival

Approaches

1. Hire fully competent employees

2. Use contract employees

3. Outsource major functions


Invest the Minimum!2

Motivating Forces

• Low cost industry

• High labor use

• Strong competition

• Employees are dispensable

Approaches

1. Pay minimum wages

2. Provide few benefits

3. Keep training simple

4. Expect turnover and address it


Invest with the

Rest!3

Motivating Forces

• Desire to have best practices

• Benchmarking is acceptable

• Benchmarking is used in all parts of organization

• Benchmarking can be low cost

• Benchmarking is low risk

Approaches

1. Locate existing reports

2. Participate in existing projects

3. Create a custom project

4. Search the literature


Invest Until it Hurts!4

Motivating Forces

• Fad chasing

• Happy employee dilemma

• Quick fixes

• Retention concerns

• Competitive strategy

• Union demands

• We can afford it!

Approaches

1. Pay above-market wages

2. Provide above-market employee benefits

3. Implement most new fads/ programs

4. Provide all types of employee services


Invest as Long as

There is a Payoff!5

Motivating Forces

• Need to show HR contribution

• Increasing cost of human capital

• Secure funding

• Business partner

• Improve processes

Approaches

1. Measure success of each HR program

2. Collect up to six types of data

3. Use ROI routinely

4. Involve stakeholders

5. Use the data

Valuing Human Capital:Valuing Human Capital:Three ApproachesThree Approaches

Valuing Human Capital:Valuing Human Capital:Three ApproachesThree Approaches

1.1. What we know from Logic and IntuitionWhat we know from Logic and Intuition

2.2. What we know from Macro Level What we know from Macro Level ResearchResearch

3.3. What we know from ROI AnalysisWhat we know from ROI Analysis

1. Logic and Intuition1. Logic and Intuition1. Logic and Intuition1. Logic and Intuition

Automation has limitationsAutomation has limitations

People People areare necessary necessary

Stock market mysteryStock market mystery

Accounting dilemmaAccounting dilemma

Last source of competitive advantageLast source of competitive advantage

Superstar PhenomenaSuperstar Phenomena

2. Macro Level Research2. Macro Level Research2. Macro Level Research2. Macro Level Research

HR Effectiveness IndexHR Effectiveness Index

Gallup StudiesGallup Studies

The Service Profit ChainThe Service Profit Chain

Watson-Wyatt StudiesWatson-Wyatt Studies

Deloitte & Touche StudiesDeloitte & Touche Studies

. . . . and many others. . . . and many others

3. ROI Analysis3. ROI Analysis3. ROI Analysis3. ROI Analysis

Micro Analysis ToolMicro Analysis Tool 3-5,000 studies per year3-5,000 studies per year 41 Countries / 25 Languages41 Countries / 25 Languages Variety of ApplicationsVariety of Applications ROI Certification (2,500)ROI Certification (2,500) ROI NetworksROI Networks ROI StandardsROI Standards ROI Best PracticesROI Best Practices

The ROI ProcessThe ROI ProcessThe ROI ProcessThe ROI Process…Generates six types of data:

1. Reaction to an HC project or program

2. Learning skills/knowledge

3. Application/Implementation progress

4. Business impact related to the project or program

5. Return on Investment

6. Intangible Benefits

…..and includes a technique to isolate the effects of the program

ROI DilemmaROI DilemmaROI DilemmaROI Dilemma

70-80% of organizations want to use ROI

15-20% of organizations are

currently using ROI

Wish List

ROI

-----

-----

-----

-----

Use List

-----

-----

-----

-----

ROI

Why the gap?Why the gap?

HIGH

LOW

Why Use ROI?Why Use ROI?Why Use ROI?Why Use ROI?

ReactiveReactive Show contributions of selected HR Show contributions of selected HR

programsprograms Justify/defend budgetsJustify/defend budgets Identify inefficient programs that need to Identify inefficient programs that need to

be redesigned or eliminatedbe redesigned or eliminated

Why Use ROI?Why Use ROI?Why Use ROI?Why Use ROI?

ProactiveProactive Aligns HR to business needsAligns HR to business needs Earn respect of senior management/ Earn respect of senior management/

administratorsadministrators Improve support for HRImprove support for HR Enhance design and implementation Enhance design and implementation

processesprocesses Identify successful HR programsIdentify successful HR programs

ApplicationsApplicationsApplicationsApplications• Employee Relations

Programs• Career Development

Programs• Competency Systems• Diversity Programs• E-Learning• Executive Coaching• Executive Education• Gain Sharing Programs• Global Leadership

• Organization Development• Orientation Systems• Recruiting Strategies• Safety & Health Programs• Self-Directed Teams• Skill-Based/Knowledge-Based

Compensation• Technology Implementation• Total Quality Management• Wellness/Fitness Initiatives

Private Sector OrganizationsPrivate Sector OrganizationsPrivate Sector OrganizationsPrivate Sector Organizations

Government OrganizationsGovernment OrganizationsGovernment OrganizationsGovernment Organizations

US Department of Defense

US Department of Labor US Department of

Veteran Affairs US General

Accountability Office US Office of Personnel

Management NASA

European Patent Office Government of New

Zealand Singapore Italy Australia Canada England

Basic ElementsBasic ElementsBasic ElementsBasic Elements

An EvaluationFramework

Case Applicationsand Practice

A ProcessModel

Operating Standards and

Philosophy

Implementation

HC Evaluation LevelsHC Evaluation LevelsHC Evaluation LevelsHC Evaluation LevelsLevelLevel Measurement FocusMeasurement Focus

1.1. Reaction & Reaction & Planned ActionPlanned Action

Measures participant satisfaction with Measures participant satisfaction with the HC project and captures planned the HC project and captures planned actions, if appropriateactions, if appropriate

2.2. LearningLearning Measures changes in knowledge, Measures changes in knowledge, skills, and attitudes related to the HC skills, and attitudes related to the HC projectproject

3.3. ApplicationApplication Measures changes in on-the-job Measures changes in on-the-job behavior or actions as the HC project behavior or actions as the HC project is applied, implemented, or utilizedis applied, implemented, or utilized

4.4. Business ImpactBusiness Impact Measures changes in business impact Measures changes in business impact variablesvariables

5.5. Return on Return on Investment Investment

Compares project benefits to the costsCompares project benefits to the costs

The ROI The ROI ProcessProcessThe ROI The ROI ProcessProcess

Develop EvaluationPlans and

Baseline Data

Develop EvaluationPlans and

Baseline Data

EvaluationPlanning Data Collection

Collect Data During

SolutionImplementation

Collect Data During

SolutionImplementation

LEVEL 1: REACTION,SATISFACTION, ANDPLANNED ACTIONS

LEVEL 2:LEARNING

Collect DataAfter

Implementation

Collect DataAfter

Implementation

LEVEL 3: APPLICATION/IMPLEMENTATION

LEVEL 4:BUSINESS IMPACT

DevelopObjective of Solution(s)

DevelopObjective of Solution(s)

TabulateCosts ofSolution

TabulateCosts ofSolution

Isolate the Effects Isolate

the Effects

Convert Data To

MonetaryValue

Convert Data To

MonetaryValue

Calculate the Return

OnInvestment

Calculate the Return

OnInvestment

Generate Impact Study

Generate Impact Study

Data Analysis

Identify IntangibleMeasures

Identify IntangibleMeasures

LEVEL 5: ROI

Reporting

INTANGIBLE BENEFITS

Intangible BenefitsIntangible BenefitsIntangible BenefitsIntangible BenefitsComplaints

Confli

cts

Stress

Job Satisfaction

Commitment

Teamwork

Customer

Service

Engageme

nt

Cost-Saving Approaches Cost-Saving Approaches Cost-Saving Approaches Cost-Saving Approaches • Plan for evaluation early in the process

• Build evaluation into the training process

• Share the responsibilities for evaluation

• Require participants to conduct major steps

• Use short-cut methods for major steps

• Use sampling to select the most appropriate programs for ROI analysis

. . . and

• Use estimates in the collection and analysis of data

• Develop internal capability to implement the ROI process

• Utilize web-based software to reduce time

• Streamline the reporting process

Cost-Saving Approaches Cost-Saving Approaches Cost-Saving Approaches Cost-Saving Approaches

Evaluation ProfileEvaluation ProfileEvaluation ProfileEvaluation Profile

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Level Target

1

2

3

4

100%

75%

30%

20%

10%5

Criteria for Selecting Programs for Criteria for Selecting Programs for Levels 4 and 5 Evaluation Levels 4 and 5 Evaluation

Criteria for Selecting Programs for Criteria for Selecting Programs for Levels 4 and 5 Evaluation Levels 4 and 5 Evaluation

• Expected life cycle of the HC project

• The importance of the project to strategic objectives

• The cost of the project

• Visibility of the project

• The size of the target audience

• Extent of management interest

What Happens If We What Happens If We Maintain the Status Quo?Maintain the Status Quo?

What Happens If We What Happens If We Maintain the Status Quo?Maintain the Status Quo?

Budget?Budget?

Influence?Influence?

Support?Support?

Other Issues? Other Issues?

ROI RealityROI RealityROI RealityROI Reality

ROI is desired by clients/executivesROI is desired by clients/executives

The ROI methodology provides a balanced, The ROI methodology provides a balanced, credible approach with six types of datacredible approach with six types of data

All types of organizations are routinely using ROIAll types of organizations are routinely using ROI

The ROI methodology can be implemented The ROI methodology can be implemented without draining resourceswithout draining resources

The ROI methodology is a long-term goal for The ROI methodology is a long-term goal for many organizationsmany organizations

What Next?

Action Items to Implement a Action Items to Implement a Comprehensive ROI ProcessComprehensive ROI Process

Supplemental MaterialsSupplemental Materials

Additional Resources and InformationAdditional Resources and Information

Show Me the Money Jack J. Phillips, Ph.D.. AgendaAgenda Explore implementation of a balanced set of...

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