In recent years, we have seen HCM’s move to cloud, with more than 50% of HR solutions in organizations becoming Cloud based [1]. Sierra-Cedar’s HR Systems survey for 2016 forecasted that at least 43% of organizations will have a major HR systems strategy [1]. Making more data driven decisions, retaining top performers through the use of better talent management tools, and bringing a service delivery model to HR are some of the strategic manoeuvres differentiating top performing organizations from their peers.
If you are considering the adoption of a new HR enterprise strategy, then you expect to see a ROI for the HCM solution you choose. Through the implementation of a SaaS based HR system you can expect to see returns coming from many areas, including but not limited to:
Process Improvements, Efficiency & Compliance:
Payroll usually accounts for 20 to 60% of expenses in an organization, depending on the industry [2, 3]. Investing in an HRIS solution that best fits both your company’s strategy and profile can result in you lowering operating costs, improving compliance, creating better processes (which supports faster onboarding for new employees) and refining navigation procedures for existing employees (which, in turn, increases the productivity of the organization).
Organizations experience two-fold benefits from savings. Firstly, they will see a reduction in errors due to switch from manual handling. Secondly, they will observe an increase in revenue due eliminating this lost time and turning it into productive work.
Benefits of Creating an Engaging Workplace Environment:
One of the major HCM trends impacting organizations is the need for an engaging workplace with processes that help employees contribute to the overall success of the organization. Today, companies buy HR systems to help them effectively execute their talent strategies, improve employee engagement, as well as their ability to hire [4]. Timely performance reviews, and a proper feedback mechanism, helps both employees and managers alike. Employees will feel valued and managers will be able to plan for succession and enjoy higher employee retention.
Transformation
More than 80% of companies face reporting challenges [5]. One of the reasons for these challenges is inconsistent, dispersed, incomplete, incorrect and out of date HR data. This makes it difficult for organizations to get real insight into how their people and processes work. The benefit of using an integrated HR system like StarGarden is that organizations can get a “big picture” of the organization, with the ability to interoperate between systems. It then becomes easier for the organization to increase productivity and collaboration while still getting the analytics to make data driven decisions to help them grow.
Areas of cost savings upon implementing an integrated HR system
If you are in the process of calculating the ROI of a HR system then factor in following areas where you will see savings that should be considered in your ROI calculation.
Fewer Clerical Errors
Every pay cycle, your payroll department is plagued with requests for clarifications such as missed hours in a pay period or over time hours that an employee must be paid. This causes additional work for your HR department and requires a system that can handle the verification of the hours worked while syncing back to your financial systems.
Research shows that use of an SaaS based HR System can result in savings equivalent of 1% of the payroll run in your organization [6]. These savings are due to the elimination of errors and the accurate accounting of hours worked by employees.
Savings from Automating HR
Employees spend a lot of time trying to get information from the HR department regarding benefits packages, time-off for vacation planning, making updates to their profiles and other time-consuming inquiries. Often this involves emailing the HR professionals and following up to ensure changes have been made to their files.
Automating HR allows people to get information without contacting the HR department and Self Service capabilities allow them to use time otherwise required for communicating with HR to benefit their organization. Research reveals cost savings of $9 per employee per month by allowing them to do most of their updates online [6].
Time Saved in Performance Reviews
In a medium sized organization, there are at least three individuals involved in the performance review process; the direct manager, the employee under review, and an HR professional for processing the changes. Some organizations still use paper based systems to complete performance reviews and HR must compile these reports. This added layer increases the amount of time spent per review. Using an HR management system for performance evaluation allows savings of at least 20% of time spent by each of the people involved [6].
Employee Retention Savings
Using a talent management system for performance reviews allows companies to create consistent criteria for evaluating an employee’s contributions towards the success of the business. It creates a fairness aspect to the process, while also allowing managers to gauge the potential of high performers for better succession planning. A good succession planning process gives the opportunity to each of your employees to become a top performer with the potential to create 3X to 10X the revenue generated by an average employee [6, 7]. Having a fair performance management system allows employees to feel valued and reduces turnover.
Transformational Savings
HR transformation comes from addressing the most important challenges that an organization will face. By using HR operations for their ability to contribute to corporate strategy and create business value, you can address these challenges and face them head on [8]. The focus of HR has been gradually changed to encompass the broader role it plays in organizations. Historically, HR used to just be transactional, but it has now developed into a true partner through actively becoming more data oriented. HR, through using this data, can now effectively manage talent, perform change management, develop leaders and excel in strategic workforce planning.
The new role HR is expected to play in organizations is better served through an integrated HRMS solution.
Research shows that organizations with integrated talent management systems earn 40% higher revenue per employee than organizations that don’t integrate their systems [6].
How to calculate the ROI of the HR System Implementation
Once you have an estimate of the savings gained through the acquiring an HR system use the formula
to calculate the ROI percentage. You may see cost for year 1 higher than succeeding years, so be sure to create a spreadsheet for expenses on a yearly basis. Typically creating a model for 2 or 5 years will be the best approach. If you create a spreadsheet, see when cumulative savings are greater than cumulative cost on a year on year basis. This should give you an idea of the pay back period.
To know what to include in the costs of HR implementation check out our article on What to consider in your HCM budget
If you are seeking a customized report for your organization, check out our ROI Calculator that will give you an estimate of potential ROI and payback period for an Integrated HR system like StarGarden.
References
- http://www.sierra-cedar.com/wp-content/uploads/sites/12/2015/10/Sierra-Cedar_2015-2016_HRSystemsSurveyWhitePaper.pdf
- http://smallbusiness.chron.com/percentage-business-overhead-should-payroll-66492.html
- http://smallbusiness.chron.com/much-gross-revenue-should-payroll-18985.html
- http://www.sierra-cedar.com/wp-content/uploads/sites/12/2015/08/Sierra-Cedar_Global_HCM_Best_Practices-2015.pdf
- https://www.linkedin.com/pulse/people-analytics-takes-off-ten-things-weve-learned-josh-bersin
- http://www.successfactors.com/en_us/lp/lightpaper.html?FormResultID=073b6bbc-d116-4503-9364-4b13295e6937#sap-wp-section-1
- http://www.forbes.com/sites/joshbersin/2014/02/19/the-myth-of-the-bell-curve-look-for-the-hyper-performers/
- http://www.slideshare.net/robscottinsyd/10-things-hr-transformation