We met Jeff last week, he was quite happy on the new Super gadget, the new Smartphone he had purchased. He was able to extract maximum benefit from his new smartphone. According to Jeff – the phone has delivered best Return on Investment, as he was able to do his regular telephony, messaging, emailing and browsing. Along with regular tasks and functions aesthetic add-ons have created some value for him and he was quite sure that this phone will be good enough for him for next 3 years. For Jeff , new purchase was a worth investment. Happy Moment.
In an organization whenever any machinery or any physical asset is purchased ,deriving ROI is pretty simple and calculative. How about a new employee or a new team introduced in your organization, how to calculate ROI on the most crucial asset of your organization- Human? If we just see the productivity and profitability from the assigned task – then it will be myopic vision of ROI. We need to look at the broader picture while calculating the ROI on Human Capital. We thought of following Short term and Long term ROI measurement factors for organizational investment in Human capital.
1- Task Done in perfect Way – A Short term Factor.
It is clear and simple, you have recruited and selected candidates for certain Job. If the desired job is done in by the new candidate then your investment is partly correct. ROI on this new employee will be maximum only when the desired Job is completed in given timeline and with zero errors. For example – You have hired an Artist to create 12 online Ad banners which you need to deliver every week. If the Artist could make and deliver the said work in one week your ROI is partially correct, if all the banners are approved and processed by the client then your ROI is maximized.
2- Do they really become a Part of your organization.- A short term factor
Organizational Culture is one of the most important factor when it comes to productivity. One question you need to ask – Is the new team/employee has the same culture as of our organization or are they able to adapt to our culture? If at all you get the answer as Yes, then your ROI will be positive. Imagine a situation where an organization is known to help its customers in all possible ways, sometimes even goes a bit away from rigid service rules to serve a customer. An old customer has asked a day’s extension to pay back his bills because of some reason and a new service executive is firm on the rule book and will not make any compromise over it, will he be the perfect choice as SERVICE executive? Absolutely Not. ROI on your employee will strongly depend on – His/her congruence with your organizational culture.
3- Is your new employee keeping up the reputation of your organization.- A long term factor
This is absolutely a long term ROI factor. As for any Brand reputation is built over years the same way for any organization – reputation is built over the years and employees are the Amabasadors for this. Who works in your organization, what they do? How they are in social life? How their social and financial progress chart looks like ? these are few questions which decide create reputation or perception about your organization in outside world. Over the period of year – if answers to such questions are positive then your organizational reputation is bound be good. If it is opposite , then you need to analyse the recruitment, employee development and progress in last few years. If your organizational reputation has improved over a period , then be assured you are earning positive ROI on your Human capital.
4- Employee Turnover Ratio – A long term factor.
It’s a simple old formula to measure ROI on your Human capital. After lot of efforts and time you get the best of the employees for your organization, but are these employees staying with you for long time? The effort and cost you are investing in the process of recruitment and selection is worth? What is the frequency you need to carry out recruitment for the same position? Best position is when you your employees are staying with you and are highly productive. Your total investment of effort and cost in the process of recruitment and selection is minimized, eventually further processes such as induction, training, administration etc are minimized and your HR department can actually concentrate on real development of stable workforce. ROI is highest when your employee turnover is minimum and employee development is maximum.
In all the key of ROI measurement is Selection of perfect fit employee, congruence in culture , over all development of employees and minimum employee turnover ratio.