Most human-resources leaders know by now that CFOs want hard data showing the payoff from talent development and other HR-related investments. But too often, in their zeal to quantify ROI, both HR and finance leaders search for dramatic payoffs and overlook the power of aggregating lots of small but tangible improvements.
A friend who is a close observer of CFOs recently told me that many of them lack an affinity for HR because they perceive it as dealing with a lot of “soft” things. They’re comfortable with people-related matters that have visibility in accounting systems, like compensation, health-insurance premiums and retirement-plan contributions. But they tend to be skeptical and less willing to invest in comparatively intangible things like employee engagement, wellness and mindfulness, my friend said.
That could lead to big mistakes, if such “soft” stuff really matters.
If CFOs want to be more systematic in evaluating the softer side of HR, how would they go about it? As it turns out, big data may be up to the task. The Economist recently described how it’s now cost effective to mine massive data sets to build a mountain out of pebbles, by identifying “the right combination of tweaks capable of bringing about marginal changes that, when multiplied by a huge number of instances, or allowed to work over a long time, produce a significant effect.”
Google and Amazon, for example, build value by watching millions of transactions to identify small tweaks they can make on their web pages that each slightly improves the chances of a visitor clicking a link. Similarly, UPS analyzes millions of data points from navigation devices in 60,000 vehicles to make small changes in routes that, taken together, save tens of millions of dollars in fuel costs per year.
Those aren’t the big-ticket investments, mergers or capital improvements that are often the focus of financial and strategic analysis. Building that mountain of pebbles requires smaller but consistent expenditures on data-gathering and analysis that point to small, value-creating improvements that no one could have foreseen. This may seem pretty “soft,” but the key point is that there is great power in such aggregation.
What does this have to do with the aforementioned soft things like engagement, wellness and mindfulness?
In an earlier column, I noted that programs to increase employee mindfulness and wellness are often evaluated by their impact on financial outcomes, like employers’ costs for accidents, injuries and illness. Yet compelling research on such programs suggests their largest effect may be below the surface, in the millions of ways that healthier and more-mindful employees do their daily work better.
The same holds for employee engagement. Research shows that good things happen when employees report they are more satisfied and engaged. One such analysis of thousands of workplaces shows consistently positive correlations between what employees say on surveys about their engagement at work and outcomes such as customer satisfaction, productivity, profit, employee turnover and accidents. The employee survey that was the subject of this research contains items as diverse as “Do you know what is expected of you at work?” to “Does your supervisor care about you as a person?” and “Do you have a best friend at work?”
Answers to such questions may seem “soft” compared to the numbers generated by web clicks and truck-navigation devices. Yet the same principle applies. The small stuff adds up.
Think about the employees that work for you in your finance department. I doubt you would say you don’t want them to be engaged and mindful, or that they can’t produce value beyond what your financial system can measure. The only question is, are you willing to invest real money to get that?
John Boudreau is professor and research director at the University of Southern California’s Marshall School of Business and Center for Effective Organizations, and author of Retooling HR: Using Proven Business Tools to Make Better Decisions About Talent.