3 alternatives to ROI in HR – Part 2

11/10/2012 at 15:52 2 comments

Alternatives to ROI in HR

In this series , I look at alternatives to ROI in HR. I was asked to come up with alternatives since ROI is sometimes met with some resistance. In my last post, I argued that CROCI is an excellent alternative to ROI if you are looking for an even better financial ratio. It is better because it also focuses on cash and balance sheet items.

But perhaps it is worth asking the question: Is ROI in HR worth the ROI? You often need a tremendous amount of time and resources when measuring intangible activities like human behavior. And frankly is this measuring process worth it? If you calculate how much time goes into the whole process, it is likely you will have lost any savings the project generated.

In my view, the answer is that ‘yes’, sometimes it is worth doing a ROI on a project but for many (most) project it is not. For a talent management project you should always do a ROI, but for 10 leaders doing a leadership workshop it is probably not worth it.

So you need an evaluation system, which on one hand is simple and easy to use but also give you valuable information on which you can base decisions.  An alternative to ROI is then perhaps not a financial ratio but perhaps something else. Something very basic.

So my second alternative to HR is flow & friction.

I was inspired by the Harvard Business Review article written by J. Craig Mundy called, “Why HR Still Isn’t a Strategic Partner“. It is a great article in many ways, but in this article he writes about flow and friction: ” Of every action you take as an HR leader, ask this simple question: does it cause friction in the business or does it create flow? Friction is anything that makes it more difficult for people in critical roles to win with the customer. Flow, on the other hand, is doing everything possible to remove barriers and promote better performance”. Excellent stuff.

When you are faced with an investment decision you should use friction as the primary evaluation criteria. For example; should you upgrade your appraisal processes, should the IT department go on a course to upgrade their SAP competencies or should you send your middle mangers on a coaching program? Your choice of program should be the one which creates most flow or removes most friction.

Entry filed under: Human Capital ROI. Tags: , , , , .

3 alternatives to ROI in HR – Part 1 3 alternatives to ROI in HR – Part 3

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